The Weekend Zeitgeist – 6.2.2019

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

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

The back of the Leviathan [NWA Online]

After a year of devastation to parts of the American midwest, flood coverage has gone from being a third choice for coastal national media to being a prime attraction. Its language now gets sprinkled throughout a great many different news articles.

Some of this is because it connects to narratives about climate change. Some because it connects to discussions of agriculture, the plight of farmers and the trade war with China. Some because it references human interest, suffering or destruction, which happen to use similar language no matter whom the disaster might strike.

The natural, political and financial world’s indifference to our models is slowly but surely becoming part of the narrative.

The Distance of the Leap [The Good Men Project]

Our Weekend Zeitgeist query this week brought back 469,000 articles. This one was among the ten most interconnected to different topics by language.

I suspect you will find, as I did, some amusement in the blog’s masthead:

Probably also in the paragraph where it reaches a crescendo:

If you read my recent “Fellow Contrarians Unite” brief, I expect you’ll start seeing this everywhere, if you hadn’t already: people using the most common, interconnected language under the mistaken belief that it represents an unusual – or worse, unique -perspective.

Where Is the EPA’s Respect for the ‘Unborn’? [Bloomberg]

Yeah, I’m not touching this with a ten-foot pole.

What I will say is this: in late 2012, a colleague and I had breakfast with Ken Mehlman, the former head of the Bush campaigns and RNC chair. KKR had recently hired him in the policy/government relations/biz dev role now so common to mega-buyout-land. They trotted him out liberally to meet with clients like us. I was surprised by something he said. Heavily paraphrased, Ken said, “In 10 years, no one will be talking about gay marriage. It will be a given. In that same time, abortion will become a bigger issue again. Relative to prior generations, the emerging voter will develop his/her views through personal experience shared through multi-layered social media connections. Even the culturally conservative ones have known lovely, happy gay couples and don’t get what all the fuss is about. On the other hand, abortion will become a much more conflicted issue.”

I don’t think Ken was right about the mechanic – I haven’t seen any evidence that millennials are all that conflicted about this issue in particular. But he certainly understood some of the changing Zeitgeist. The capacity of an issue to evoke an emotional, existential response – and the willingness of political parties to leverage that capacity – is the soul of the widening gyre in US politics today. You may think that your position on the issue IS existential AND it may be AND I think it’s still necessary that we know when that existential importance is being exploited to keep us shouting past our fellow citizens.

Whatever your opinion, brace yourself for a deluge of purposefully inflammatory takes over the next 18 months on this issue.

Cats, Hootie and the Blowfish and Florence and the Machine kick off the weekend [Raleigh News and Observer]

Image result for what year is it

Europe’s Populist Storm Rattles the Windows of the E.U. But Fails to Move the Foundations [Time]

Yes, Time is a magazine, not a daily newspaper. Yes, it specializes in ‘feature journalism.’ Yes, anyone who accidentally happens upon it in a dental office waiting room should know at this point what they’re going to get. But they call themselves and are widely regarded as a news magazine. It’s a by-lined piece. It’s being sold, shared on Facebook and retweeted to you, the reader, as news.

And it ticks about every box in the Fiat News checklist.

A presumptuous headline asserting an obvious opinion. Adjectives meant to condescend, like “giddy.” Words meant to shape your impressions of the subjects without providing more information, like “strident” and “thundered.” Implications of causality, bald-faced opinions, unsupported projections – all meant to make the reader believe that certain things are common knowledge.

Even if you – like I – have pretty serious concerns about a rise in nationalist politics in Europe, this kind of Fiat News isn’t just bad form. It aggravates and deepens the widening gyre. It should always be resisted, even when it serves our own political leanings, and even if and when we think it serves to ‘offset’ equivalent biases from other media outlets.

Fellow Contrarians Unite!

I remember the first time I saw one of those dialect maps of the United States.

The best one is a still-active quiz on TheUpshot blog on the New York Times website. (Yes, unfortunately, it does now require you to create a free account to use it.) The questionnaire poses 25 multiple-choice questions about the word you use for certain things and how you pronounce it.

It then plots you on a map to guess where you’re from. Like my accent, my dialect similarity map is a bit of a mess. I was born in Arkansas, but lived there less than a year before moving to an exurb of Chicago for 13 years. The rest of my youth was spent in rural southeast Texas. I guess the logic of the quiz split the difference and decided to call my dialect Generic Flyover State.

But Lord, what a joy it was to say ‘pop’ when I did make that move to rural Texas. It was always jarring to people – even though it was an extremely common term on TV and in movies. It always got a reaction, and being in high school, we always parsed through the relative logic of our terms. I argued that calling everything a “coke” just created ambiguity as to whether you were expressing a brand preference or general request for soda, and they teased me by asking if I made the same distinction on Kleenex. I loved it because it made me different.

I was a contrarian, you see.

When I started working in New York, I wore my mildest of Texas twang and my country-ass name like a badge of honor. I mean, how many people get to say they were named after their dad’s hunting dog? The couple times I talked to my father on the phone at work, a small crowd would huddle around the door. It takes about 5 minutes talking to him for my fast-talking mild twang to transform into something much more like his deep, slow West Texas drawl. I loved it because it made me different.

I was a contrarian, you see.

I had always thought of myself in those terms as an investor, too. If you don’t have and express a different view, and if you don’t have an edge on that different view, you can’t outperform. This isn’t rocket science. In my years of meeting with fund managers of every variety, I don’t think I’ve met a single professional investor who didn’t think of themselves that way. Obviously it doesn’t always manifest in the same manner, but anyone who is in the business of trying to get paid for taking compensated active risk takes that risk on positions where they disagree with what they think the market is discounting.

There is just one problem: With very few exceptions (e.g. risk arb, some rates trades), it is nearly impossible to confidently assert what consensus IS. Sure, the market gives us a ‘consensus price’ of a sort, but that’s not really what we’re talking about here. We’re talking about the fundamental and macro consensuses that guide our forward-looking expectations, which can vary wildly even if they arrive at the same present market price. The result, at least in my experience of meeting with and evaluating investors, is that contrarianism usually boils down to one of these two definitions:

My views are different from those of the (relatively) tiny universe of investors I talk to.

My views are different from the straw man of “consensus” I built.

This is an awful lot of hand-waving given the basic importance of the question.

We investors go to conferences full of pension, endowment and foundation peers and come back with notes on what risks and opportunities everyone is focused on. We read partial surveys of what some subset of investors says they’re most concerned about. We peruse our social media feeds, dominated by a non-representative sample of small-AUM players who ultimately have little influence on asset prices. We talk to other private equity people, or other hedge fund people, and we start to build this idea in our head that we’ve got our finger on the pulse of consensus. We dutifully read and incorporate into our understanding of possible views the Big Daily Note from our macro fund, even though we’ve got ten years of returns telling us it has jack squat to do with the way they’re positioned. Maybe we make the pilgrimage to Omaha, not to build a model of consensus but to share in the group delusion that the real contrarians are just the people in that room.

We are an excited kid from Illinois who thinks he’s spotted a contrarian opportunity because he’s now surrounded by Texan kids who say ‘coke’.

Maybe we allow ourselves to believe that EPS estimates and macro predictions from the sell side somehow form a consensus that we can invest against. Maybe we start thinking of pure relative multiples as an expression of whether something is out-of-favor, or build an intuitive mental model for identifying ‘unloved’, ‘boring’ industries and sectors. Maybe it’s fund flows in and out of the sector, or sentiment from some Twitter-scraping NLP model, or just price momentum. We have a million ways of defining what it means to be contrarian, almost all of which conflict with one another in some way, almost all of which have some value in themselves, and none of which is actually the thing itself.

In other words, contrarianism is almost always a cartoon we build to make the ideas we kind of like fit with the philosophy we’d like to use as a label for them.

It is an idea we build on the shaky foundation of our unavoidably incomplete understanding of other investors, their preferences, their risk tolerances and how they would respond to different events. Wall Street isn’t dumb, either. Our trading desks, our research guys, our fund managers, our advisers – they’ve learned to sell us things not just by telling us why their process and product are the best, but by helping us complete the straw man of what everyone else is getting wrong.

And we can’t avoid it. Cartoon or not, investing without some set of beliefs about what other participants care about and will care about is just guessing. On Tilt.

What we can do is this:

  • We can spend as much time challenging the provenance of our own contrarian cartoons as we do on building the other side of our thesis;
  • We can start building the same kinds of challenges to our theories about ‘what the market believes’ as we do to ‘what is true about this company/government/issuer’;
  • We can always ask ‘Why am I reading this now?’ when someone characterizes a view as consensus;
  • We can do the same when someone says their view is ‘outside’ of consensus; and
  • We can be mindful of missionaries and what they seek to present as common knowledge.

In the meantime, I’ll be up here in Connecticut, being a contrarian.

Just like everyone else.

A Holy Day

Image result for milton lee olive

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

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

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

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

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

Clear Eyes.

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

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

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

Full Hearts.

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

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

A man in full.

The Holiday Zeitgeist – 5.26.2019

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

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

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

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

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

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

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

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

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

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

Image result for expiration label on salt

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

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

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

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

The Sublime Sensation of the Swimming Hole [Smithsonian Mag]

Hamilton Pool

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

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

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

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

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

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

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

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

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

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

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

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

The ET Election Index – April 2019

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

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

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

Our goal isn’t to ‘fact check.’

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

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

What do we do?

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

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

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

Cohesion: Our Measure of Narrative-Adherence

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

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

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

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

What does Cohesion look like?

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

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

Source: Quid, Epsilon Theory

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

Source: Quid, Epsilon Theory

Attention: Our Measure of Association and Conflation of Topics

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

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

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

What does Attention look like?

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

Source: Quid, Epsilon Theory

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

Source: Quid, Epsilon Theory

Sentiment: Our Measure of the Potential Influence of Author Opinion

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

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

Who is it for?

People who want to make up their own damn minds.

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

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

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

Election Narrative Structure as of April 30, 2019

Source: Quid, Epsilon Theory

Commentary on Election Narrative Structure

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

Candidate Cohesion Summary

Commentary on Candidate Cohesion

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

Candidate Sentiment Summary

Commentary on Candidate Sentiment

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

Candidate Attention Summary

Commentary on Candidate Attention

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

The Continuing Series

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

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

A Clear Eyes / Full Hearts Story

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

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

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

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

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

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

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

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

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

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

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

My Father Left Me Ireland, by Michael Brendan Dougherty

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

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

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

And yet.

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

– My Father Left Me Ireland, by Michael Brendan Dougherty

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

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

– My Father Left Me Ireland, by Michael Brendan Dougherty

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

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

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

– My Father Left Me Ireland, by Michael Brendan Dougherty

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

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

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

I think it’ll be worth your time.

The Weekend Zeitgeist – 5.18.2019

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

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

May 18, 2019 Narrative Map – Non-Financial Articles

Source: Quid, Epsilon Theory

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

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

The Modern Bonfire of the Vanities [American Greatness]

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

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

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

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

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

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

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

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

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

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

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

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

The Zeitgeist – 5.16.2019

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

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

JPMorgan App Draws Millennial Investors With Lure of Free Trades [Bloomberg]

From the headline, I thought they were going Full Robinhood, but no, it looks like your usual gym-bag-and-a-toaster kind of offer.

There has been a clear, concerted effort – with click-hungry financial media happy to oblige – by missionaries of banking to make the narrative about US banks a modern, fintech-oriented technology story. There’s a reason these stories routinely sit at the top of the Zeitgeist – because banks want to be conflated with these much more exciting, growthier sounding, less LOL-whoops-we-almost-broke-the-system-through-sheer-avarice sounding ideas. And like this free trades offer – which is a modestly expanded version of what has been offered by brokerage firms for decades – most of those stories are part of that cartoon.

High Velocity Retail – Why The World Retail Congress 2019 Was A Breath Of Fresh Air [Forbes]

Quote the first:

Quote the second:


If you pay much attention to the network maps we post with our Daily Zeitgeist, you’ll know that retailing and consumer products routinely command a highly connected cluster within them. Part of that is because financial and markets-focused media know that even professional consumers of their content are more interested in stores and stuff they buy themselves than they are with utilities companies, or, say, fabricators of high-temperature, high-strength alloys for use in furnaces at petrochemical facilities.

So it’s not a surprise that stories like this rise with some frequency.

It also shouldn’t be a surprise that happy-clappy all-is-well stories like this find their way to the top. Even when the industry in question is tire fire territory, financial media are cheerleaders, publishing news which is almost universally more positive in sentiment and affect than any other major form of news – certainly more positive than political news, at any rate.

Ready Or Not, The Food Of The Future Is Coming [Forbes]

Oh, look. It’s another one.

Anyone who has ever been to an industry conference like this knows that this is ALWAYS the reaction. The early afterglow is always some variant of “Wow, for the first time, we are finally speaking the truth about what’s going on in our industry! What a change from all the old conferences where it was just more of the same.”

Every industry’s conferences are exactly the same. Why? Because saying we’re going to do something in front of a group of people is how we give ourselves the moral license not to do anything.

A New ETF To Refresh The Value Factor [Benzinga]

Most of the keywords that led to this article’s connections are in this paragraph. Just my opinion from looking at the narrative data every day, but it certainly feels like the sell-side and financial media drums are back to beating “value rotation.”

Tobias is one of those weird remaining ‘value guys’. We like him and wish him success.

Trump Tells Pentagon Chief He Does Not Want War With Iran [NY Times]

Four things:

  1. Well, that’s reassuring.
  2. Remember, ‘according to several administration officials’ means ‘intentionally leaked by the White House.’ Why am I reading this NOW?
  3. “Clerical-led” and not “cleric-led?” That turn of phrase feels bad in the brain and worse on the tongue.
  4. Life imitates the Simpsons.

Selling because of the trade war turbulence could cost you a lot of money over the long term [CNBC]

I usually find these “if you miss the 10 best days” pieces a bit tiresome, but the core idea here is right. For most people, betting on the non-existent odds of a game of chicken would take the form of selling, and going underweight equities vs. their long-term allocation or policy.

We’ve been suggesting that’s the wrong idea since December, and we’re still suggesting that overweight or underweight bets driven by trade and tariffs views are little more than a flip of a coin, with a seller taking on a negative expected payoff to boot.

What would make us start to re-examine that? Signs of explicit messaging that the Trump administration views crashing the tractor / going off the trade war cliff as an acceptable outcome in service of another (i.e. political/electoral) game. The characterization of the trade dispute as a matter of national security, something we’ve seen some seeds of in the last couple days, is one way that could take place.

The Weekend Zeitgeist – 5.11.2019

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

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

May 11, 2019 Narrative Map – Non-Financial Articles

Source: Quid, Epsilon Theory

Commentary: Capitol Hill hearing takes up the war between the needy and the greedy: The future of payday loan regulation [Winston-Salem Chronicle]

This topic was at the top of our Friday Zeitgeist, too, so I won’t spend too much time talking about it. But one of the responses I’ve gotten in a couple places has been: “Why can’t people talk about this issue in good faith? It’s just policy.” This is why.

Once an issue has been moved to the world of abstraction, once it’s about something else other than itself to a meaningful portion of the population, it is far more difficult to have a good faith discussion with anyone who has absorbed the abstraction into their framework of thinking about the issue. The participants in most of these discussions are simply engaged in a complex soliloquy about their own particular abstracted version of the topic.

Still, make no mistake – the people committed to good faith can’t wait for the rest to catch up. That’s an argument I’ve made before, too. Payday lending is a topic of its own – different even from the very high rates of standard unsecured / auto lending. I’ve got a lot of opinions about it, too, but it’s the weekend, and I’ll spare you those. This one sits at the top of the Zeitgeist, and it’s not going anywhere for a while.

The Double-Edged Sword of the Justice System [Chronicle of Social Change]

Criminal justice and the state of the US prison system have been frequent visitors to the Zeitgeist, too. If you see it here, expect to see it in policy discussions. If you don’t know what you think about those issues, now’s the time to do your research and thinking, before the content you’ll find becomes dominated by Fiat News that will tell you how to think about it.

The Bulgarian city reversing the brain drain [MSN]

There hasn’t really been an active narrative – in the US, I mean – about eastern Europe since the early days after the fall of communism and the dissolution of the Warsaw Pact. At that time, and in many eastern European nations, the growth – in terms of both freedom and in more tangible economic terms – was remarkable.

Except that didn’t really happen in Bulgaria. As it happens, Bulgaria’s first free elections put the communists right back in power. Its economy grew in fits and starts throughout the 1990s, unlike the Baltics and states of the former Czechoslovakia. Serbia had a similar experience, but it was a special case in a lot of ways – thanks to Tito, probably not a true part of the Eastern Bloc during the Yugoslav days despite its communist government, and thanks to Milosevic, subject to some, shall we say, other sources of economic malaise in the late 1990s. By the mid-2000s, Bulgaria had recovered enough to become a more integral part of Europe, and stabilized.

Even so, that a country that has sat at the crossroads of the world – culture, religion, peoples – for so many centuries could lose citizens at this rate is still surprising to me. Maybe a little bit heartbreaking.

‘New economics’: the way to save the planet? [Reuters]

Here’s the lede:

Here’s the internet masthead categorizing the article as “World News.”

Here’s the footer characterizing what took place in the article as “Reporting.”

I’m sure you don’t care, Directors of Thomson Reuters Founders Share Company, but your news staff is using your Trust Principles as a dishrag.

Do better.

Let the sunshine in at the Federal Reserve [WND]

You know, Stephen, you could have just gone on Glassdoor and left a brutal review like any normal person does after bombing an interview.

The lost art of the mixtape [Schenectady Daily Gazette]

The headline on this article was changed after the fact, which is a shame, because Googling the “lost art of the mixtape” provides some powerful evidence of our nostalgia for this relic of the 1980s and 1990s. I still remember fashioning the perfect mix of songs for my 7th Grade girlfriend Vanessa. It was the ultimate low-tech labor of love, sitting in my bed at night with the radio playing on my tape player, waiting for one of the songs I knew I wanted to come on, finger on the Record button. It was the work of dozens of hours, culminating in a cassette with a strip of masking tape that would allow me to write my title. Never actually given because I was a cowardly 12-year old.

I was about to write about my frustration with the conflation of “playlists” with this experience in the linked article and in these Google results, but then I realized that I’m 36 years old and not ready to yell at the kids to get off my lawn just yet.

The bird that came back from the dead [CNN]

The white-throated rail colonized the Aldabra Atoll in the Indian Ocean -- twice.

We end with a short, interesting article about a sort of convergent evolution that, well, ain’t, as it were.

But the real story here, if you ask me, is this goofy-looking bird. It looks like a wingless, arthritic duck, and it probably shouldn’t exist.

The Zeitgeist – 5.10.2019

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

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

May 10, 2019 Narrative Map – US Equities

Source: Quid, Epsilon Theory

Coworking Ecosystem & Crowdfunding Platform Announce Partnership [Press Release]

Digital Asset Monetary Network Co-Founds Marketing Services Firm for Reg A and Crowdfunding Ventures [Press Release]

Back in the distant past when there were people in our industry called value investors (if you’re under 30, you’ll have to ask a coworker born before 1990), it was common to hear them wax eloquent about companies which had found an ecological niche inside the coverage gaps of larger industries and fully scaled competitors. It wasn’t whether your hedge fund was long a dental supply company, you see, it was whether you liked PDCO or HSIC more.

Coworking and crowdfunding occupy exactly those kinds of ecological niches, emergent in response to the resource availability-skewing dominance of commercial real estate and DCM/ECM/VC conventions. These are not realistic scale plays. By any historical analog, they should be very interesting, higher-than-big-cap-comp ROIC businesses, maybe even trading at interesting valuations.

That was, of course, until we discovered the cost-of-capital reducing magic of riding the valuation coat-tails of venture tech narratives. This now trendy tactic is, perhaps, irritating to those nostalgia-porn addicted stalwarts who still call ourselves value investors, but it may be the only benign influence of the zeitgeist-transformation of capital markets into public utilities. With obvious exceptions, the people who have been pushed out on the risk curve, who are now taking even more insane risks in entrepreneurial ventures on the basis of these narratives – or occasionally on the basis of some fundamental belief in actual disruption – are the people who can most afford to bear them. It’s a good thing. Even if we think what they are doing is stupid, the people who sink their effort, reputations, capital and time into an entrepreneurial venture make the whole system work. It’s the other side of the coin from our concerns about financialization and the lack of incentive for public companies to reinvest in growth.

Or in other words, as is so often the case, Taleb’s not wrong. He’s just an asshole.

Image result for you're not wrong walter

Wall Street Dusts Off Trade-War Battle Plan Now All Bets Are Off [Bloomberg]

When I say that the ol’ fire your guns at the ground and tell ’em to dance bit is one of the oldest tropes in the book, I mean that literally. It comes straight out of one of the earliest, most influential, most ‘anatomically modern’ films ever made: 1903’s Great Train Robbery.

And that’s exactly what this is.

Dusting off the battle plans? Hell, these hedging strategies, baskets and tactical trading approaches haven’t even been moved from that folder on our desktop to our personal network storage drives in the monthly purge we do so that IT doesn’t bark at us. You may not know the odds of the Game of Chicken that is the US/China Trade & Tariffs war, but I hope you know the odds that financial media will do their part to support the ecosystem that feeds on our collective aversion to inaction in the face of incalculable odds.

Investors pull more than $20 billion from stocks on ‘trade deal trauma’: BAML [Reuters]

Trauma! So we’re breaking out the big guns on language after we’ve had a couple days of completely normal volatility. I guess that means it’s time to play our favorite game: Who’s Going to Blame Risk Parity First?

The winner usually comes in the week following the volatility, but since it has become such a popular game, triggers have gotten a bit looser. So do we have a winner yet? Did someone jump the gun?

Yes! Two people!

Our search of the Newsdesk database shows a number of articles referring to “risk parity”, “risk targeting” or “vol targeting” this week, most of which are reprintings of comments made by AQR’s Cliff Asness about factor investing performance. The first of the two articles which mention it in context of volatility-blaming comes from Justina Lee at Bloomberg; however, her article shoots down the theory. So by default, the award this drawdown goes to Nomura’s Charlie McElligott, whose Wednesday morning note got picked up by ZeroHedge.

Congratulations! You Blamed Risk Parity First!


My Cousin Was My Hero. Until the Day He Tried to Kill Me.; Feature [NY Times]

I don’t have much to say about this article, although I’ll leave you to consider why this scored so high on its interconnectedness to the language in all financial markets news stories from the last day.

What I do have to say is that I’m glad the NY Times has started flagging its articles as Features, at least in its database feed. Press insiders who care about its integrity and the critical role it must play in a free society should be demanding the clear, unequivocal marking of opinion, analysis and feature journalism by all outlets. It doesn’t go anywhere near fixing the problem of Fiat News, but it’s a good step.

How Today’s Tech I.P.O.s Differ From Those of the Dot-Com Boom [NY Times]

This is not a terrible piece in the aggregate, but the statement above is not something that belongs in a news report. It’s a near-verbatim parroting of the right-sounding cartoon that’s being promoted by the management teams and banks running these processes. They have had more runway to figure out how to get BIGGER, and all of these parties have an interest in us equating that abstraction with “figuring out sustainable business models.”

Unless we’re all capital-markets-as-utilities advocates now, and “continue to raise capital at shockingly low costs ad nauseam to finance profitless top-line growth” IS a sustainable business model. From a founder’s perspective, maybe there’s not a difference.

Fair Isaac Is Profitable, But Its Debt Is Climbing And It’s Expensive [Seeking Alpha]

So meta.

Part of the reason this piece – a pretty standard Seeking Alpha blog – is more connected to the aggregate narrative right now is the broader discussion about progressive politicians’ proposals to institute usury-style caps on chargeable rates.

It’s an issue that Ben and I disagree on from a practical (read: policy) perspective. But we sit in agreement on the core problem.

If you wandered into an off-brand car dealership in 2004 or 2005 and had a sub-600 FICO, chances are that one of the rates offered to you came from my desk. Well, the buy rate did, anyway. The finance guy at the dealership probably bought it up 100-200bp without telling you. There’s one exception: if you lived in Arkansas, you probably didn’t get a rate from me. Why?

Because the Arkansas Constitution wouldn’t let us charge as much as we felt we needed to to compensate us for the credit risk (and as years that followed would indicate, even what we were charging probably wasn’t enough). There is no doubt in my mind that the market-clearing, risk-appropriate price for unsecured – or kinda/sorta secured, like auto – debt for many consumers is well into the high 20s and above. My libertarian predisposition is to say, ‘Let people be adults and burn their hands if they want to.’

But I’ve also seen – no, built – the economic models supporting this kind of lending. You do not enter in with the expectation that you will be paid back principal. You enter into the average loan with a significant portion of your expected return in the form of recoveries. You are pricing in the dear cost of brutal collections and servicing agents. It is an inherently ugly and cruel practice, entered into with the one-sided expectation that it will very likely end in ugliness and cruelty.

Is it uglier or crueler than denying the availability of that credit by statute? I still come out to “No.” I can’t stomach denying capital to anyone who wants to bet on themselves. I think Ben comes out to “Yes”, and he’s got damn good reasons for it. After all, the cruelty of this kind of lending isn’t a theoretically possible outcome – it’s embedded as a fundamental component of the model. But Ben and I are really close friends, and we trust the other’s heart and mind implicitly. We can talk about this stuff.

Outside those circles? Well, like the Myth of College, this is an issue made almost impossible to discuss and debate in good faith by the Widening Gyre.

What Country Friends Is This?

From the RSC’s 2012 Roundhouse production

The shipwreck play is a Shakespearean staple[i]. A foundational narrative form.

Sometimes the shipwreck is the story’s MacGuffin. Tempest – you may be unsurprised to learn if you did not already know – opens cold to the audience, with peals of thunder on a ship at sea. The first scene in The Comedy of Errors sets up its own absurd plot with a long-winded description of a shipwreck in the distant past – a shipwreck that sundered a man’s two sets of identical twins. Others among his plays use shipwrecks as simple devices to move the plot forward. The rumored loss of Antonio’s trading vessels is a critical device in The Merchant of Venice. A fierce storm wrecks Pericles’s ship on Pentapolis, just in time for King Simonedes’s tournament for the hand of his daughter Thaisa. After the tournament, another storm arrives just in time to complicate Thaisa’s pregnancy so much that Pericles throws his only-mostly-dead spouse overboard to appease both the gods and his crew.

Still Slightly-Alive Thaisa: O dear Dianna, Where am I? Where’s my Lord? What world is this?

Pericles, Prince of Tyre, Act 3, Scene 2, by William Shakespeare

The shipwreck device is convenient – and powerful! – because it rather unusually satisfies both of John Gardner’s[ii] two plots that more or less account for the stories told in all fiction and literature: “A stranger rides into town and a man goes on a journey.” The shipwreck play is at once the story of a stranger in a strange land AND of a land whose balance has been upset by his arrival (or her arrival, and sometimes both his and her arrival. Remember, there’s a lot of boys dressing up as girls dressing up as boys in these plays). In the first case, the plot advances as a family, town or community deals with the changes and uncertainty brought about by a stranger’s arrival, and as they stitch their new reality back together. In the second case, the plot moves forward as the man on a journey adapts to, conquers or succumbs to the challenges presented by the new world unfolding before him.

These archetypes are powerful and interesting because they tell the story of a fundamental change in the water in which the characters swim – an immediate shift in the Zeitgeist to which everyone is accustomed.

Sound familiar?

Just as there are plot archetypes, so too are there archetypes of the manner in which the characters respond to the change in the water. There are far more sprinkled throughout the Western Canon, but Shakespeare’s shipwreck plays give us four of the most important:

Prospero (Tempest) comes to terms with the new Zeitgeist through cleverness. He seeks to turn the changing Zeitgeist to his advantage by manipulating others caught in the net of the storm.

The pairs of separated twins in Comedy of Errors come to terms with the new Zeitgeist through apathy and blind luck. They try nothing, fumble around in confusion at their new world and hope for the best.

Pericles comes to terms with the new Zeitgeist through loyalty and faith. The gods, in turn, provide resolution through two of the most literal examples of deus ex machina in the canon: the resurrection of Thaisa and the miraculous reunion with daughter Marina.

When we write on Epsilon Theory about the elements and manifestations of our Zeitgeist – the widening gyre of polarized politics, the black hole of markets, about financialization and the myth of college, the cartoonification of economic data and tools of abstraction everywhere – we get emails. Most of those emails are variations on this: “Now that I am aware of these abstractions, memes and narrative, I see them everywhere. I am actually finding it a bit paralyzing. I feel like I need to DO something. What can I DO?”

It’s the same response often encountered by those who discuss, write about and reveal the behavioral biases of investors. We hear and understand that they are a problem for us and how we engage with both political and financial markets, but how do we conquer them? How do we exploit them? How do we change ourselves so that we aren’t subject to their influence?

It’s a fair question. It’s one I ask myself, too. A lot.

Our justifiable instinct is to demand an Answer. It’s a demand that steers us to become Prospero, to believe that we ought to navigate the change in the waters – and nudge the others swimming with us – through cleverness and tactical genius. Or to become Pericles, where we might navigate those waters by renewing our faith in and loyalty to the ideas that have always worked for us in the past. When neither of these strategies works, we figure that maybe we’d be happier if we just ignored the presence of narrative and abstraction (or, say, behavioral biases) altogether and hoped for the best.

But there’s another answer – the fourth one. It comes from the best of the shipwreck plays.

Viola: What country, friends, is this?

Captain: This is Illyria, lady.

Viola: And what should I do in Illyria?

Twelfth Night, Act 1, Scene 2, by William Shakespeare

When shipwrecked Viola lands alone on the shores of Illyria, her approach is not to nudge, to conquer or manipulate. She also recognizes that this is a different world, that she cannot simply live life in the old way and expect to thrive. She isn’t ready to give in to apathy. She knows two things: she must survive, and she must be humble enough not lose her identity in whatever games she must play to do so.

Clear Eyes. Survival.

Full Hearts. Identity.

Part of the reason that the awareness of narrative (and biases) can be so paralyzing, even when we incorporate it as part of a process instead of an answer, is that we tend to find Clear Eyes much easier than Full Hearts. Once you know how to identify Fiat News, you will see it everywhere. Once you learn to spot cartoonification, you will see if everywhere. Once you learn to spot missionary behavior, you will see it everywhere. Once you learn to ask, “Why am I reading this NOW?” you will ask it constantly.

Identity and reciprocity, though? Those are hard.

How do we own our own cartoons without becoming manipulators in our own right? How do we spot the myth of college and the unassailable value of the credential while still promoting and celebrating the I Am of our children? How do we observe and respect the narratives surrounding companies, industries and asset classes without buying into them? You see, there’s no safety net on identity or reciprocity. Acting on them is an act of PURE risk-taking.

If you’ve got an hour to carve out this weekend, grab a glass of wine and read about Viola, who adapted to a change in the water by navigating the balance between Survival and Identity.

You’ll find no better example in literature of the Clear Eyes and Full Hearts we so often write about.

[i] Hey, you signed up to read about narrative, so if you’re not prepared to get some Shakespeare thrown at you from time to time, you’re probably in the wrong place.

[ii] Or Tolstoy, or Dostoevsky, or the many others to whom this has been attributed. Gardner’s claim is the best.

The Zeitgeist – 5.8.2019

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

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

May 8, 2019 Narrative Map – US Equities

Source: Quid, Epsilon Theory

Renewed China trade fears send U.S. markets tumbling [UPI]

Futures fall on U.S.-China trade uncertainty [Reuters]

Global stocks slip, bonds rally as U.S.-China trade fears grow [Reuters]

Frequent readers will be familiar with our three recurring trade and tariffs arguments:

  1. The narrative on tariffs has been complacent for the last several months – coherent and positive. Investors who have a contrarian (read: negative) view of outcomes could benefit from the resulting asymmetry.
  2. If it ends up as a major market event, it is likely that traditional diversification techniques continue to work like they have historically (i.e not a ‘new’ zeitgeist).
  3. We don’t think anyone should be in the business of having those contrarian OR consensus views on the topic, because it’s a GAME OF CHICKEN. You don’t know the odds, because there aren’t any.

None of that has stopped financial media from updating their assessments of the odds on a daily basis, of course.

These are the sectors that worry Wall Street analysts the most if there’s a US-China trade war [CNBC]

None of that has stopped the sell side from pushing new ways to play the odds, either.

Goldman Sachs – Hardline Retail Stocks

UBS – Softline Retail Stocks

Cowen – Chemical Stocks

Credit Suisse – Auto Parts Stocks

Bank of America – Automobile Stocks

Needham – Semiconductor Stocks

Baird – Chemical Stocks

Let’s get trading, fellow muppets!

Data Gumbo Secures $6M in Series A Funding from Venture Arms of Leading International Oil & Gas Companies [Press Release]

HOUSTON–(BUSINESS WIRE)–Data Gumbo Corp., a Houston-based technology company that has developed a Blockchain-as-a-Service (BaaS) platform to streamline smart contracts management for industrial customers, announced today completing a $6M Series A equity funding round co-led by Saudi Aramco Energy Ventures, the venture subsidiary of Saudi Aramco, and Equinor Technology Ventures, the venture subsidiary of Equinor, Norway’s leading energy operator.

Wait, what?

Sysco’s Earnings Beat Estimates but Revenue Comes Up Shy [The Street]

I wonder why this perfunctory note scored so high on the Zeitgeist.

Americans mimic Russian disinformation tactics ahead of 2020 [The Hill]

The widening gyre is only beginning.

And this is how it widens – as always, with the best intentions.

AIG Unit Rebounds After an Overhaul [WSJ]

What is dead may never die.