The Ghosts of Commentary Future

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“Are these the shadows of the things that Will be, or are they shadows of things that May be, only?”

A Christmas Carol, by Charles Dickens (1843)

With Thanksgiving in the books, we are approaching a special time of year. No, not Christmas. Not Hanukkah. Not even the season when some dumpster fire of a team from the NFC East manages to limp into the playoffs with a 5-11 record.

It’s outlook season.

Now, we are critical of financial market commentary most of the time, for the rather uncontroversial reason that it is nearly always composed of an equal blend of five loathsome traits: backward-looking, narrative-conforming, book-talking, non-actionable and (most damning of all) boring. But in outlook season, financial news outlets, financial social media, and both buy-side and sell-side institutions take each of those traits and dial them up to an eleven. And it’s always for the same three types of pieces.

Like I said, boring.

These are The Ghosts of Commentary Future, if you will. And if their chains are not already clanking around in your inbox, they will be very, very soon.

You will first be visited by the Ghost of a Good Environment For Active Management. Actually, I feel rather confident this specter is among those that has already darkened your doorstep. This is the obligatory end-of-year piece in which the fund manager, financial media outlet or bank offers you all sorts of reasons why you should believe in (read: why you should pay for) stock-picking over the coming months.

These pieces are very painful to read. And because small cap and volatile stocks have outperformed recently (and because those are, by a hilarious margin, the largest drivers of relative performance for the bulk of AUM invested in 100% net exposure active portfolios), these pieces in 2020 will be especially painful. If you’re an FA or institutional allocator that uses third-party managers, starting December 1st you will start to receive a stream of, “Well, we told you that this [unprecedented volatility / unprecedented stimulus / unprecedented pandemic] would create volatility and clear winners. After outperforming the S&P 500 by [X%] in November, we’re happy to say we were winners. We think this target-rich environment for active management is here to stay.” letters.

Gird yourself.

From Basically A Snake Don’t Have Parts (2018):

[C]onsider that any reason given in defense of the vaunted better environment for active management will inevitably take the form of one of these three ideas: (1) There will be more volatility in markets and dispersion among stocks, (2) forces causing markets to rise and fall in unison (e.g. central banks) will relax or (3) information disperses more slowly in this market, creating inefficiencies to exploit…

Fortunately, all this nonsense is easy pickins’ for the critic, who observes dryly that even if these above three states were to exist, alpha would remain a zero sum game, and that increased dispersion would simply cause the transmission mechanism between active share and active risk to rise. In other words, none of this changes whether active management will work better or worse on average, it just widens the gap between the winners and losers.

That’s obvious enough, I think? Except this idea, too, is right in all the ways that don’t matter and wrong in all the ways that do.  

Yes, yes, the market is zero sum and all that. But after she interviews a hundred fund managers, and only finds one or two that are actually overweight Apple or Microsoft, any realistic assessor of a public markets asset class will quickly come to the conclusion that the universes of active managers we most often refer to are not a reflection of the market capitalization weighted definition of that asset class. If you added up every position held by every US Large Cap mutual fund and separately managed account in the world, the portfolio you ended up with would look very different from the S&P 500.

Why? Because there are huge pools of unbenchmarked assets which would be included in a formal or academic definition of “active management”, but which exist outside of any practical definition of the universes that any asset allocator would encounter, like the actual funds, commingled funds, SMA pools and hedge funds that they can actually invest in.

These other pools are snake-and-a-squirrel portfolios, and they exist everywhere. These are not people or institutions sitting around matching what they own with a “US Mid Cap Growth” mandate. They are the holdings of wealthy individuals and restricted stock-compensated executives. They are the custom unbenchmarked (or poorly benchmarked) multi-asset income portfolios built by consultants and FAs. They are the one-off holdings of corporations, partnerships, banks and other institutions. They are the holdings of foreign investors who want to hold US stocks, but for whom that means buying the well-known megacap multinationals. And no matter how much we want Kathy Bates to tell us a comfortable story about how they’d fit into our style boxes and asset classes, they won’t. That’s why alpha is absolutely a zero-sum game in academic space, but is absolutely not a zero-sum game in any practical definition of our industry-related constructs of investable asset classes and products. What we invest in isn’t a set of strategies choosing to underweight or overweight the stocks in the S&P 500, but a set of strategies that invest in what’s left over after mama has served up a few hundred billion dollars worth of snake and a squirrel. 

The reality, then, is that there absolutely are good and bad environments for outperformance of the average fund in different asset classes, but they have nothing to do with pedantic zero-sum game arguments OR security-level dispersion. If you want heuristics for what an “active management environment” looks like, it’s this.

Your actively managed portfolio will usually be underweight the defining traits of the index you have selected. It will be less fully invested (i.e. it will hold more cash). It will usually hold less of the market cap range in question (i.e. large cap will underweight large cap, small cap will underweight small cap). It will usually hold less of the largest country weight. It will usually hold less of the largest sector weight. It will usually have a less pronounced bet on any factor (e.g. value) used to define your index.

Your actively managed portfolio will usually be overweight volatility – not in the “long vol” sense we use to talk about benefiting from market volatility, but in the sense that your portfolios will tend to own more volatile stocks than your index. This is usually because most stock-pickers seek out stocks with more idiosyncratic risk, which (surprise) happens to be positively correlated with outright stock price volatility.

Basically a Snake Don’t Have Parts (Epsilon Theory, December 2018)

The second visit will be from the Ghost of Annual Predictions That Nobody Uses and Everybody Demands. This is mostly a sell-side thing, sometimes a buy-side thing, and filler content for traditional financial media when they don’t have a CEO booked to pump up the stock price before a scheduled sale event.

From The Prediction Polka (2018):

As you start to read these pieces, however, I want you to bear something in mind: nobody uses them.

Nobody.

Those recession probabilities from an economist at a sell-side shop or standalone research house – something one of Ben’s and my new favorite bloggers brought up today – is anyone dropping those assumptions into asset allocation models? The predictions on year-end S&P 500 and 10-year levels? Odds on this outcome or that from the China trade war negotiations? Who is making adjustments to model portfolios or strategic asset allocation plans for new clients going into 2019 based on all these brilliant research pieces?

OK, sure, maybe there is a financial adviser or two out there who really is adjusting his positions because this research house or that thinks that this is where levels are going to be at year end. But that’s not what these are for. That’s not what these are really about. At every level, the Prediction Polka is a sales tool and nothing else.

The best way to understand this very odd thing that we do is (as so many things are) through the immortal genius of Trey Parker and Matt Stone. In an episode called Cash for Gold, the South Park boys walk viewers through a fanciful version of the low-end gold jewelry purchase-gift-and-exchange-for-cash cycle. It is a process, much like the market prediction racket, in which no one actually wants the product, but in which everyone needs to sell the product. The video, which is obviously offensive in three or four different ways – it’s South Park, y’all – is must watch, even if it does require you to install Flash like some kind of 20th Century barbarian.

The Prediction Polka (Epsilon Theory, December 2018)

The third visit will come from the Ghost of Alignment. Its visit is occasioned by the necessity of end-of-year reviews between financial advisers and their clients, and the inevitable frustration felt by advisers after being asked, “What do I pay for you to do” and grousing about the nature of fees. It manifests in all sorts of ways, not least in one adviser or other thinking they’ve found the silver bullet which shall forever fix “alignment” in our industry. Alas, it is not to be. This ghost is usually experienced somewhere on the spectrum between “company blog over the Christmas break” and “guest submission to a trade publication,” so it is somewhat easier to avoid.

From By Our Own Petard:

The inevitable final form of the professional allocator or adviser is not so much the nihilist as the practitioner of serendipity. They recognize that randomness reigns and control what they can control. In a perfect world, they control what they can control by leaning on lasting, demonstrable, biologically determined human behavioral traits to try to guide someone they think is talented and process-oriented to results that will benefit both principal and agent alike. It is a stoic, right-sounding, eminently reasonable, perfectly justifiable framework. There’s just one problem. A tiny, insignificant problem that I almost hesitate to mention:

We will never – can never – be aligned with our agents.

As citizens, shareholders and investors, we worry with good reason that the agents working on our behalf – our political representatives, corporate management teams and the investment consultants, advisers and managers we rely on, respectively – actually will work on our behalf. Preferably for a reason that goes somewhat beyond ‘not going to jail’ or ‘because they seem like someone you could have a beer with.’ We want them to feel like they have skin in the game. Like we both win if either of us wins.

When we, as a principal, select an agent, we have every reason to shout “Yay, alignment!” from the rafters.

And because we have every reason to shout “Yay, alignment!”, our agents have every reason to sell us compensation structures which permit them to extract undeserved economic rents by demonstrating the superficial trappings of alignment. This job is made a hell of a lot easier by the fact that we investment professionals – nominally principals in the relationship – are often ourselves agents of some other party. We are using delegated authority to act on behalf of a client, a family, an institution, a board. People to whom we need to demonstrate alignment.

Necessity being the mother of invention and all, our need for a story that will make us or our own charges shout “Yay, alignment!” makes us vulnerable to structures and features from our agents which don’t deliver anything of the sort – but seem to.

Hoisted by our own petard, as it were.

By Our Own Petard (Epsilon Theory, November 2019)

The observation that the information swirling about us isn’t necessarily connected to antiquated notions like “facts” or “reality” is typically one we’d call irrelevant. If it affects the marginal mover in a market, it matters, even if we think it shouldn’t. That’s the power of narrative.

That said, if there is something to be thankful for this season, it is that these ghosts are a rare exception to that rule. By and large, there is no relevant narrative in any of these because there is no informational content in them. They are not designed to change anyone’s mind about anything, and everybody knows that they are not designed to change anyone’s mind about anything. These are the end-of-year rites, Forms Which Must Be Observed.

So if your predisposition is to roll over, go back to sleep and ignore them all, consider this our permission to go right ahead.


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Ten Times Faster Than The Sun’s Beams

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Love’s heralds should be thoughts,
Which ten times faster glide than the sun’s beams,
Driving back shadows over louring hills:
Therefore do nimble-pinion’d doves draw love,
And therefore hath the wind-swift Cupid wings.

Romeo and Juliet, Act 2 Scene 5

That’s how Shakespeare described the speed of thought – ten times faster than the speed of light.

He was talking about thoughts of love, of course.

Thoughts of a stock market rally move even faster than that.



The word selection here in this Wall Street Journal headline is a masterclass in narrative creation.

“Heralds”

“ascent”

“signals”

“more”

“beginning”

“participate”

“new”

“offering hope”

“long waited”

“rally”

“widen”

Even the obligatory counter-bullet beneath the headline is conditioned as merely a “pause”.

None of these words are accidental. They are all intentionally chosen to promote the idea of stock market rally that YOU need to participate in.

They are all intentionally chosen to appeal with particular urgency to the largest single demographic of Wall Street Journal readers – the value investor.

And it’s not just the Daily Diary of the American Dream ™. Here are today’s market headlines as compiled by RealClearMarkets.com on the left, and RCM’s complete list of today’s relevant “Entrepreneurs & The Economy” articles on the right.

I love that top market headline – “We Have Data To Prove That Best Is Yet To Come” – by ((checks notes)) Arthur Laffer. Yes, Art Laffer. On November 25 in the year 2020, Art freakin’ Laffer is the leading market voice of the day.

All of these article headlines have a market-positive theme and word selection, although my personal fave is “Janet Yellen Could Turn Out to Be a Great Treasury Sec’y”. Sure. Why not?

And as for ALL the articles you really need to read today on Entrepreneurs & The Economy … well, let’s just say that Ken Fisher’s “editorial staff” is …

No. You know what? I just can’t do it. I can’t make some sort of jolly joke about this. Four out of four articles placed by the marketing machine of Ken Fisher as a supposed “news aggregation” is just sheer mendacity. Stop it.

But that’s the point.

ALL of this is marketing. ALL of this is advertising. Whether it’s as obvious as the placement of Ken Fisher “editorial content” or as non-obvious as a WSJ headline … it’s ALL advertising.

This is the business model of the entire Wall Street ecosystem.

Will it work? Of course it will work. Advertising works! I’m not saying that this “Buy Cyclicals!” and “Buy Value! At Long Last! Buy Value! And Small Caps, Too, While You’re At It!” rally isn’t real. I’m not saying that it doesn’t exist or that it won’t continue. On the contrary, in fact.

I’m saying that you should reconsider what “real” means.


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AMA? BITFD!

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Epsilon Theory PDF Download (paid subscribers only): AMA? BITFD!



If you’re a medical doctor, you probably received an email like this in recent days from the American Medical Association, a tax-exempt not-for-profit corporation organized under section 501(c)(6) of the US tax code:

Subject: Dr. XYZ, don’t wait to get the PPE you need from the AMA

Dear Dr. XYZ,

Since the start of the pandemic, physicians across the country have gone above and beyond to keep patients safe. Yet after eight months, many are still unable to get enough PPE for their practices. We’ve urged the federal government to act, and now, we’re stepping in.

The American Medical Association is collaborating with Project N95, a not-for-profit organization, to reserve quality-certified PPE for AMA members to purchase with no minimum.

If you’re interested in ordering PPE, go here to learn more and view the available equipment, and then activate your AMA membership to get started. The deadline to place an order is 3 p.m. Central time on Monday, Nov. 23.

This PPE shortage has placed physicians in jeopardy for far too long. I hope this collaboration with Project N95 provides some immediate support as we continue to advocate for a long-term resolution.

Activate your AMA membership


Silly me. Did I say that if you were a medical doctor you would probably have received this email? What I meant to say is that if you were a medical doctor who is not currently a member of the AMA, or if your membership has lapsed … THEN you would probably have received this particular email. It’s tailored just for you.

That will be $420 for your annual membership.

And once you pay that – and no, you can’t see our great PPE bargains until you do, in fact, pay that – well, NOW take a look at these great PPE bargains.

Are they a bargain? I dunno. Honestly I have some significant qualms about the PPE pricing through this channel. But I’ll say this – I don’t think any of the parties involved in this effort (other than the manufacturers) are trying to profit in the technical sense of the word from some margin or mark-up on the PPE items themselves.

But the AMA is absolutely trying to profit here.

The AMA is absolutely NOT doing what it should be doing – giving away or heavily subsidizing PPE to ALL healthcare professionals.

What is this email and offer of PPE “support” to doctors all about?

It’s a freakin’ membership drive for the AMA.

But hey, maybe I’m too quick to judge the AMA here and how they are “stepping in to help”. Maybe they’re kinda new to the licensing and product sales world. Maybe they’re spending every dime on educational programs and grants to improve the medical profession and the delivery of healthcare to all Americans. Maybe they don’t have the resources to purchase and distribute PPE for their members – much less ANY healthcare worker – in urgent need of said PPE.

I mean, sure, the organization that Rusty and I helped start – Frontline Heroes – has been able to distribute 170,000 medical respirators to more than 1,400 clinics and hospitals across the United States at absolutely no charge to the recipients, funded by the awe-inspiring generosity of hundreds of donors who know exactly what “stepping in to help” truly means. Sure, every penny we raised has gone exclusively to the purchase and distribution of that PPE, with no one taking any compensation ever. Sure, we’ve done all that with a handful of incredible human beings and working out of my garage. But it is, admittedly, a nice garage. Maybe the AMA doesn’t have the wherewithal to find a couple of volunteers and a nice garage. Maybe they’re stretched terribly thin in “these unprecedented times”.

So I decided to look up the AMA’s tax filings.

All of the information I’m about to share is on the AMA’s public IRS filings (EIN: 36-0727175). I’ve stored and made available for download their most recent filing here: AMA 2018 Form 990.

In 2018, the American Medical Association had total revenues of $332 million. That’s not a typo or an extra zero or two in there. That’s three hundred and thirty two million American dollars in revenue. In one year.

I figured membership dues would be the biggest revenue line item, but no, not even close. Membership dues from all you doctors comes to just over 10% of revenues – $36.8 million. The AMA got almost as much in revenue from direct sales of merch – $29.7 million – and with a COGS of $5 million you really gotta admire their margins. Subscription revenues of $39.7 million were a bit higher than membership dues, but still not the biggest revenue item. Nor was the advertising revenue of $15.7 million, nor the dividend income of $12.4 million on an investment portfolio of publicly traded securities valued at $643 million, nor the profit on securities sold of $14.0 million, nor the “credentialing” revenue of $14.0 million, nor the “reprints and permissions” revenue of $7.4 million, nor all the other odds and ends categories.

No, by far the primary annual revenue engine for the AMA is … royalties.

In 2018, the American Medical Association made $158.6 million in 100% gross margin revenues by licensing its name and logo and membership lists to everyone from its own insurance brokerage subsidiary – the AMA Insurance Agency – to every pharma co or medical device co or whatever co that was willing to pay for that stamp of approval and halo of authority.

That’s how the AMA makes its money. Not so much by selling TO you – the doctors of America – with membership dues and overpriced PPE and merch, but by selling YOU – the doctors of America – to anyone who wants to buy your name and your reputation.

Okay, okay, but I’m sure it’s all for a good cause! Tell me about all the outreach programs and charitable grants that the AMA administers, Ben!

Yeah, well, about that …

In 2018, the AMA made $4.9 million in grants to 82 separate 501(c)(3) organizations. Almost all were quite small and for specific programs, except for a $1.8 million grant for “general support” to the PCPI Foundation, a Chicago-based medical consortium that is very closely linked to the – golly, can this be right – Chicago-based AMA. So really it was $3.1 million to 81 recipients, and yes, you can do that math as easily as I can: in 2018, the AMA handed out less than 1% of its revenues in grants and awards to independent medical charities and research programs.

The AMA spent more money on office equipment ($3.9 million) than on grants and awards. The AMA spent as much money on market research and telemarketing sales ($3.0 million) than on grants and awards. The AMA spent twice as much on advertising and promotion ($6.1 million) than on grants and awards. The AMA spent more than twice as much on membership solicitation ($7.8 million) than on grants and awards.

Of course you see where this is going.

In 2018, the American Medical Association spent $168.7 million on employee salaries and benefits.

The AMA had twenty-four Trustees in 2018, each paid an annual stipend ranging from $70,000 to $290,000. Four former Trustees, who had no apparent ongoing connection with the AMA, still collected $10,000 to $25,000 that year.

The AMA has five Senior Vice Presidents paid between $880,000 and $1,050,000 in 2018.

The AMA has a Chief Strategy Officer who was paid $1,130,000 in 2018.

The AMA has a Chief Operating Officer who was paid $1,350,000 in 2018.

The AMA has a Chief Financial Officer who was paid … huh? … only $730,000 in 2018. Wow, that’s weird. I mean, she’s the only woman in the C-suite, but I’m sure that has nothing to do with it. I think we all know that being a CFO is nowhere near as rigorous or demanding a job as being a ((checks notes)) Chief Strategy Officer, especially one who was the CEO’s best bud when they were both working at the University of Chicago Medical Center, a best bud who replaced the CEO and made sure he got his $2.7 million severance payment when the CEO was forced to resign.

Which brings us to Jim.

That’s Jim Madara, American Medical Association CEO and EVP since 2011, shaking his finger at us in a 2019 speech and telling us that the core challenge for the medical profession in general and the AMA in particular will be finding ways to address health inequity – the disparate healthcare outcomes for Americans stemming from food and housing insecurity, limited access to transportation, and above all, income inequality.

Jim announced that the AMA would be taking a “leadership role” in this important cause by acting on the AMA Health Equity Task Force recommendations to hire senior executives and staff to build out the AMA Center for Health Equity, a think tank that would be charged with making further programmatic recommendations to advance the AMA’s … leadership role.

To be sure, Jim’s bold vision for addressing health equity issues might surprise some, given that he was forced to resign from his prior position as CEO of the University of Chicago’s Medical Center over accusations of systematically redirecting low-income or uninsured patients to nearby hospitals and clinics for treatment, to the point where 190 U of C Med Center docs signed a letter to Trustees protesting Madara’s policy.

Speaking of income inequality, Jim Madara was paid $2.3 million in cash compensation by the AMA in 2018. That does not include deferred compensation, pension contributions and other benefits, which is reported at another $200k. Nor does it include his compensation from all of his other advisory side gigs, like the Aspen Leadership Group or the Chicago-based healthcare incubator Matter. But that’s not the big play for Jim.

In 2016, the AMA funded the creation of a private “tech accelerator” in Silicon Valley – Health2047 – with an initial $15 million investment, plus a follow-on $27 million investment in 2018. Did I mention that the AMA has an investment portfolio of $642 million in publicly traded securities and $111 million in private securities?

Health2047’s chairman of the board is – you guessed it – Jim Madara, and he hired his friend and self-described protege, Doug Given, as the company’s CEO. Health2047 has funded and “accelerated” four portfolio companies today, including Akiri (building healthcare data networks “on the blockchain”) and First Mile Care (described by Jim as “uber but for diabetes”). But this is only part of the big play for Jim.

A tech accelerator can make good money, sure, but it’s not nearly as lucrative as being the general partner in a private investment fund where you can charge a management fee and take a 20% carried interest in any realizations. So in 2018, Doug Given stepped down as CEO of Health2047 (don’t worry, he’s still on the board with Jim) so that he and Jim could start Health2047 Capital Partners, a good old-fashioned venture capital fund. Doug is the Managing Member of the General Partner for Health2047 Capital Partners, and Jim is chairman of the board.

SEC filings show that Health2047 Capital Partners recently closed on a $47 million investment as part of their $250 million initial fund. There are no public disclosures for investments in a private fund, but if I were a betting man – and I am – I would wager a substantial sum that the limited partner making that $47 million investment is the AMA. Hey, maybe I’m wrong. If Doug or Jim want to give me a shout and make a credible representation that the American Medical Association isn’t an LP in this venture fund where Jim is affiliated with the GP … I’ll be happy to post their denial statement directly in this note. LOL.

You know, I feel like I’ve been around the block a few times. I feel like I’ve seen more than just garden variety self-dealing and chicanery in my years around Wall Street. I feel like I’ve seen more than my fair share of corporate perversions of narrative and the tax code alike, more than my fair share of outright corporate betrayals of the public good.

But I’ve never seen anything like this.


The AMA is not a charitable organization.

The AMA is not an educational organization.

The AMA is a tax-exempt hedge fund and licensing corporation.


The American Medical Association is designed from the ground up to enrich its executives.

Publicly, it espouses a doubleplusgood narrative of social justice and health equity. Privately, the only interests it serves are its own bureaucratic imperatives and the self-aggrandizement of its “leaders”.

There is no “fixing” the AMA. There is no “reforming” the AMA. This is … this is an abomination.

Burn. It. The. Fuck. Down.


Epsilon Theory PDF Download (paid subscribers only): AMA? BITFD!


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ET Live! – 11.17.2020

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ET Live! is our interactive feature that is all about the narratives that infect financial markets, culture and politics. Don’t forget to refresh your browser if your video doesn’t start promptly after 2:00 PM ET.


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The Endemic Mindset

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There really aren’t any more just-the-flu-ers these days.

OK, sure, there are still some solitary specimens sticking to their guns, so please don’t send me screenshots of your crazy uncle’s Facebook feed. But by and large, over the last several months the just-the-flu meme has faded, having evolved into another species that is far more well-adapted to our environment. Far more resilient.

The ecological niche in our politics previously filled by the just-the-flu meme has been all but conquered by virus-gonna-virus.

So what is virus-gonna-virus? It is a versatile memetic construction built from some combination of one or more ideas. What are those ideas? That everything we’re doing to combat COVID-19 is counterproductive safety porn. That nothing we could have done really would have changed anything about the virus’s spread. That every country is going to end up in the same place. That most of the public discussion promoted in the news is designed to support the institution of new social controls and disproportionate criticism of politicians the media do not like.

Virus-gonna-virus is a well-adapted meme because it provides a valuable ego integrity service to its host. Namely, it provides a smooth transition for those who truly believed and publicly expressed a belief that COVID-19 was a plandemic, a fake pandemic or just the flu. It allows those people to ignore that reality has proven their beliefs to be incorrect. Indeed, it permits them a way to say – if still speciously – that their being proven wrong was better than everyone else’s being proven correct. You know, since we’d still be better off if we hadn’t fussed with masks or distancing or anything else to prevent the spread at all. Virus gonna virus.

Virus-gonna-virus is a resilient meme because it is built on a few kernels of genuine truth: (1) that a critical mass of cases of a very contagious coronavirus REALLY IS difficult to stop, (2) that a lot of the things governments are doing, like some of the kneejerk shutdown-everything reactions that have been happening since April, REALLY ARE counterproductive safety porn and (3) that some of the politicians who favor counterproductive and largely ineffective restrictions on liberty REALLY DO have other political and personal objectives <tilting head demonstratively in the direction of Cuomo>.

Virus-gonna-virus is also indicative of a endemic mindset, a framework of thinking that has implications for both financial and political markets.


In 1967, Marty Seligman and Steven Maier undertook a now-famous set of experiments at the University of Pennsylvania. These experiments separated a collection of dogs into three groups. The first group was placed into a harness for some time and then released. The second and third groups were placed into connected harnesses. From time to time, an electric shock was applied that simultaneously affected both the second and the third groups of dogs. The second group was placed near a lever which deactivated the shock. The third group was placed near a lever which didn’t do anything. When the second group hit the lever, the electricity would stop for both. The third group of dogs was powerless to do anything about the shock.

Seligman and Maier then began a second stage of the experiment with the same groups of dogs. They created a box with a short partition between two sections, one of which was subject to shocks and one of which wasn’t. They then measured whether there was a difference between the behaviors of the groups. There was. The dogs from the first two groups, which either had not encountered the shock in the first box or which came to believe they had control over it, generally hopped right over the partition to brief, sweet safety from the designs of ever-so-mildly sadistic psychology professors. But what about the third group, having been subject to the arbitrary whims of fate in the first box, shocked with no control over when it would begin or when it would end? What did they do in the partitioned box?

They sat and they whimpered.


By Rose M. Spielman, PhD – Psychology: OpenStax, p. 519, Fig 14.22, CC BY 4.0

You are probably familiar with some telling or retelling of this experiment or its follow-on experiments involving human subjects. You are also probably familiar with the term coined to describe the effect revealed by those experiments: learned helplessness.

The endemic mindset is the world of abstractions we see under the influence of learned helplessness.

There are only so many days in which death or hospitalization counts may still function as information for the human mind. There are only so many descriptions, images or videos of hospitals in the early stages of being overwhelmed which will be able to change anyone’s perspective. There is a point of diminishing informational returns from another story about a lost small business, or a struggling low income family.

In the real world, the difference between 1,500 deaths in a day and 1,000 is staggering, real and personal. To the endemic mindset, they are functionally identical. In the real world, the difference between a 60% drop in revenue and a 30% drop in revenue is breathtaking. To the endemic mindset, they are functionally identical. In the real world, the difference between being out of work for 9 months and being out of work for 4 months may be nearly existential. But if we are not the one affected, to the endemic mindset, they are functionally identical.

In short, the endemic mindset is one in which our default expectation is that our world has become permanently worse in a way that we are helpless to do anything about.


I don’t think I miss the mark by saying that ALL of us are suffering from this just a little bit.

At some point in the last several months, did it start to feel like checking in every few days with elderly neighbors wasn’t really helping? Did it feel like extraordinary support of waitstaff, servers and owners of local businesses demanded much of you and still couldn’t keep them from going under? Did your capacity to give to local food security charities give way to a recognition that the need never went away? Are you a financial advisor or professional being asked for good advice or wisdom about how to navigate “these challenging times”, and feeling like you ran out of both months ago? Are you a parent forced into remote learning supervision, feeling like you’ve botched it and waiting out the clock to give you a reprieve?

Does the choice between standing outside in the cold, six feet apart, mask obscuring any sign of warmth or human emotion, or staying at home for Thanksgiving with the same people you’ve seen day in and day out for 8 months make you want to scream?

In your heart of hearts, do all of those things make it a little bit easier to believe that there’s just maybe nothing we can do that’s really going to take this shock away? That maybe we live our lives and weather all of this as best we can?

If you are feeling that a bit – I feel that pull from time to time, too, if it helps – it doesn’t make you bad. It makes you human.

But here’s the thing: the conclusions from the Seligman-Maier experiments weren’t all dire. Just as we can learn helplessness, we can also unlearn it. All it took in the experiments was a researcher picking up the arms and legs of each subject and placing them over the partition. Sometimes they had to do it twice. That’s it.

The hopeful news of a vaccine in 2021 is a great opportunity for all of us to do the same. With ourselves. With our families. With our friends and neighbors. Eight months ago, the reason we might accept some measure of personal inconvenience and expense was to “buy time.” But the time we were buying was unbounded. With a long enough time horizon, the belief that we would essentially all contract COVID-19 at some point becomes extraordinarily probable. What we were buying, of course, was a spreading out of that risk over enough time to permit effective and improved treatment. That ain’t nothing, but it also isn’t enough to stop the inevitable growth of an endemic mindset.

The more something looks like a new reality, the more likely we are to treat it like a new reality.

Today, however, we can tell a different story. IF – and despite a roaring market and glowing headlines it remains a very big IF – the vaccines from Pfizer and/or Moderna prove effective, then actions you take today don’t just delay the inevitable for the lives and livelihoods of your neighbors. They may change those outcomes. Permanently. If that isn’t enough to motivate us to pull one another’s legs over the partition, to reinvigorate our own and our community’s commitment to small, personally sacrificial action for our neighbors, I don’t know that anything will.

What actions?

Same as they ever were:

Wear a mask.

Social distance.

Buy local.

Help your neighbor.

Don’t be a jerk.

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Tyger, Tyger

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We’ve all heard the old line that investment managers, like tigers, can’t change their stripes. Or as the line has evolved over time, that investment managers shouldn’t change their stripes. It’s a line that’s been heartily embraced by consultants as it allows them to create a cottage industry in measuring “style drift”, which is a wonderful device for firing underperforming value managers (ie, all value managers) in a way that absolves the consultant’s investment board client of any responsibility. “No, no … it’s not us. It’s you.”

Is style drift a thing? Of course it’s a thing. Active management IS style drift. That’s what active managers DO. If their process and their analytical focus aren’t working, then they “adapt” and “evaluate” and “improve” and “bring in” (all words that sound much better than “drift”) change in their process and analytical focus in order to improve performance. They hope. If you look for style drift in your underperforming managers, guess what … you will ALWAYS find it. It’s like discovering that water is wet. It’s like discovering that gambling is taking place at Rick’s Place in Casablanca.

In fact, I’ll go one step further. Style drift is WHY you hire an active manager. Otherwise, just buy a factor exposure and be done with it. No style drift there!

My point here is not to defend active management. My point here is that the evolution of the old line from “managers can’t change their stripes” into “managers shouldn’t change their stripes” is a constructed, intentional change in narrative, a vital part of the primary full-employment narratives for consultants: “Yay, diversification!” and “Yay, risk management!”.

The evolved saying is wrongheaded. The old saying is Truth with a capital T.

Exactly like tigers, investment managers CAN’T change their stripes. I don’t mean they can’t change their process and analytical focus. I don’t mean they can’t change in the sense of what the consultants call “style drift”. I mean that an investment style and the learned adjustments/drifts/change to that style are not an investor’s tiger stripes!

Your tiger stripes are your immutable investment DNA. Your tiger stripes are the psychological make-up and the grammar you use to make sense of the investment world. [there’s an oldie but goodie ET note on all this, btw, “Adaptive Investing: What’s Your Market DNA?”]

You can’t change this in yourself. Your managers can’t change this in themselves. I can’t change it in myself. And we shouldn’t try. But we must KNOW this psychological make-up and investment grammar. We must know it in our managers, yes. We must know it even more so in ourselves.

I’ll go first.

My psychological make-up as an investor is to see the flaw in all things. I do not have faith easily. I see an unending sea of mendacity in mass society, and an arc towards the quiet extinguishing of small-l liberal and small-c conservative virtues. I am, in market terms, a born short-seller. That is my DNA.

Three times in my professional life as an investor, I have felt a trade in my bones, by which I mean a certainty that there is a massive disjuncture between a real world poised for sharp secular decline and a market world at buoyant narrative highs. The first time was in the summer of 2008. The second time was in February of 2020. The third time is today.

The real world poised for sharp secular decline today can be summed up in these three charts.

First, sharply declining loan demand in the real economy, particularly by small firms (this is from the quarterly Fed survey of bank lending officers):

Chart, line chart, histogram

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Second, sharply declining confidence by small businesses that they can weather the Covid storm (this is from a Goldman Sachs report, and if you account for survivorship bias in the survey, the results are even more depressing):

Chart, bar chart

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Third, the fact that a second wave of endemic Covid is now raging essentially unchecked across the entire United States, as measured by cases, hospitalizations and deaths (this is from The Covid Project maintained by The Atlantic, and is a compilation of state-reported data for the US):

Chart, histogram

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We are spent. I mean that in a societal and individual sense. I mean that in a psychological sense. I mean that in an economic sense. I mean that in a physical, real world sense. But at the same time we are spent, we are now faced with the true storm of Covid-19. Everything that is happening in France and Italy today will be happening in the United States in two weeks. These are not the conditions for a recession. These are the conditions for a global depression.

I feel this in my bones. And yet.

In the summer of 2008 and February of 2020 I saw the trade to, yes, make money from those real world calamities. I do NOT see the trade here.

Why not? Because there IS good news on the horizon in the form of the Pfizer vaccine. Wonderful news! News of a vaccine that will, unfortunately, come too late for the real world damage of this plague over the next three months, but news that can drive a tremendously supportive narrative in market world.

Why not? Because capital markets are a political utility, and neither the Fed nor, ultimately, the White House or Congress will ALLOW capital markets to reflect the real world damage that I feel in my bones is coming.

I can’t change my tiger’s stripes. I see what I see, and I think what I think, and I feel what I feel. My investor DNA has never been more at odds with my knowledge of narrative and politics. The gulf between real world distress and market world resilience has never been greater in my eyes. But I don’t know what to DO with that, other than share it with you.

Please stay safe,


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The Grifters, Chapter 3 – Election Prediction

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Epsilon Theory PDF Download (paid subscribers only): The Grifters, Chapter 3 – Election Prediction



That’s Nate Silver, founder and face of election “modeler” FiveThirtyEight, performing his traditional “Awkshually, we weren’t wrong” dance after mangling yet another national election.

Haha. No, that’s a falsehood, as the fact checkers would say. That claim was made with no evidence, as an ABC News reporter would say.

In truth, this is a picture of Nate Silver speaking at the “ABC Leadership Breakfast” during Advertising Week XII. Of course Advertising Week uses the same numbering system as the SuperBowl ™. That would be 2015 in normie text, about a year prior to FiveThirtyEight’s mangling of the prior national election.

You will only see Nate Silver on ABC News and other ABC media properties and events, because FiveThirtyEight is a wholly-owned subsidiary of ABC News.

ABC News, of course, is a wholly-owned subsidiary of The Walt Disney Corporation.

Hold that thought.



That’s Fivey Fox, the FiveThirtyEight cartoon mascot, who is happy to guide you through the genius-level mathematics and super-science that “powers” FiveThirtyEight’s election models. You may have also seen Fivey Fox on ABC News programming, as part of a weekly animated cartoon segment broadcast over the past nine months to “inform” viewers about “how the election actually works”.

For all you FiveThirtyEight and ABC News viewers, I’d guess that most of you find Fivey Fox and the cartoon infographics pretty cringey. I’d guess that most of you believe, however, that these animated cartoons are not aimed at you, but at “low-information” viewers who are not easily capable of understanding how the election actually works, and certainly not capable of understanding the genius-level mathematics and super-science behind FiveThirtyEight’s election models. I’d guess that most of you believe that yes, Fivey Fox is a little silly, but it’s necessary to speak in cartoon language in order to communicate with all those Fox-watching and Trump-voting dullards out there.

Nope.

Ask not for whom the cartoon tolls. It tolls for thee.

Fivey Fox and his cartoon friends on ABC News do not exist to “educate” the great unwashed, any more than ESPN programming exists for people who don’t watch sports. Fivey Fox exists to engage YOU, the politically-aware ABC News/FiveThirtyEight viewer.

So does “Nate Silver”.

I put his name in quotation marks because of course a real life Nate Silver exists. But the “Nate Silver” that you see at the ABC Leadership Breakfast or that you hear PhD-splaining every four years that “modeling isn’t polling” is just as much a cartoon – just as much a constructed abstraction of an abstraction in service to narrative ends – as Fivey Fox.

The disheveled look, the stark black eyeglass frames … “Nate Silver” looks exactly the way it needs to look to optimize your engagement with it. Not to like “Nate Silver”. Not to dislike “Nate Silver”. To engage with “Nate Silver”.

For the ABC News/FiveThirtyEight viewers who like the election prediction made by “Nate Silver” and Fivey Fox, this will be a mirror engagement yes! this Genius Expert ™ agrees with me! Science and Mathematics agree with me! And it’s so obvious that even a child could understand! Ah, sweet dopamine!

For everyone on the other side of the election prediction made by “Nate Silver” and Fivey Fox, this will be a rage engagementno! this Idiot Egghead ™ has lost all credibility! The polls are clearly not capturing Factor XYZ, and it is enraging to be told otherwise as if I were a child! Ah, sweet norepinephrine!

There’s nothing accidental about any of this.

Three mega-corporations in the world today truly understand the primacy of engagement: Google, Apple and Disney. Other mega-corporations have successfully adopted this principle over time, but Google, Apple and Disney built their empires on the primacy of engagement, on how their products or services make you feel. It’s the foundation of Google’s internet search algorithms. It’s the foundation of Apple’s product design. It’s the foundation of Disney’s media content.

Of the three, the Covid pandemic has hit Disney the hardest. Parks are shut down. Movies aren’t being made. As for television, sports programming is getting killed and overall ad spend is down. The only potential bright spot is that this is an election year, where $11 billion will be spent on political ads, and where maintaining engagement with its news programming has never been more important for Disney.

How do you get more engagement with your news programming? How do you trigger more neurotransmitter brain chemicals in your ABC News audience?

By creating “news” that can be transformed into an entertaining/enraging game.

By transforming a singular Election Day event into a months-long spectator sport, complete with plays and scores and announcers and cheering/anxious fans.

That’s what election modeling does. That’s why public polling and election modeling exist. Polls to create the “news”, election models to create the score, Fivey Fox and “Nate Silver” to announce the game. All to create engagement with a diversified media corporation.

That’s why Disney acquired FiveThirtyEight. That’s why they originally had it within ESPN and then transferred it to ABC News. That’s why they created the cartoon characters of Fivey Fox and “Nate Silver”.

No one understands how to create and sell a spectator sport better than Disney.

Here’s the kicker. This spectator sport that Disney/ABC News/FiveThirtyEight has created around Election Day has very little connection with the election itself. The “scores” and the “announcing” and the game itself are a totally distinct thing from the process and dynamic and the outcome of our most important political institution.

And they know it. And yet they sell their game over and over again as if it were the real thing.

That’s what makes it a grift.



In a nutshell, the FiveThirtyEight prediction model is designed around thousands of simulations of statewide results (based on statewide polls and a hypothesized probability distribution on state level results) that are then mapped against the Electoral College. These thousands of simulations of possible statewide results create a probabilistic distribution on the Electoral College outcome, and whatever percentage of outcomes are on the good side of 269 Electoral College votes for a candidate is the answer for the point-in-time odds of that candidate winning.

FiveThirtyEight went into Election Day 2020 assigning Joe Biden a 90% chance of winning, which was even more divorced from election reality than their 2016 “prediction” that Hillary Clinton had a 72% chance of winning. There is zero alpha … zero useful information … in a model that predicts an election outcome with near certainty when in truth that outcome hinges on a few tens of thousands of votes out of 150 million votes cast.

To use a spectator sports analogy, FiveThirtyEight set the 2020 betting odds for this “football game” with Joe Biden as a massive favorite, say 20 points. He won by 1 point. In 2016, FiveThirtyEight had Hillary Clinton as a somewhat less massive favorite, say 15 points. She lost by 1 point. There’s nothing “robust” about these predictions, as “Nate Silver” is currently claiming. These predictions are disasters. FiveThirtyEight would be laughed out of Vegas for setting odds like this.

The FiveThirtyEight model failed in both 2016 and 2020 – and will fail again in 2024 – for the same two reasons.

First, the prediction model failure in 2016 and 2020 is NOT just a garbage-in-garbage-out problem with the polls that serve as model inputs, as the current F#ck you, we did a good job non-apology tour of “Nate Silver’ would have it.

In fact, the Disney/ABC/FiveThirtyEight business model is in large part responsible for creating the bad polls.

Both polling and responding to polls have become political acts. There is a panopticon effect here, where both pollsters and the polled know that their behavior is being observed. Not in the sense of an enemies list or being personally identified, but observed nonetheless by a massive hidden audience watching the very public playing field of the election spectator sport. And in true panopticon fashion, the polled begin to see themselves as members of a team competing in this election spectator sport, as active political participants through their poll response.

This has an enormous – and predictable – impact on poll response behavior. It’s not that members of the Out group (in this case Trump voters) are “shy”, it’s that both In group and Out group members see themselves as players in a game. Because they are! And when you see yourself as a player in a game, you … play the game. You act strategically. You agree or refuse to participate in a poll for strategic reasons. You answer the questions one way or another for strategic reasons. It’s not that you’re lying in your answers, although of course some people do, it’s that you’re considering both your poll answers and your poll participation within the larger context of this election spectator sport that you know your answers will be used to support.

Everyone knows that everyone knows this is how polls are used today, that you are part of a larger political game that is distinct from the actual act of voting. This is the common knowledge of polling today, and as a result, no one provides “straight”, i.e. non-strategic, poll responses today. No one.

And Nate Silver knows it.

Hell, he and his Disney bosses created this game that uses polls as the “play” that happens on the field! They know exactly how the meaning of polling has changed, how polls are no longer an independent signifier of voter intentions, but are the output of strategic gameplay that is only tangentially connected with Election Day.

FiveThirtyEight depends on bad polling data as the play-by-play action in their election spectator sport.

Bad polls are necessary for this lucrative grift to continue.

So they will.


Second, the FiveThirtyEight prediction model itself is a category error, created and designed to promote a spectator sport business model with hundreds of point-in-time odds (the “score” of the game) over the months-long course of this made-up game, NOT to predict the outcome of a real-life, singular rare event.

To use an online poker analogy, the model is designed as an “engine” for a game where you can play poker all the time, as often as you like. It’s designed for you to engage with Fivey Fox and “Nate Silver” every day if you can stomach it, checking in constantly to see if the “odds” have changed with some new state poll and a rerunning of the simulations. That’s not a bad thing. The math of this game isn’t wrong.

Or as fellow cartoon Jessica Rabbit would say, “I’m not bad. I’m just drawn that way.”

But the way the prediction model was drawn … the way it generates a new probabilistic “score” of this constructed game every time a new state poll comes out … is NOT representative of the experienced odds of the single election event. At all. The math IS wrong when it comes to understanding the odds of who is actually going to win the actual election.

Why? Because Silver’s run-ten-thousand-simulations methodology masks the volatility and the uncertainty hiding in the statewide polls. I’m not talking about the uncertainty of a poll with a big margin of error. The methodology can handle that fine. I’m not talking about the uncertainty of a poll that says a statewide race is 50/50. That’s not a problem, either.

I’m talking about the uncertainty of a poll that doesn’t MEAN what you thought it means, where – in the lingo – error in the poll is not randomly distributed, where – for example – you have a pandemic changing actual voting behavior in a systematic way, but not changing poll response behavior in a systematic way, where – as Nate Silver understands perfectly well – you have poll respondents acting strategically in a systematic way.

If you have THAT kind of uncertainty in your statewide polls, then the FiveThirtyEight prediction model will not catch these errors. No, no … the simulation methodology will MAGNIFY these errors.

The result? FiveThirtyEight has no idea what the real score of the actual election game might be.

All of econometric and statistical analysis – ALL OF IT – exists to give you an answer to two and only two questions:

  • What’s your best guess?
  • How sure are you?

The FiveThirtyEight election model gives you an answer to the first question. That’s what a model – ANY model – does.

The fatal flaw with the FiveThirtyEight model is that they have no answer to the second question. Or rather, there is an answer – NOT VERY SURE AT ALL – but the Disney/ABC News/FiveThirtyEight business model does not allow them to report that answer. Because if they gave this truthful answer, then we would all ask a third question: Why the hell are we playing this game?

And that’s the question that blows up the entire grift.

A spectator sport must have a score at all times. That’s what it means to have a spectator sport. It’s perfectly fine if you say that the score is tied. In fact, that’s a really good thing for audience engagement. But what you cannot say is that you don’t know what the score is. What you cannot say is this:

“Yeah, I think Biden is ahead, but there’s a lot of uncertainty embedded within my model. Maybe Biden is way ahead and maybe the score is tied, I really couldn’t tell you. But I’m pretty sure that Trump is not way ahead.”

Nate Silver knows that’s the truth of the 2020 election and the FiveThirtyEight prediction model.

“Nate Silver” can never admit it.


Is there a better way to understand the truth of an election? YES.

There’s a toolkit for understanding how to play singular or rare events, where the consequences of being wrong or overconfident or just unlucky are far more impactful than repeated-play events. Jimmie Savage, the smartest statistician you’ve never heard of, called it decision theory. This toolkit is used in military decisions. This toolkit should be used in our Covid decisions. For more, read Once in a Lifetime.

There’s a toolkit for understanding the consequences of a polarized electorate and how that polarization changes both a politician’s behavior and voter response behaviors, including voter response behaviors to pollsters. This is the toolkit of strategic interaction. This is the toolkit of game theory. For more, read Things Fall Apart.

There’s a toolkit – which we are at the forefront of developing – for understanding the structure of narrative and how it impacts social markets. Like investing. Like voting. We call it the Narrative Machine. For more, read Inception.


I think these are the three toolkits required to understand the statistical truth of modern politics. Is there a scalable, billion dollar business model to be created around these toolkits, the way Disney has created a scalable, billion dollar business model around the game-ification of Monte Carlo election simulations? Nah. Not a chance. But that’s the thing about truth, statistical or otherwise. It rarely makes you really rich, but it always gives you a life worth living.

And it never turns you into a cartoon.


Epsilon Theory PDF Download (paid subscribers only): The Grifters, Chapter 3 – Election Prediction


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You Can’t Handle The Lie

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I have a confession.

I still don’t have much interest in writing much about the election. I certainly don’t have much interest in rewriting much of what we have already written on these pages.

So if you’re looking for a discussion of why the political right appears to have outperformed at the polls in a turnout-based election, I will instead direct you to what we wrote before the election.

And if you’re looking for a breakdown of the meta-game failures loudly decried in a well-publicized rant by Democratic Virginia Congresswoman Abigail Spanberger, I will instead direct you to what we wrote before the election.

If you need a fix on the months of narrative work on mail-in ballot and fraud narratives that laid the groundwork for the unsurprising political excitement of the past couple days, I’d first ask you, “My God, why?” Then I’d direct you to what we already wrote.

And if what you’re really interested in is how we start building something that looks as different as possible from what we saw this week, well, we will have a lot more to say about that. But for the time being, maybe now is the time to dig into what we think is the easiest, best first salvo in our long war against two-party hegemony and the Widening Gyre.

But two things happened last night that are, I think, worthy of mention. First, President Trump made an…um…historic speech. It included a wide range of claims consistent with the fraud narratives that have been built up over the last several months. For the most part, they are the same ones we discussed in the note mentioned above, so there isn’t much else to be said. For what it’s worth, I think occasional fraud is a near certainty in every election, that mail-in ballots at a vastly larger scale than historical levels almost certainly increases that risk by some degree, that electoral fraud at the scale being asserted is hilariously difficult to achieve and would be nearly certain to leave obvious evidence, and that nothing remotely approaching the evidence necessary to make the kinds of declarations made in that speech has yet been produced.

You’re free to think what you want. But I would place last night’s speech somewhere on the spectrum between nuts and completely unhinged.

But something else happened, too.

Within a minute after the president started speaking, MSNBC cut away. Shortly thereafter, so did ABC, CBS and NBC.

Now, I’m not the arbiter of newsworthiness. I happen to think an official speech from the President of the United States during the vote-counting period of a very close election is pretty close to the top of the scale, but that’s just my opinion. It doesn’t matter. The networks themselves told us exactly why they cut away, and it had nothing to do with newsworthiness.

It was because they didn’t trust you to witness a live news event, process it and make up your mind.

“We have to interrupt here, because the president made a number of false statements, including the notion that there has been fraudulent voting,” said Lester Holt, the “NBC Nightly News” anchor. He added, “There has been no evidence of that.”

Lester Holt, as quoted in Major Networks Cut Away From Trump’s Baseless Fraud Claims [New York Times]

This is the core idea behind what we call Fiat News, news which replaces facts with attempts to tell you how to think about those facts. Usually that is a more figurative expression. In this case, it was literal. You had facts (i.e. not what Trump was saying, obviously, but the fact that he was saying those things) explicitly taken away from you, and explicitly replaced with attempts to shape how you, the viewer would process the facts you were no longer being allowed to access.

This Fiat News impulse reached its extreme at USA Today, whose Editor-in-Chief pulled the livestream, deleted any posted versions of the videos and followed it up immediately with a link to a fact-checking article.

These outlets believe that you should only be provided access to information about this event in an approved package that would prevent you from having Wrong Thoughts. It is the truth that President Trump gave an important speech last night. It is the truth that he said the things he did. Like me, you may think those words are completely disconnected from reality, harmful to the country, damaging to important institutions and, in some cases, demonstrably false. You know. Lies.

But know this: any media outlet that thinks you can’t handle hearing a lie doesn’t work for you.



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A Tale of Two Cults

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The Amazing Randi

The cult of Uri Geller should have died on August 1st, 1973.

It was the summer of Watergate. Johnny Carson lamented that the audience was sick of hearing about the scandal and didn’t want him to monologue about it again. But H.R. Haldeman’s haircut wasn’t going to get a pass. It was, odd as it sounds to say it, a simpler time. And in Carson’s defense, it was a very bad haircut.

Beyond obligatory jokes about the porcupine that had taken up residence atop Nixon’s Chief of Staff, the Tonight Show that evening evoked an eclectic, variety show feeling. There were four representatives of the “Eskimo Indian Olympics”, in full possession of a walrus baculum, which they proceeded to present to Johnny as a gift. As one does. There was Ricardo Montalbán, still well before his turn as Mr. Roarke and in between his portrayals of Khan. He was in full possession of his manifold manly powers, which he fearlessly deployed in movies about simian hegemony (the two bad ones, anyway) and every television series about…well, basically anything on TV between about 1956 and 1972.

And then there was Uri Geller, in full possession of his…um…psychokinetic powers?

If you don’t know the story, Geller’s excruciating twenty-two minute appearance on Carson that night is among the most awkward ever presented on television, whether scripted or otherwise. Beyond his purported ability to bend objects (spoons, mostly) with the power of his mind, Geller also claimed psychic, dowsing and other supernatural abilities at various points in his career as well. Carson, who was a practiced stage magician (and skeptic) himself, was excited to see these thrilling gifts in action.

After being invited on stage, Geller nervously observed various metal items arrayed on a table in front of him. He accordingly greeted Carson, McMahon and Montalbán with a confidence-inspiring “I’m scared.” You see, Geller expected an interview. As he later attested, a Tonight Show producer provided him with a list of 40 different questions he might be asked. He was instead being asked to give a demonstration of his powers. It was completely unfair and unsporting, which is to say, positively delightful.

When you watch the video, you can see the gears furiously turning from the very first moments of the interview.

When pressed by Carson to demonstrate his prowess, Geller briefly tries to detect water in containers, then attempts to bend metal and guess at the contents of an envelope. But for the most part, Uri spends an interminable twenty-two minutes halfheartedly begging to be asked questions instead of being asked to perform, complaining about promises from the producers, and coming up with a stream excuses and explanations for his ‘process’ that might excuse the absence of any demonstrable psychokinetic ability. He ends with pseudo-scientific explanations of the failure as the absence of “controlled conditions.” His utter inability to conjure the most basic supernatural phenomenon during the bit on Carson is rescued only on occasion by the preternatural charisma of Ricardo Montalbán.

In any real sense, it was a disaster.



There was a reason it was a disaster.

Yes, obviously it was a disaster because Geller couldn’t actually do any of the supernatural feats he said he could. That’s not what I mean. Clearly, under the right circumstances he was proficient at producing all sorts of illusions and stage magic. The “right circumstances” were those in which he had his own props, producers canvassing the audience and stagecraft elements to facilitate sleight of hand. In this case, however, before Geller’s appearance, Johnny Carson had reached out to a frequent guest of the show, a fellow skeptic and even better stage magician by the name of James Randi.

You may know him as the Amazing Randi, who died last week at the age of 92. Randi was a remarkable man. Far more than just an entertainer, he devoted his life to showing the unvarnished reality underlying abstractions and illusions.

Geller was one of his favorite and most deserving targets.

When Carson’s producers reached out, they asked the Amazing Randi what they needed to do to ensure that anything Geller did could only be achieved through the possession of true psychokinetic powers. His answer was simple: bring your own props, do it in secret, and don’t let Geller’s people near any of them.

The merciless video above was the result of this simple advice. Utter embarrassment, shame and ruin. Geller was mocked, ridiculed and laughed at. The people who believed that his sleight of hand and misdirection expertise were evidence of psychic powers received much the same treatment. In short, Johnny Carson’s call to the Amazing Randi destroyed the cult of Uri Geller.

Except that isn’t what happened. At all.

The nightmarish Carson appearance was NOT the end of Geller’s career. In a lot of ways, it was the beginning, at least to a sort of stardom in the United States that he had already achieved in Israel. He was booked to another show almost immediately. That began a career of getting mining company executives (who, it must be said, always remained the greatest charlatans in the room) to pay him for dowsing services, doing basic stage magic routines and calling them extraterrestrial powers, stopping Brexit with his mind and preventing the relegation of Exeter City F.C. with infused crystals. Oh, and divining the root causes of COVID-19.

The curtain on Uri Geller was pulled…and nothing happened. The powerful play went on, and he still got to contribute a verse. And that verse was, “I’m a literal wizard and also I got my powers from aliens.”


Groves, Richard

This behaloed figure is a man by the name of Richard B. Groves.

Reverend Groves was a minister of the Cumberland Presbyterian Church in Navarro County, Texas throughout the post-bellum 1860s and 1870s. He preached in churches around Corsicana, about an hour southeast of Dallas. At the time, it was a market town growing around an emerging cotton industry. It remained sleepy indeed until the arrival of the Houston & Texas Central Railroad in 1871. Even under the influx of settlers, cotton remained king. That is, until the first real producing field in Texas emerged from beneath the very streets of Corsicana in 1894. Literally.

Texas oil boom downtown derricks in corsicana
Corsicana, Texas during the oil boom days

The Cumberland Presbyterian Church – which still exists – was a quintessential frontier denomination. Methodists and Baptists alike made discretion the better part of valor in staffing circuits and permanent posts in frontier denominations, which is a kind way of saying they took what they could get. If Methodists have a natural tendency towards big tent revivalism to begin with, this tendency was amplified in frontier America. Presbyterians, on the other hand, had less of this predisposition, and the Cumberland Presbyterian Church was formed from a group of expelled revivalist ministers who looked on with envy to what the Baptists and Methodists were doing with (mostly untrained) ministers throughout Kentucky, Tennessee, Alabama, Arkansas and Texas.

By contemporary accounts, Rev. Richard Groves, who moved to Texas from the Cumberland River Valley of Kentucky (by way of pre-Chicago frontier Illinois) with his extended family of ministers, was a good and well-respected man.

There was another [Cumberland Presbyterian] Preacher who attended this meeting, by the name of Richard Groves. His home was in the vicinity of Corsicana. He evidently enjoyed the blessing of holiness. I think he came into the experience of it under Bro. Sim’s preaching. He seemed to be a man of considerable forces of character, positive in his convictions for truth; one who would not be likely to be “carried about by every wind of doctrine, and cunning craftiness whereby they lie in wait to deceive.”

History of the Holiness Movement in Texas, and the Fanaticism Which Followed, by Rev. George McCulloch (1886)

It happened, however, that Groves and four other Cumberland Presbyterian ministers in Corsicana became convinced that they had discovered something new in the emerging “holiness doctrine,” a crystallizing force in most frontier churches in the late 19th century. The basic idea was simple Wesleyan theology – that Christianity is not only accepting salvation from Christ, but the ongoing process of sanctification, God empowering Christians to better resist sin. Groves et al took it further. A lot further. They reasoned that the process of sanctification would allow Christians to be immune to even the temptation of sin. They could become, well, literally perfect. It opens up a lot of paths to crazytown. If they were free of the penalties of sin and free of the potential for sin, how then could they be assailed by the things to which man’s fall in the Garden subjected him? How could they be assailed by illness? By age? By sickness? By the opposition of other preachers and politicians and citizens?

I’m sure you can see where this is going.

Under the tents of meetings in Corsicana and elsewhere in 1878, Groves and company quickly began to embrace the implications of their discovery. But not just the implications of their discovery, but the meaning of it. Surely, if God chose to reveal this truth to these men at this point in time, there must be meaning in that, too. Surely, if they had been made perfect through sanctification, they could know all that God knew, including the date and time of Christ’s return and his judgment of the world.

So it was that Richard Groves became a millenialist cult leader.

In practical terms that probably seemed very reasonable to them at the time, they took a number of church elders, basically kidnapped two young women from the town and took an elderly minister away from his dying wife, and they locked themselves in the Groves farmhouse in Milford, Texas to further record the emerging perfection of their doctrine – and to await the imminent return of Christ. After a few days, the town sent a farmer to ask them if they might at least let the girls come back home before they returned to their various and sundry cult activities. They were refused, but after several calculated days for Christ’s return passed, all participants left the compound and went back to life as it was.

Only they didn’t, really. Wrong as they were in their predictions, their fervor simply led them to believe God was instructing them to expand the flock of those who knew the true doctrine. And so, during the winter of 1878 into 1879, each of the Corsicana Enthusiasts, as they came to be known, traveled all through Navarro and Limestone counties preaching the doctrine of absolute perfection and the imminent return of Christ.

Then, in the spring of 1879, Groves came across a pamphlet called Glad Tidings, published by one Henry T. Williams of Brooklyn, New York. It was a fanatical document of similar temperament – not, I think, associated with the later product of the Christadelphians of the same name. Richard Groves’s brother William got it in his head that he would travel to New York to have a missing finger replaced, which was apparently among the services on offer by Mr. Williams. It made for a good opportunity to test his power, as well.

So it was that the community raised the funds to send William Groves to New York. When he returned to Corsicana, he was changed. No, not the missing finger. Forget about the finger. The finger wasn’t important. He now had the ability to grant salvation. To forgive on God’s behalf. To condemn on God’s behalf. To hear God’s will directly in a way that might contradict scripture or law, but which must be obeyed. Now the Bibles were gone, doctrine was gone, and the brothers Groves and their new partner Henry T. Williams were the center of a new religion.

And what is a new religion built around a people set apart, perfected by God, without a compound? On behalf of Williams, the Groves brothers along with a small group of other elders directed their flock to collect all of their belongings and worldly wealth, to be contributed to the establishment of a community near Little Rock, Arkansas. In all, 50 or 60 people went. They sold their farms, homes, businesses and other property, and on arriving at The Home, as Williams called it, were denied entry unless they would immediately pledge the same to him.

The Home was the 19th Century version of the Fyre Festival. Gruel for meals, hard labor, meager accommodations. In the end, the organizer runs off with the money. It failed almost immediately. Everything fell apart. Reality set in.

The curtain on the Corsicana Enthusiasts was pulled…and everyone saw it for what it was.

And then something funny happened – things went back to normal. Sure, for a few years, one of the hangers-on lived a life of free love (he was perfect, after all) back on a farm he held on to in Corsicana about 100 years before that was in style. William Groves stayed in Brooklyn and (one presumes) helped Williams continue to take advantage of other enthusiasts. But for the most part, once The Home collapsed, Richard Groves and most of the other 50 or 60 participants came back to Corsicana, poorer, wiser, ashamed and embarrassed.

And while there were generational consequences, while life was never the same, the communities largely accepted the wanderers back, both sheep and shepherds alike. Multiple local churches accepted the families back. They found work and contributed. They married and had families and sent them to the new public schools that were established in 1880.

It’s a damn good thing too, if you ask me. Because while Richard Groves was leading a millenialist cult, he did so with his daughter in tow. And when Corsicana let him back into the fold, he did so with his daughter in tow.

My great-great grandmother.


But it raises an interesting question: how does it happen that revealing the lies painted over by narratives in one kind of cult only strengthens it, while in another it reveals it and destroys it utterly?

It’s complicated.

The deceptions of a charismatic stage magician and a religious cult fanatic operate on vastly different scales, with different implications and consequences. Obviously. But in those rarest of moments when the real world intersects with narrative world, regardless of the scale and scope, it is our perception of the consequences of shifting axes from narrative to a world revealed that usually guides our behavior. What might happen if we admit and repent our deception? What might we expect if we once again submit to the seductive memes of the narratives spun by our cult telling us that we were never really intersecting with the real world at all, but with someone else’s narrative? A narrative that must be defeated!

These weren’t controlled conditions!

These townspeople with torches looking to reclaim these two young women have clearly been sent by the devil to oppose us!

This is why the everyday cults of our lives, be they investment, political or social, thrive by presenting each issue and each intersection between real world and narrative world as existential. When the stakes attached to a narrative are infinite, it is infinitely difficult to divest ourselves from it.

But those are the narratives of consequences created by those cults themselves. There are also, I think, a range of consequences – often entirely just – created by those who oppose them. Beyond the gulf in the scale and scope of the cults I described to you above, this is the difference between them: that the community of Corsicana decided to relax the consequences for those led into error and ruin.

It was mercy, not wrath, that destroyed the cult of the Corsicana Enthusiasts.

As we continue to write on Epsilon Theory about what we mean by BITFD, many readers have asked whether we should be talking more about how we build the thing back up. Now, truth be told, that is a big part of what we mean by BITFD in the first place. But let’s take a reasonable observation at face value. Do you really want to build a functioning America the $!#@ up? Do you really? Because if you do, if you want to give fighting the Widening Gyre a fighting chance, you must do something that is a million times harder than laughing a self-important magician off the stage.

You must be merciful.

Don’t mistake me. You don’t have to forget. You shouldn’t forget. To people who broke laws or behaved corruptly, do justice. To those entrusted with much who failed in their trust, do your diligence. To institutions that failed, do your worst. And let there be no doubt in anyone’s mind that this shall always be the way. Sic semper tyrannis.

But to people who thought Wrong Things, show mercy.

To people who voted for the Wrong Person, show mercy.

To people who bought into Wrong Narratives, show mercy.

To people who got so over their skis that pivoting to the plain facts of [insert your favorite issue here] without obliterating ego integrity became impossible, show mercy.

I’ll get a lot of responses – from a lot of different cults who think I’m talking about their particular nemesis, and I assure you, I’m not – saying to screw off, that all These People had it coming and have it coming. They’ll get the shame they so richly deserve when the real world proves them wrong after [the election / COVID goes away / COVID gets worse / markets melt up / markets melt down]. Fine. You’re right. 100%. Enjoy being right.

Just know that, while we wallow in the slop of our rightness, this isn’t the path to build it back up. It’s the path that makes it increasingly necessary to tear down the institutions that don’t work in a polarized America. BITFU means worrying more about whether our town, state, country, world and markets are healthier, freer, more creative, more beautiful and more prosperous tomorrow than whether everyone agrees that we were right in the past.

There is a moment when the real world peeks through the narratives that surround us, and we convince ourselves that this will be the truth that frees our fellow citizens, investors and neighbors from their delusions.

But truth is only one of the necessary conditions for this kind of change. The other?

Mercy.

It will take both to BITFU. Do we have it in us?

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