The UNITED States of America

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My RBG story.

In March 1993, two months before she was nominated to the Supreme Court, Ruth Bader Ginsburg delivered the Madison Lecture at the NYU law school. I was a baby prof in the Poli Sci department at the time, and a buddy of mine was clerking for RBG, so I went over to the law school to hear the speech out of some combination of professional obligation and wanting to hang out with a friend after we got the speech out of the way. Honestly, I had never heard of Ginsburg other than through my friend’s clerkship, and I had no intrinsic interest in hearing her talk, which I figured would be something about women’s rights, blah blah blah.

27 years later, and I still remember that speech – “Speaking in a Judicial Voice” – like it was yesterday.

RBG wasn’t about “women’s rights”.

RBG was all about EQUAL RIGHTS for ALL citizens. RBG was all about EQUAL TREATMENT UNDER LAW for ALL citizens.

That’s it. It’s really as simple (and as difficult) as that.

In particular, I remember that RBG had zero use for theoretical or symbolic notions of equal rights, what today we’d call virtue signaling. She was all about the real world. To RBG, the core issue of equal rights in the real world was WORK. Are you doing the work? Then dammit, you should get paid for doing the work!

Again, it’s as simple (and as difficult) as that.

Equal rights and equal protection under the law for ALL citizens. An honest day’s pay for an honest day’s work for ALL citizens. Liberty and justice for ALL.

Imagine that.

If you want to know what RBG was all about …

If you want to know why RBG’s death is such a loss for the UNITED States of America …

Please read her speech – “Speaking in a Judicial Voice” – which you can download as a PDF here.


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Many People Say

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“To many, Beethoven’s most famous work is a symbol of exclusion and elitism in classical music.”

How Beethoven’s 5th Symphony put the classism in classical music” (Vox)

TRUMP: There are a lot of people think that masks are not good.

STEPHANOPOULOS: Who are those people?

TRUMP: I’ll tell you who those people are … waiters. They come over and they serve you, and they have a mask. They’re playing with the mask, so the mask is over, and they’re touching it, and then they’re touching the plate. That can’t be good.

The concept of a mask is good, but it also does … you’re constantly touching it, you’re touching your face, you’re touching plates. There are people that don’t think masks are good.

“Trump’s ABC News town hall: Full transcript”

If you ever want a textbook example of what “begging the question” really means (because it doesn’t mean what you think it does), here you go:

We ask how Beethoven’s symphony was transformed from a symbol of triumph and freedom into a symbol of exclusion, elitism, and gatekeeping — everything we love to hate about classical music today. How did the meaning of this symphony get so twisted?

How Beethoven’s 5th Symphony put the classism in classical music” (Vox)

“Begging the question” is the most commonly misused rhetorical phrase in the English-speaking world. It does NOT mean asking for an underlying question, and anytime I hear someone say, “Well that begs the question, why does blah blah blah?”, I die a little inside.

Begging the question is the assertion of a made-up premise that validates the “question” you then proceed to ask and answer.

So when Vox writes an insane article answering the question “How did the meaning of this symphony get so twisted?”, they first claim by assertion that, in fact, the meaning of Beethoven’s Fifth has been twisted. THAT is begging the question.

The go-to move by sophist demagogues like Vox and Trump to support a made-up premise is to claim that “many people” are asserting this made-up premise.

Why do they do this? Because it works.

Why does it work? Because common knowledge game. Because of the power of the crowd watching the crowd.

Claiming that “many people” believe that Beethoven’s Fifth is a symbol of exclusion is the verbal equivalent of a sitcom laugh track. In both cases, it’s the creation of an artificial audience for the real-life audience to observe, an artificial audience that cues the real-life audience to accept the made-up assertion. In the case of a sitcom, the made-up assertion might be that Joey and Chandler’s hijinks with Monica and Rachel are funny. In the case of modern politics, the made-up assertion might be that wearing masks is bad for you. The process to get you to laugh/believe is exactly the same.

Seriously, try to watch Friends without a laugh track (do a quick Google search, there are a lot of these, like here). What you thought was a funny show becomes … definitely NOT funny and more than a little frightening.

Now try to read a Trump tweet or a Vox article and substitute “I think” for “many people are saying”. What you thought was a somewhat-questionable-but-okay-I guess statement becomes … definitely NOT okay and more than a little frightening.

If there’s one thing you get from Epsilon Theory, it’s this: we human beings are biologically hard-wired to respond positively to a positively-responding crowd, and every high-functioning sociopath in Washington and Wall Street and Hollywood and Silicon Valley and every other concentration of political or economic power both knows our biological weakness and uses this biological weakness against us.

Once you start looking for these artificial audiences with their artificial cues, you will see them everywhere.

This is Fiat World, where the self-serving opinions and made-up assertions of the powerful are presented to us as fact, where “many people say” that we must vote for ridiculous candidates to be a good Republican or a good Democrat, where “many people say” that we must buy ridiculous securities to be a good investor, where “many people say” that we must borrow ridiculous sums to be a good parent or a good spouse or a good American.

How do we escape Fiat World? We can’t. Sorry.

How do we survive Fiat World? Clear eyes to see their sophistry. Full hearts to reject it.

Clear eyes. Full hearts. Can’t lose.

PS. Facebook delenda est.


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The Game of Tesla

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There’s an old saying in poker: don’t just play the cards, play the players.

It’s the same thing in markets. You can’t just focus on the cards you’re dealt, i.e., the fundamentals of this stock or that stock. You also have to focus on the other players who are playing these same cards, and that means understanding the behavior of a crowd of buyers and sellers in the stock market.

Just like in poker, sometimes the cards/fundamentals don’t matter at all. Sometimes poker players will think they have an edge in understanding the other players sitting around the table, and before you know it, there’s a huge pot in the middle of the table regardless of what cards have been dealt.

That’s exactly what has happened with Tesla stock over the past few months. There’s a huge pot of money in the middle of the table in the form of an enormous market cap for Tesla as the stock keeps getting bid up, and none of it has anything to do with the fundamentals of the company.

And, despite what I know you’ve heard, almost none of it has anything to do with people buying the stock because it’s “cheaper” since the stock split. Oh sure, we’ve all heard stories of the idiot friend of a friend who either thinks they’re getting four brand new shares of Tesla with the 5:1 split or believes it’s more “affordable” now that it’s been split. But the truth is that fractional share purchases have been a standard feature of every retail Davey Day Trader’s online stock trading platform for months and months. If you wanted to buy $100 worth of Tesla stock, you didn’t need a stock split to make that happen (and the stock split didn’t lower the price per share to that level anyway). The truth is that these stories about the idiot friend of a friend are just that – stories – not entirely apocryphal, maybe, but nowhere near even a rounding error in the average daily trading volume (more than 70 million shares per day) of Tesla stock.

The feeding frenzy on Tesla has nothing to do with that handful of rubes buying the stock because it’s more “affordable” after the split. It has something to do with traders buying the stock because they believe the story that there will be rubes buying the stock because it’s more “affordable” after the split. And it has everything to do with traders buying the stock because they believe that other traders believe the story that there will be rubes buying the stock because it’s more “affordable” after the split.

This is the Common Knowledge Game in action. It is the power of the crowd watching the crowd. It is the power of – not what you think is true, and not what you think the crowd thinks is true – but of what the crowd thinks the crowd thinks is true.

Today, the crowd thinks the crowd thinks that there are newbs and rubes buying the stock because it’s cheaper post-split. And that is what’s driving the feeding frenzy in Tesla shares. Apple, too.

It’s an old idea in investing, dating back at least to John Maynard Keynes in the 1930s, who called it the Newspaper Beauty Contest to use as market analogy the social media of his day. Maybe we should call it the Robinhood Effect.

But in both the 1930s and the 2020s, the idea is the same: in markets like these, the fundamentals don’t matter. You can play any hand you’re dealt! What matters is the story around a company or a stock, and what matters even more is whether it’s a story that everyone believes that everyone else believes.

How does the game end? When you stop reading stories about the idiot friend of a friend buying “cheap” Tesla shares for the first time. Not because there were ever enough of these newbs and rubes to actually make a difference in Tesla price action, but because the story that these newbs and rubes are out there will be broken. You’ve seen exactly that happen in the past few days. Now that the stock split is over and there are no new online articles shouting “idiots who don’t understand stock splits will be buying Tesla hand over fist!”, the Common Knowledge Game breaks the other way.

But you know who understands this game really well? Elon Musk. Tim Cook, too. That’s why Tesla is selling up to $5 billion worth of fresh stock while the price is so high. Think of it as the house taking their rake from the over-inflated pot of money now sitting in the middle of the poker table.

So don’t worry about Elon and Tim. They’ll find another story to drive another round of the Common Knowledge Game.

They always do.


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The Cartoon Put

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Source: The Dungeonmaster (1984)

Mestema: In a future reality I shall destroy you!

Paul: I reject your reality and substitute my own!

The Dungeonmaster (1984)

We write a lot about how governments and businesses desperately want Official Numbers to be treated as synonymous with the real-world feature they are used to describe. You might say it’s kind of our thing here at Epsilon Theory. We even have a word we use for it: cartoons.

We have written about COVID-19 cartoons being promoted by the Chinese Communist Party.

And pension obligation cartoons.

And top-line revenue cartoons.

And labor statistic cartoons.

And daily stock price attribution cartoons.

And risk-model cartoons.

And user / subscriber count cartoons.

The air of legitimacy offered by facts and figures makes them impossibly seductive for leaders in need of a friendly way to frame what is going on in the world. The problem, of course, is that numbers are not always a true reflection of the thing they are being said they are or what they represent. That may be because of how they are measured. It may be because of simplifying assumptions, abstractions and priors in their calculation. It may be because they are based on a model. It may be because they are biased or otherwise influenced in ways that confound the relationship. It may be because they represent only a dimension of the thing and not the thing itself. It may be because of mistakes. It may be because of outright fraud.

It isn’t hard to understand why sensitivity to cartoons around COVID-19 is high. Some of those reasons are good, and some are bad. All the same, it should not be surprising that the article below both topped our Zeitgeist of the most linguistically influential articles AND was by far the most shared article about COVID-19 over the last two days. It certainly helps when the President retweets it, and even more when the self-appointed truth arbiters at Twitter decide to censor it.

New CDC report shows 94% of COVID-19 deaths in US had underlying medical conditions [Various Fox Affiliates]

I have my own views on whether the popularity of this article was driven more by serious, well-informed questions about medical coding methodologies or pre-existing political conditions. That’s my diplomatic way of saying that I suspect the number of people capable of having a reasoned discussion on the implications of reported comorbidities falls somewhat short of the number of shares this article got on Facebook.

Still, confirmation biased click-bait or not, the common knowledge implied by this article sitting at the top of the Zeitgeist is that COVID data is cartoonified. So what’s the verdict? Should citizens be worried that strident representations about what COVID case and mortality data mean might be cartoonified?

YES.

I mean, of course they should. And considering that we have multiple official statements from the White House indicating an explicit preference for the reported data to look a certain way, I think most of that evidence points to cartoonification in the direction of underreporting of most statistics. Beyond that, however, there are significant methodological differences between and among states, agencies and individual institutions. There are fog of war issues in hospitals and clinics. There are testing abnormalities. There are high-risk financial incentives for reporting non-COVID pneumonia treatments as COVID-related, and low-risk political incentives for minimizing the number of cases, hospitalizations and deaths under various local and regional political leaders’ watches.

Major media outlets, likewise, have so thoroughly erased whatever line existed between their editorial and news practices that the number of stories they can concoct by simply cherry-picking start and end dates, taking advantage of reporting irregularities, discussing ratios or rates of changes is limitless. If you want to create a COVID-19 cartoon that will suit your political sensibilities, you will have no difficulty doing so. If you are not on cartoon-watch each and every time you see anyone quoting COVID statistics of any kind, you are nuts.

But y’all. Seriously?

The existence of cartoons does not give us a put option on thinking.

The point of being aware of numbers that are prone to manipulation is not to permit us to turn off our brains and pretend that there is no underlying real world feature being measured. The point of being aware of cartoons is not to permit us to write off entire issues as being clouded by the complication of measurements or the attempts by political powers to manipulate their relationship to features of the real world. When you find Wittgenstein’s Ruler, you don’t throw your hands up and say, “Oh well!” The fact that the world of narrative is powerful and messy and fraught with emotional pulls and unknown intentions doesn’t give us carte blanche to reject reality and substitute our own.

The impulse should be the complete opposite.

When we see cartoons, it is a warning that our focus must be on seeking out facts and measurements that are less vulnerable to abstraction. Things like models for excess deaths that predate COVID-19 that can shed light on the aggregate marginal effect of the pandemic on deaths in America. Things like actual nationwide ICU and hospital utilization rates. Things like the actual, demonstrable activities of medical professionals at hundreds of medical facilities. Things like historical data on comorbidities and conditions contributing to death for comparable diseases.


[Editor’s note … I’m sorry, Rusty is trying to be nice here. I won’t.]

If you actually read the actual CDC report and you still think that it is at all damning to the seriousness of this pandemic that deaths from a novel coronavirus that definitionally manifests in cardiopulmonary distress are being coded alongside pneumonia (42%), respiratory failure (34%), ARDS (14%), other types of respiratory failure (9-14%), cardiac arrest and arrhythmia (13-36%), and renal failure/sepsis most frequently reported to be primarily related to direct viral damage rather than co-infection with bacteria (8-17%), then you are wrong [Ed. Note: You are a fool].

If you actually read the actual CDC report and you still think it is at all damning to the level of concern that “normal” Americans should have about COVID-19 that 22% of deaths were coded alongside a condition experienced by roughly half of the adult population (hypertension), or that 16% of deaths were coded alongside a condition experienced by about a third (diabetes and pre-diabetes), or that 11% to 15% of deaths were coded alongside one or more conditions experienced by as many as half of American adults above the age of 85 (i.e. dementia and Alzheimer’s), then perhaps it is worth considering whether how the Widening Gyre is influencing your humanity [Ed. Note: You are a sociopath].

If you think that the rate of comorbidities and conditions contributing to death associated with COVID-19 somehow makes its numbers less “real” than other diseases, like, say, the actual flu (which similarly often has a coded comorbidity in more than 90% of deaths, consisting of the same laundry list of cardiopulmonary and sepsis/infection-related conditions contributing to death) or the dozens of other viral infections that make you die in specific ways for which an ICD-10 code exists, then it may be worth spending more time trying to understand the feature of the world the data represents and less time letting people tell you what it means [Ed. Note: You are sociopathic fool].


The point of being aware of cartoons and other abstractions isn’t to reject someone else’s reality and substitute it with our own.

It is to reject someone else’s reality and substitute it with…reality.


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Sacrifice for Thee, Vast Wealth for Me

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Doug Parker, American Airlines CEO and Chairman, flashing his winning smile

American Airlines to Cut 19,000 Jobs by Oct. 1 When Federal Stimulus Ends (WSJ)

American Airlines Group Inc. said it would shed 19,000 workers by Oct. 1 as the carrier prepares to downsize to cope with the coronavirus pandemic’s blow to travel demand, which isn’t expected to rebound for years.

The reductions include 17,500 furloughs of pilots, flight attendants, mechanics and others, as well as 1,500 cuts from management and administrative ranks.

Airlines received $25 billion in federal aid to pay workers through the end of September to avoid mass layoffs.

Unions and airline officials have advocated for another round of funds to keep employees on the job through March 2021.


Doug Parker, American Airlines CEO and Chairman of the Board, wrote a letter to his employees today that pretty much defines high-functioning sociopathy.

I’m going to reprint excerpts from that letter – which is couched in the saccharine vocabulary of modern team-speak, but is in truth a shakedown letter to employees and a ransom note to the US government – and then I’m going to tell you a few things about Doug.

Dear fellow team members,

We respect and greatly appreciate the sacrifice these team members have made, and continue to make, for American and their fellow team members.

Even with those sacrifices, approximately 19,000 of our team members will be involuntarily furloughed or separated from the company on Oct. 1.

The one possibility of avoiding these involuntary reductions on Oct. 1 is a clean extension of the PSP.

If you haven’t already done so, you can let your elected officials know just how important a PSP extension is to you, your families and our economic recovery.

The American Airlines team is no stranger to adversity, and in adversity, we always come through.

We will come out on the other side of this crisis. Until then, take heart that we will get through this together.

The professionalism and care this team has shown over the past six months has been nothing short of extraordinary. We are all American Airlines, and we will survive, and one day, thrive again. Thank you for all you are doing now, and tomorrow, to carry us through.


Know who’s not sweating the October 1 firing line? Know who’s surviving and thriving just fine, thank you very much?

Doug Parker, that’s who.

Here are some fun facts about Doug Parker and his “leadership” of American Airlines since he became Chairman and CEO of the company in 2013, after its merger with US Airways. All of this (and more) can be found in a long note I wrote on the airline bailout back in March.


Do The Right Thing

I’m angry that I have to write this note about the airline industry and how to structure the bail-out of United, Delta, American and Southwest. But I must, because the raccoons and the high-functioning sociopaths are looking to get their private losses socialized and their private gains locked in. Bailout the airlines and their rank-and-file employees? You bet. Bailout the CEOs and Warren Buffett? Not a chance. Read more …


From 2014 through 2019, Doug Parker pocketed more than $150 million in cash through his sale of 3.6 million shares in American Airlines. That’s in addition to the $50 million in stock he still owns (and net of the pittance that Doug has paid for all of these shares). That’s in addition to the $100+ million in cash salary and cash bonuses and deferred comp and stock options and incredible perks that Doug has received. Nope, cash comp and deferred comp are for suckers. Just ask Jamie Dimon.

These stock sales were particularly egregious in 2015 – 2016, where for a twelve month period Doug pocketed between $4 million and $11 million in stock sales per month, and again in 2018, when for a brief shining moment American Airline’s stock price went above $50. Wouldn’t you know it, Doug just happened to choose that moment to sell 437,000 shares of stock, more than twice as much stock as he had ever sold before and almost 5x the usual size of his stock sales.

But surely, compensation like this is well earned. Surely, American Airlines has outperformed its competition, built a solid franchise, and delivered nice returns to its investors.

LOL. Don’t call me Shirley.

From 2014 – 2019, the same years that CEO and Chairman Doug pocketed $200 million in real money stock-based comp, American Airlines had *negative* free cash flow of $3.2 billion.

And took on an additional $14 billion in debt.

And bought back $13 billion of its stock.

How did all this work out for American Airlines shareholders from 2014 – 2019?

That’s American Airlines in white, Delta in yellow, United in purple, and Southwest in Green.

Over this six year period, AAL stock was up 13%. Not 13% per year, but 13% over SIX YEARS of the best bull market in history.

Barf.

Doug Parker is not an entrepreneur. Doug Parker is not a founder. Doug Parker has never built a goddam thing in his life. Doug Parker is not on your “team”.

Doug Parker is a financial analyst. Doug Parker is a manager. Doug Parker is a risk taker with other people’s money and other people’s lives.

And for that, Doug Parker is a centimillionaire many times over.

One day we will recognize the defining Zeitgeist of the Obama/Trump years for what it is: an unparalleled transfer of wealth to the managerial class.

It’s the triumph of the manager over the steward. The triumph of the manager over the entrepreneur. The triumph of the manager over the founder. The triumph of the manager over ALL.

Welcome to the Long Now.

BITFD


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Carny Barkers

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Jim Cramer calls on 10 companies, including Amazon and Alphabet, to issue stock splits (CNBC)

“I think the idea of getting newer, younger people involved into the stock market who aren’t just brainwashed to put money into index funds is terrific.” 

“If you want the market to keep climbing, these ten companies — and many more — need to start taking their cue from Tim Cook and Elon Musk,” Cramer said. “Remember, the size of the price tag matters with this crowd.”


Sometimes you have to work hard to divine the Zeitgeist of the modern age.

And other times the Zeitgeist just walks right up and smacks you with a 2 x 4.

Or a sack of oranges.

I understand from my exhaustive research (i.e., Wikipedia) that in actual carny lingo, there was no such word as “barker”, that instead the hustlers and grifters who talked you into paying two bits for a glimpse of Zeena the Mind Reader and Molly the Electric Woman were called “talkers”.

Fair enough. To-may-to, to-mah-to. I’m fine with referring to Jim Cramer as a carny talker if you like that better, but there’s a punch to “barker” that really fits the bill here.

Yes, that’s heart throb Tyrone Power in “Nightmare Alley” (1947). Doesn’t end well for him.

Of course this has always been CNBC’s business model and Cramer’s shtick, to be nine parts entertainment for one part financial news/advice, but now we’ve traded the rolled-up shirt sleeves (gotta work hard and do your research!) for a carny barker’s striped suit and cane (hey now, step right up to see the egress!).

I mean … “brainwashed to put money into index funds”? AYFKM?

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

Or as Rusty put it yesterday, the grift is now the thing. In the age of capital markets as carny show, we are told by barkers like Cramer that this is what a smart investor or management team does … they should look to the grift du jour for their edge.

For years, we’ve been writing that capital markets have been transformed into a political utility, but now it looks like that was just a waypoint in the metamorphic lifecycle. Kinda like the cocoon stage for a moth.

Or, I suppose, the chest-bursting stage for an Alien xenomorph.

Certainly that’s been the experience for value investors.

No, it wasn’t enough for these high-functioning sociopaths to turn capital markets into a political utility.

Today, capital markets are being transformed into a carny show.

BITFD.


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Get Me Tools and a Beer!

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Homer: That’s it. They have awoken a sleeping giant!

Marge: Homey, what are you going to do?

Bart: Crazy scheme, crazy scheme, crazy scheme…

Homer: Get me tools and a beer!

The Simpsons, Season 13, Episode 15 “Blame it on Lisa”

The crazy Kodak scheme we wrote about a week and a half ago is still an influential part of the Zeitgeist.

It sits atop the Zeitgeist this week for two reasons. First, there has been another event in this absurd saga, and coverage of it has been significant. To wit, on Friday, the U.S. International Development Finance Corporation announced that it was putting the announced loan on hold because “allegations of wrongdoing” raised “serious concerns.”

This is good news.

The announcement from the DFC also spawned a lot of articles with shared language, including this one from CNBC that ranked near the top of our list of financial articles with the most structurally similar language over the weekend.

Kodak pharma deal held up over reported questions about stock move [CNBC]

There is a second reason for the high degree of connection around this topic, however. It is being forcefully attached by political and media missionaries to the rapidly emerging narrative of deglobalization and reshoring of critical American manufacturing. This narrative will be an old friend to most Epsilon Theory readers, who read about its emergence in March in a note we published called Lack of Imagination.

Since we spotted those early missionary drum beats in early-mid March, the narrative exploded in coverage volume across financial media, reaching its peak this summer.

Source: Epsilon Theory

To be fair, there is a very good case to be made that COVID-19 laid bare how the globalization of pharmaceuticals supply chains and manufacturing created unacceptable fragility and vulnerability in exchange for an extended period of higher margins and capital efficiency. Depending on your political proclivities, there is a very good case to be made that government policy will necessarily play a role in reversing, or at least patching, those vulnerabilities. There is room for disagreement, but there is nothing crazy about believing that it is strategically important that America have a strong, complete domestic pharmaceuticals manufacturing industry.

But the gap is WIDE between that belief and the belief that the only way to achieve this is by demanding your tools and a beer so that you can come up with a crazy scheme like tagging the International Developement Finance Corporation to facilitate that transition through a no-strings-attached loan to a government official-linked company that hasn’t had competitive expertise at scale in chemicals, pharmaceuticals or really anything else since it shuttered or sold such businesses over the last few decades.

This topic sits at the top of the Zeitgeist in part because narrative missionaries are aggressively trying to tell each of us how to think about the gap between those beliefs. They are telling us that the gap doesn’t exist. They are telling us to think that extending no-strings-attached financing to Kodak is inextricably related to – no, synonymous with – “doing something about reshoring pharmaceuticals manufacture.”

We are told that they are the same because the narrative missionaries want to be able to produce an unassailable, physically compelling response in us if we or anyone else express doubts. If we say, “Wait, why Kodak?”, they want to be able to respond, “Why don’t you care about restoring American pharmaceuticals manufacturing?” It is the oldest trick in the memetics playbook – the abstraction of A into B, where B is a thing that everybody knows everybody knows is unassailably important. In this case: The Kodak deal is the restoration of American pharmaceutical manufacturing.

In other words, Yay, reshoring!

Here’s what it looks like when a political missionary promotes this narrative with a “Yay, reshoring!” meme attached.

Here’s what it looks like when a media missionary promotes this narrative with a “Yay, reshoring!” meme attached.

And here’s how the echoes of those missionary statements begin to reproduce in the mouths of others. Like the original missionary statements, they ignore the criticisms of the Kodak grift and reframe them as assertions about the need for pharmaceuticals reshoring.

The trick to seeing through these forced abstractions is always the same: we remember that two things can be true at the same time. In this case, it is true that restoring domestic manufacturing capacity in certain critical industries is a legitimate policy aim. AND it is true that the Kodak grift is exactly the crazy scheme it appears to be on the surface.

Anyone who implies that these two assertions are in opposition is selling you on an intentionally constructed narrative.

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Deep Sociopathy

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We don’t pay taxes. Only the little people pay taxes.


That’s Leona Helmsley, New York City hotelier and billionaire by marriage, pictured and quoted above. Not a direct quote, mind you, but what one of her housekeepers testified to hearing at Leona’s tax evasion trial.

Leona – who, among many other infamous Queen of Mean escapades, sued her son’s estate for the cost of flying his casket back to New York after he died of a heart attack at age 42 (and evicted her daughter-in-law and four grandchildren from their Helmsley-owned home) – may have been the most flamboyantly villainous NYC cartoon character of the past 40 years, but scratch any New York real estate development family and you’ll find tales of sociopathy that will make your skin crawl. And no, I’m not just sub-tweeting the Trumps. But yes, definitely them, too.

People get all worked up over the Deep State. Not me.

I get worked up over the Deep Sociopathy, the seemingly universal view among the humans who manage the most powerful corporate and social organizations in the world that both laws and social norms are nothing more than speed limits – arbitrary behavioral constraints that have no intrinsic meaning, but are merely part of an annoying cost-benefit analysis that must be performed as they drive merrily down the road at top speed.

Is murder bad? Hmm, I dunno. What are the chances I will be caught and what price will I pay if that happens? If the odds are high enough and the price steep enough, then yeah, I guess THAT would be bad. But the act of murder itself? I mean, I’m sure whoever I murdered – if I were to murder someone, that is, because I really don’t think you can prove that I did – was getting in the way of something that was very important to me. When you really think about it, they were doing the bad thing! Why do you ask?

I thought about Deep Sociopathy when I read this article about BNP Paribas exiting or at least sharply curtailing their commodity trade finance business, following in the footsteps of SocGen, who did a similar pullback recently in Asia.


BNP Halts New Commodity Trade Finance Deals Amid Unit Review (Bloomberg)

The French bank, one of the largest lenders to global commodity traders, has recently told clients that no new deals will be concluded unless there’s a contractual obligation, said the people, who asked not to be identified because the information isn’t public. BNP is currently reviewing options for the future of its EMEA commodity trade finance business, the people said.

The move comes after the bank took a hit from commodity trade houses facing financial stress from Dubai to the U.S., the people said. BNP’s commodity trade finance team suffered heavy losses from the bank’s exposure to companies including crop trader Phoenix Group, energy firm GP Global Group as well as coffee dealer Coex Coffee International Inc., the people said.


It’s not BNP getting out of the commodity trade finance business per se that’s revealing of the Deep Sociopathy at work here, but rather this gem of a quote:


“The bank has been shrinking its commodity trade finance business since 2014, when it was fined $8.9 billion for violating U.S. sanctions.”


From 2004 through 2012, BNP Paribas was the go-to money launderer for Cuba and Iran, funneling tens of billions of dollars worth of transactions and assets around the world, as well as the functional central bank of Sudan, all in egregious violation of multiple US laws and sanctions.

Because that’s what commodity trade finance IS … providing loans and processing transactions for the middlemen who run the shell companies who move the oil and other commodities that finance every murderous despot on Earth. Unfortunately for BNP, these particular murderous despots in Cuba, Iran and Sudan – not to be confused with all the murderous despots on friendly terms with the United States – were on the wrong side of US law at this particular time, and BNP got caught. Oops, gotta pay that speeding ticket. An $8.9 billion speeding ticket.

But wait, there’s more.

See, this article isn’t quite right when it describes the $8.9 billion that BNP paid in 2015 as a fine.

No, the fine was only $140 million.

The balance – more than $8.8 billion – was just a forfeiture of the fees and trading profits that BNP made in its decade-long criminal conspiracy with these three regimes and their cut-outs.

And here’s the kicker, from a Reuters article describing the final plea deal and settlement in 2015:

BNP’s sentencing had been delayed for months while it awaited word on whether the U.S. Labor Department would allow it to continue to manage retirement plans despite the plea. The department granted BNP that exemption this month.

I mean, organized crime has got nothing on banks like BNP. Organized crime is a bunch of pikers compared to banks like BNP.

Imagine running this sort of criminal enterprise for years, and then negotiating a deal where you agree to forfeit your profits and pay a wrist-slap fine, BUT ONLY if you’re allowed to keep running your legit businesses with no repercussions.

And as if that weren’t enough to make you sick to your stomach …

Now imagine the criminal enterprise that AGREES to this plea deal.

That’s Deep Sociopathy for you. Deep State ain’t got nothing on that.

Or maybe, come to think of it, it’s all one and the same.

#BITFD


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Taiwan is now Arrakis

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He who controls the spice controls the universe.


Yep, that’s the plot of Dune, by Frank Herbert.

It is, in fact, the plot of the entire Dune series of books, one of the ur-texts of modern science fiction. There’s this galactic empire, see, and interstellar travel requires access to a certain narcotic drug, colloquially called “spice”, which only exists on one barren world – Arrakis. So if you want to control the empire, you have to control the supply of spice. And if you want to control the supply of spice, you have to control Arrakis.

I thought about all this when I read this little gem in the aftermath of Intel’s self-immolation last week … you know, the earnings announcement where this crown jewel of American innovation and strength told us that they had decided to financialize themselves into oblivion. Or as I like to call it, “pull a GE”.


TSMC gets large Intel chip order, Apple R&D plant (Seeking Alpha)

Taiwan-based newspaper Commercial Times reports that Intel has ordered 6nm chips from TSMC for next year.

The unprecedented Intel order would reportedly include 180,000 wafers, only slightly behind the raised 200K order from AMD, major TSMC client and Intel rival.

TSMC’s leading-edge capacity is now fully-booked for the first half of next year.

In other news for the pure-play foundry, Economic Daily News says Apple is setting up a display tech R&D plant within TSMC.


The world’s principal supplier of semiconductors – the spice of OUR global empire – is now Taiwan.

Forget about Hong Kong. Forget about the Uighurs. Forget about the virus. Forget about the Trade Deal. Forget about the South China Sea. Forget about all the reasons you’ve been told that the United States should or could be at odds with China.

And by forget, I don’t mean that you should really forget. What I mean is that none of these reasons really matter anymore. None of these reasons are spice. None of these reasons are the supply of semiconductors – the sine qua non of modern global power.

There is no future where the United States can both maintain its existential national interests and allow the world’s principal supplier of semiconductors to come under the direct political control of China.

And there is no future where China can both maintain its existential national interests and allow the world’s principal supplier of semiconductors to remain outside its direct political control.

Thanks a lot, Intel. Thanks a lot, Bob Swan. Thanks a lot, Jack Welch. Thanks a lot, all you Wall Street wizards of financialization.

Taiwan is now Arrakis. It’s now the most important country on earth. And we WILL fight over it.


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Overserved

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A friend of mine came into a meeting one morning looking a tad worse for wear and tear after a night out frequenting some Houston bars. Someone asked him how he was feeling. His response: “Clearly I was overserved.”

I thought about that line – which I have enthusiastically stolen – while reading an email I got this morning from a multi-billion dollar asset manager promoting their new special purpose vehicle (SPV) to buy shares in SpaceX, shares which this asset manager will receive at the end of July as part of the SpaceX Series N funding round.

Yes, Series N. The letter N being the 14th letter of the English alphabet, and thus presumably the 14th private funding round for SpaceX.

To be clear, I’m not a client of this asset manager. I don’t know anyone at this asset manager. I have never had any relationship – personal or professional – with this asset manager. It’s an unsolicited blast email to some bcc list of “Dear Friends”.

The unsolicited blast email came with a few “Space X Confidential and Proprietary” powerpoint slides, chock full of chart crimes like this, where the specific $5 billion addressable market has more graphical surface area than the hand-waving $900 billion addressable market:

And no, if you send me an unsolicited blast email asking me – a complete stranger – for money, I don’t care if you mark your deck “Confidential”. That’s true whether you’re a Nigerian email scammer or a multi-billion dollar asset manager, because the difference isn’t as great as you apparently think it is.

But I’m not here to talk about SpaceX. I don’t know anything about SpaceX other than that – apparently – they publish misleading graphics in their pitch decks. Certainly SpaceX would not be unique in that regard.

No, I’m here to talk about the terms this asset manager is asking for investing in their SPV.

For an existing client of this asset manager, which I am not, it’s a 1% annual management fee and a 10% carried interest for the asset manager.

For a new client of this asset manager, which I would be if I were so inclined and were a “qualified purchaser” (I’m not and not), it’s a 1.5% annual management fee and a 15% carried interest for the asset manager.

To be clear, this asset manager isn’t “managing” anything. I would be paying them 1.5% of my investment every year for access to this initial purchase of SpaceX shares. I would be giving my money to this multi-billion dollar asset manager, and they would in turn give most of the money to SpaceX to get shares in this Series N stock sale for the SPV. But the asset manager will keep a healthy chunk of my money in this SPV as cash to pay for “fund expenses” and (probably) their “management fee”, and my capital account will be debited as if it were cash every year for these expenses and fees.

But wait, there’s more …

No Limited Partner will be permitted to withdraw capital from the Fund without the General Partner’s consent, which may be granted or withheld in its sole discretion and which is generally not expected to be permitted. … As such, prospective investors should not invest unless they are prepared to retain their LP interest until the Fund liquidates, which investors should expect will not occur for a very significant period of time.

LOL.

That’s from the micro-font disclosures page. And yes, it means exactly what you think it means. Your investment is locked up … forever. And the asset manager will collect fees on your investment … forever.

There is no exit here unless SpaceX decides to do an IPO, and when Elon can do an (apparently) infinite number of private stock transactions at whatever valuation Elon’s heart desires, why would SpaceX ever do that?

Now you might do that anyway if employees and early investors clamor loudly enough for the liquidity that an IPO can give them, but this multi-billion dollar asset manager is showing a clever solution for that pressure: get all the liquidity you need by offloading your stock to the rubes AND collect an annual fee for your “generosity” AND get a 15% share of any profits if a miracle occurs and there is an IPO a decade from now.

Whee! Isn’t investing fun!

Who are the rubes? With a minimum investment of only $250,000 to participate in this SPV, it’s clear to me that this offering is being targeted at small “family offices”, the greater fool in the current Wall Street ecosystem.

Yes, this investment opportunity is limited to qualified purchasers, which means that you must have $5 million in investment assets to participate. The asset manager is doing this because having only QPs as investors will exempt the SPV from registering with the SEC under the Investment Company Act of 1940, which is a Big Deal for the asset manager.

Once upon a time, being a QP – i.e., having $5 million in investment assets – was a decent indicator that you were an “institutional investor”, a Big Boy who could take care of himself. Today, every Tom, Dick and Harry “family office” has $5 million in investment assets. It’s a total that’s well below the minimum that many blue chip investment advisors require before they will take you on as a client.

Everyone is all in a tizzy about day traders and Robinhood and Dave Portnoy. “Ooooh, they’re going to have such a hangover when the bubble pops. Ooooh, they don’t understand how investing works.”

Pffft. They’ll be fine.

The investors facing a hangover are small family offices, plied with endless offerings of fee-heavy SPVs and SPACs by multi-billion dollar asset managers. They’re the ones overserved by Wall Street today.


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Snip!

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Last December, we published a note titled The Long Now, Pt. 4 – SNIP! , as part of the Long Now series, which is still, I think, the best entry point for someone new to Epsilon Theory to figure out what all the fuss is about.

The note is about the cutting of the cord between taxes and spending, which is pretty much the last thing that keeps us citizen astronauts tethered to the spaceship of non-totalitarian government. And in that note I wrote this:

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

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

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


Since then we got this in April:

Trump calls for $2 trillion infrastructure package as part of coronavirus response (CNBC)

And now this on Tuesday:

Joe Biden Unveils $2 Trillion Plan to Combat Climate Change (WSJ)


LOL. See, this is why you become a paid subscriber to Epsilon Theory. We can’t always write tomorrow’s headlines today. But we do try.

More seriously, though, I want to leave you with the conclusion to Snip! . Once the tether between taxes and spending is cut:

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

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


This isn’t a Democrat thing and this isn’t a Republican thing. It’s a power thing.

The Long Now is going to get a lot worse before it gets any better, and there is strength in numbers. Watch from a distance if you like, but you are welcome to join our pack.


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An Advantageous Contagion

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A few weeks ago, we published a Zeitgeist called Never Forget about the protests and the narratives being promoted about them. It was a little brief that Ben ended with this flourish:

This isn’t a threat to democracy. This IS democracy.

Never forget.

Never Forget

We got a lot of comments and emails about this one.

Most were supportive. Still, there were enough that fell into two less-than-supportive camps to make us feel they were worthy of mention. The first, if I can paraphrase, wondered why Ben couldn’t see how important it was that so many of the protests really were devolving into riots. The second posited that Ben simply didn’t want to see that so many of the protests were really being stoked and inflamed by outside elements intent on creating division and unrest. If you didn’t see these responses in the wild, simply recreate them by shouting in your shrillest voice, “Haven’t you read about the pre-arranged bricks?” and then collapse in a heap onto the nearest available chaise lounge.

Pearls optional.

We have written before about the peculiar Prussianness of certain American institutions, but not so much about our pronounced shared preference for order even at the cost of injustice. But goodness gracious, people. I feel slightly worse about calling Goethe Prussian than about using one of his quotations cynically (especially since I know the idea is more about the rule of law than order per se), but sometimes the shoe fits:

My good friend Gore would not yet understand how I could have risked so much for the sake of an unknown and perhaps criminal person. I pointed always, jestingly, to the clean space before the house, and said at last, rather impatiently: “The fact is, it is part of my nature; I would rather commit an injustice than suffer disorder.”

J.W. Goethe, Campagne in Frankreich 1792

It is one of the most inconvenient things about the practice of free speech: if it matters, it is messy.

Of course some of the protests turned into nighttime scenes of wanton, arbitrary destruction of property. Of course there were people and organizations who desired, provided for and stoked those activities, who had designs on steering the protests in anti-social, division-focused directions. Of course there are integrated subcultures of the usual professional anti-capitalism, anti-everything activists in a huge swath of the protest events. None of that should surprise anyone. If it did, that’s on you. What is – at least to me – more surprising is how many people are equally willing to buy into the counternarrative that this kind of roughness, artificiality and attempts at co-option which inevitably follow genuine expressions of the speech of a free people, invalidate or lessen the value of those expressions.

Fortunately for proponents of truly free expression, the world as-it-is doesn’t care about our pearl-clutching. Because the other inconvenient thing about the practice of free speech – at least for those who would stifle it with half-hearted No True Scotsman gatekeeping – is that it is contagious.

First, go read the letter now-former New York Times columnist Bari Weiss posted on her personal website today. It is a resignation letter. And yes, it has the usual exhausting “I’m not a lawyer, but this sure seems like constructive discharge” stuff. But the rest of this thing is marvelous, must-read material about resisting the overwhelming power of narrative on ideas and thought.

Resignation Letter – Bari Weiss

Next, go read the letter published by Harper’s – Harper’s! – that was written and co-signed last week by a list of academics, authors and other thinkers entitled “A Letter on Justice and Open Debate.”

A Letter on Justice and Open Debate

A letter co-signed by Nicholas Christakis, Jonathan Haidt, Noam Chomsky, Garry Kasparov and Gloria Steinem is one we should read. Not because they are Important People and we should give two shits what they have to say more than anyone else who has the right of an issue. But because this is probably the most ecumenical expression of commitment to freedom of expression, repudiation of culture-porn and commitment to empowering risk-taking in culture-world that has come out of the left and center-left in most of our lifetimes.

This stifling atmosphere will ultimately harm the most vital causes of our time. The restriction of debate, whether by a repressive government or an intolerant society, invariably hurts those who lack power and makes everyone less capable of democratic participation. The way to defeat bad ideas is by exposure, argument, and persuasion, not by trying to silence or wish them away. We refuse any false choice between justice and freedom, which cannot exist without each other. As writers we need a culture that leaves us room for experimentation, risk taking, and even mistakes. We need to preserve the possibility of good-faith disagreement without dire professional consequences. If we won’t defend the very thing on which our work depends, we shouldn’t expect the public or the state to defend it for us.

A Letter on Justice and Open Debate (Harpers, July 7, 2020)

Y’all, if you had a Chomsky and Steinem parlay in your “Who will argue most vociferously for widening the Overton Window in 2020?” pool, you are now officially the richest person in America.

With all that said, there’s no need to be pollyannaish about where we are at on this – looking at you, social media giants – but if a commitment to free expression is the next contagion to catch from the bottom up, we are here for it.

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The Lost Art of the Jawbone

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mundanewarrior's Movie Musings: Fear and Loathing in Las Vegas (1998)

Duke (in his head): If so – well, we’ll just have to cut his head off and bury him somewhere.  Because it goes without saying that we can’t turn him loose. He’d report us at once to some kind of outback Nazi law enforcement agency, and they’ll run us down like dogs.

Duke (out loud): Jesus. Did I say that?

Duke (in his head): Or just think it. Was I talking? Did they hear me?

Gonzo (to the hitchhiker): It’s okay. He’s admiring the shape of your skull.

Fear and Loathing in Las Vegas (1998)

When Ben writes “They’re not even pretending anymore!” it is usually because he is really pissed off about something. I’m not just talking about the vague irritation hiding just below the surface at all times, but the special kind. The kind that you have to earn.

Me? It’s an expression of disappointment. The practiced kind of disappointment that only a father to two young boys can have, because when the four year-old punches the five year-old in the back of the head for saying something mean about mommy, YOU come up with a better answer than “Boys, I’m, uh, really disappointed.”

There is little that is more disappointing than lazy propaganda. It is literally the only thing a politician does that requires cleverness of any kind (okay, maybe fraud and compromise, too), so its devolution into the broadcast of a political functionary’s internal monologue out loud on national television is pretty unfulfilling. Larry Kudlow at least has the excuse of continuing to play the character that he has always played on television.

Still can’t get over this gem from February.


I just want to say, though, as far as the US is concerned, when you look at this, I mean you’ve got a little higher headcount on the infections because of the cruise ship people coming off, we have contained this. I won’t say airtight, but pretty close to airtight. We’ve done a good job in the United States.

Larry Kudlow to CNBC on February 25, 2020

But the Chinese Communist Party? Et tu?

China told citizens to buy stocks, boosting market — ‘We have the Fed…China has its state media’ [CNBC]

A front-page editorial in China Securities Journal said fostering a “healthy bull market” is important given China’s increasingly complicated international relations, intense financial and technological competition, and the challenge of controlling internal financial risks.

Chinese Stocks Surge as Individual Investors Pile Into Market, WSJ

Call me a dreamer. Tell me I’ve just got rose-tinted glasses about the good ol’ days. But I remember when “BUY MOAR STOCKS” would be a message buried in the subterfuge of the carefully orchestrated release of cartoonified macro figures and tangentially related analyses from state banks massaged to carry the trappings of independence. Now we’re just going to say the quiet part out loud? In an editorial? On the front page of the securities journal subsidiary of Xinhua News Agency, the state-run media arm of the CCP? With transparent cannot-miss-if-you-tried references to its implications for the security of the state?

It is almost as if the world’s political leaders are discovering that the usual dosage of common knowledge construction is insufficient to the operation of capital markets as a political utility.

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The Lystrosaurus

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An illustration of a particularly dapper-looking Lystrosaurus georgi specimen

One of the foundational ideas of the Zeitgeist is that measuring linguistic similarity is a powerful way to observe what we are being told matters by those who publish most of the words we read in a given day.

It should be intuitive that the source of that similarity is sometimes reducible to topics. If a single event is dominating headlines, then language that describes that event is going to cause measures of similarity to rise. This is useful, but not especially interesting. You don’t need us to tell you when a topic is dominating headlines.

That is why when we write about narrative in terms of our measures of linguistic similarity we tend to either control for topic (i.e. we look at measures within topical sub-sets of news) or focus on the evolution of topic behaviors over long periods of time. We think these are powerful ways to observe when a story and its associated vocabulary have become common knowledge.

Sometimes, however, concentrating on a single topic can make it easy to miss the connections of a narrative across multiple disciplines. In other words, there is practically no information (by which we mean something that would make you change your mind about something) in the observation that people are talking about the same things. There is some information in the observation that they are using the same language patterns to talk about it, since that implies some measure of other-regarding behavior. But there is a lot of information in the observation that multiple otherwise unconnected disciplines or lenses for looking at the world are applying the same language to those different angles of a connected problem.

You can think of it as the linguistic equivalent of the discovery of the fossils of a handsome specimen like that lystrosaurus pictured above on the Indian subcontinent, China, Africa and Antarctica, a discovery that permitted us to draw new connections between an entire range of scientific and cultural topics that went far beyond a pig-like creature from the early Triassic. Like, say, plate tectonics, geology, evolution, and cross-cultural similarities in mythologies and legends.

But just in case the analogy feels like I’ve been playing a bit too much quarantine science teacher (guilty as charged), let me tell you in more practical terms what I’m talking about.


Yesterday I got three emails.

The first was from a long-time friend, a specialist in technology and VC law, who sent me a link to this piece from the Wall Street Journal.

If Inflation Is Coming, the Market Isn’t Ready

The second was an email from a CIO at a Top-5 university endowment who circulates a daily list of what he is reading to friends and colleagues. This one is behind a research paywall, but you get the topical gist from the headline even if you don’t subscribe.

The State Of The Stock/Bond Relationship

The third was an article that topped the Zeitgeist last week, but didn’t make the cut to produce a full-blown article from us (at the time, anyway).

Why It’s Time to Rethink Bonds

If you don’t subscribe to the WSJ, all three of those links may be behind a paywall for you, but it doesn’t matter. I don’t think any of the articles is particularly informative, or at least I don’t think that any of them provides any new or novel insight. What is fascinating to me is that within a week, a professional market research shop, a personal finance writer and a financial markets journalist all took on the question of “the role of bonds.” What is fascinating to me is that within that same week, a bright private markets specialist (but public markets layperson), one of the ten or so most important asset owner CIOs in the US and an NLP algorithm all told me that “the role of bonds” is something that was on their mind and the minds of others.

We aren’t predicting. We are observing.

I can’t tell you how to gaze through the fog of a deflationary shock to predict what the Fed’s unprecedented intervention will mean in the medium- and long-run for prices. I can’t tell you if and when the macro regime will become one in which bonds cease to diversify stock exposures like they have for the past 35+ years. I can’t tell you whether financial advisors and individuals change the way they think about the role of the bonds in their portfolios.

But I can observe that enough people are thinking about it – and enough people know that other people are thinking about it – that common knowledge is forming around the question. If I can be permitted one pretty uncontroversial prediction, it is that the narrative, NOT the reality of inflation or correlation matrices in the real world, will be the force that causes investors to change their behaviors and portfolios.

We’ve been ringing the bell for asset owners and advisers to figure out how our industrialized investment ecosystem and crystallized processes may need to be adjusted to handle change in the narratives of inflation and the stock/bond relationship for a couple years now.

We rang the bell here:

We rang the bell here:

And we rang the bell here:

And while the uncertainty and opportunities of COVID-19 and politics may be (appropriately) front of mind for investors, while the reality of inflation may feel miles away, we are ringing that bell again.

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No Country for Old Men

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Wendell: You think this boy Moss has got any notion of the sorts of sons of bitches that’re huntin’ him?

Ed Tom Bell: I don’t know, he ought to. He’s seen the same things I’ve seen, and it’s certainly made an impression on me.

No Country for Old Men (2007)

A personal note on Covid-19, healthcare consumption, and  … pain. Three things that have certainly made an impression on me.

For the past five months, ever since I published this note about the biology of the virus and the lies China was publishing about its spread in Wuhan, Covid-19 has been a daily companion.


Body Count

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



My other daily companion has been pain.

I’ve got the genetics for varicose veins, and unfortunately mine manifest themselves in a nerve-rich area of the body – my ass. I have terrible hemorrhoids.

There’s nothing for it except surgery. I’ve tried every non-surgical therapy my doctor can suggest. Ditto Dr. Internet. None of them provide meaningful relief. As for medical intervention short of an __ectomy, banding was successful in the past, but I’m way past that now.

There’s nothing life-threatening about this. It’s not an emergency.

There’s only the pain. Intermittent … excruciating pain.

It’s exactly like having a red-hot poker stuck up your ass. Or so I imagine. Sometimes the pain is so bad that the entire situation becomes incredibly funny to me and I just start laughing.

Opiates scare me to death, plus they have digestive side effects that you really don’t want in my condition. So I “manage” the pain with Advil, ice packs, and traditional central nervous system depressants – tequila, mostly. Cannabis helps a bit. Nothing helps much.

The worst part is not sleeping for more than an hour or two at a time. Hmm. Actually, the worst part is literally blinding pain. Though not sleeping is the most health-damaging part, I suspect. The weirdest part: as I write this, I can feel tissues moving inside my body. Like a worm.

We’ve all got crosses to bear, many a lot worse than mine. This note isn’t for sympathy (although now you know why I’m on Twitter so much – it’s all I can manage much of the time). This note is for what my situation means for healthcare consumption. Because I’m not alone. We all know someone who is in urgent-but-not-emergency need of some medical procedure that can’t be scheduled while Covid-19 is storming the hospital ramparts.

Connecticut is opening up a bit, so I’ve got an outpatient surgery scheduled at the big local hospital (specialty clinics are still closed) next Friday. I feel lucky to get on the calendar so soon. I also feel nervous. My dad was an ER doc. My brother is a healthcare lawyer. Again, these are things that have certainly made an impression on me.

To be clear, my lack of healthcare options today and over the past 3 months isn’t because of the lockdown. That’s how a child would see this.

My lack of healthcare options is because of the virus.

In its acute phase, Covid-19 shuts down non-emergency healthcare provision entirely.

In its endemic phase, Covid-19 forces enormous and costly changes in healthcare provision. There is no “v-shaped recovery” for medicine.

Covid-19 is now in its endemic phase.


Self Assured Destruction

Our leaders have botched the Covid-19 war, and we are defenseless against a now endemic disease. The free world does not easily survive a globally endemic Covid-19. … Continue reading



The enormous and costly changes in healthcare provision that Covid-19 requires and the resulting impact on healthcare consumption lead me to three conclusions about the healthcare industry and national politics.

Conclusion #1: Endemic Covid-19 permanently dents healthcare provision (and consumption). The days of “efficient” (i.e., insanely lucrative) specialty medical clinics where docs go through 3 knee replacements or 10 lasik procedures in an afternoon are GONE.

Conclusion #2: Although both acute and endemic Covid-19 sharply reduce my healthcare options and healthcare consumption, my healthcare insurance costs have not gone down. They’ve gone up. Healthcare payers (insurance cos) are a public utility. They should be regulated as such. #BITFD

Conclusion #3: For the past 30 years, US fiscal policy has been largely driven by Boomers’ insatiable demand for more and more healthcare, to the advantage of both the Dems AND the GOP. Covid-19 destroys that cozy political dynamic, but neither party realizes this yet.


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Misfortune vs. Carelessness

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Ex-acting Labor secretary defends BLS in the wake of jobs report misclassification error (CNN)

In its monthly jobs report released Friday, the BLS showed the US unemployment rate fell to 13.3% in May, as the economy gained 2.5 million jobs.

BLS, however, noted its data collectors — for the third month in a row — misclassified some workers as “employed not at work,” when they should have been classified as “unemployed on temporary layoff.”

Barring that issue, the unemployment rate could have been as high as 19.2% in April and 16.1% in May, not including seasonal adjustments, the BLS said.

“I fear that because this was a fairly serious misclassification that people are going to hatch a bunch of conspiracy theories around it. They shouldn’t do that,” Seth Harris, who served as acting Labor Secretary under President Barack Obama, told CNN’s Fredricka Whitfield on Saturday.

“I don’t think the folks at BLS are trying to cook the books or make President Trump look good. They’re career professionals. They take their craft very seriously. They’re trying to do the best they possibly can in a very complicated situation,” he added.

He commended the BLS for being “transparent” about the error, saying it was the “right way to respond.”


LOL.

Back in 2013 – in some of my very first Epsilon Theory notes – I wrote about how unemployment data was chronically misreported during Barack Obama’s first term, with an outrageous bias towards making the employment news flow in the United States look much better in narrative than it was in fact. You can read the original note – Heere Comes Lucky! – or the more in-depth note – The Icarus Moment – for all the gory details, but the skinny is this: for a period of some years in the aftermath of the Great Financial Crisis, initial unemployment claims were systematically undercounted. Amazingly enough, this systematic misreporting in unemployment data stopped after Obama was re-elected for a second term.

Was this an intentional act of malfeasance and corruption by the Obama-era Bureau of Labor Statistics (BLS), who at the time weren’t even responsible for collecting the weekly initial unemployment claims data?

Nope.

Did the Obama-era BLS recognize the systematic error and direction of bias in the initial unemployment claims data?

Absolutely.

Could the Obama-era BLS have fixed the systematic error and direction of bias in the initial unemployment claims data if they had wanted to?

In a heartbeat.

It’s exactly the same thing with the Trump-era Bureau of Labor Statistics and the reporting of weekly and monthly employment data. The measurement error we’ve seen in the monthly jobs report – and keep in mind that it is exactly the SAME ERROR being made for the past THREE MONTHS – is not an intentional mistake. But the failure to correct these errors – the conscious effort required to allow known and obvious errors to persist and create a market-moving and election-moving cartoon – well, I think that IS intentional.

“To lose one parent, Mr. Worthing, may be regarded as a misfortune; to lose both looks like carelessness.”

Oscar Wilde, “The Importance of Being Earnest”

Accidents happen. Misfortune occurs. Mistakes are made. But when the same accident happens over and over again, in exactly the same way and with exactly the same bias …

What’s happening with the Bureau of Labor Statistics – and of course it’s not only the Bureau of Labor Statistics – is an intentional carelessness.

It is an intentional, political carelessness that supports status quo cartoons of control, regardless of which political party happens to be championing the status quo today.

It’s not a Democrat thing and it’s not a Republican thing.

It’s a power thing.

Once you see it for what it is … a power thing, a system thing … you will never see it in the same old partisan ways again. That’s when they start to lose their narrative hold over you. That’s when the world starts to change.

Can you feel it?


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Never Forget

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Tiananmen Square, June 4, 1989


With Hong Kong’s Tiananmen Square Vigil Canceled, ‘The Fire Is Flickering’ (Wall Street Journal)

HONG KONG—Most years for the past three decades, the Rev. Youngman Chan has gathered with thousands of others in a Hong Kong park on June 4 to commemorate the students who died in 1989 while demanding democracy in China. …

This year, the vigil has been canceled. Police refused permission, citing a coronavirus-control rule limiting social gatherings to eight people, and threatened anyone who defies the ban with arrest. …

The vigil’s attendance has been a barometer of the city’s political mood, typically swelling in years of particularly unpopular decisions from Beijing. Last year’s crowd exceeded 180,000, organizers said, equaling the record.


For a period of some weeks in 1989, more than 200,000 Chinese citizens gathered in Beijing’s Tiananmen Square to protest the authoritarian and non-representative rule of the Chinese Communist Party. On June 4th, the Deng Xiaoping government ordered the military to clear the square and prevent the crowd from regathering. This military operation was carried out, as Sen. Tom Cotton is advocating for similar measures in the US, with “no quarter”. We’ll never know how many Chinese citizens were killed that day, but secret British diplomatic cables released in 2017 put the number at more than 10,000.

Since that day, the Chinese government has gone to enormous lengths to whitewash any record of that massacre from public consumption. Even today – more than 30 years after the fact – June 4th is colloquially referred to as “Internet maintenance day” on the mainland, and even a passing social media reference to June 4th and its historical meaning will earn you a knock on the door – or much worse – from the Chinese security services.

For the past 30 years, however, June 4th has been commemorated in Hong Kong with vigils and mass remembrances of that tragic day. Last year, more than 180,000 Hong Kong residents gathered together on June 4th to stand witness against the violent tyranny of the Chinese state and its efforts to erase history.

This year, Hong Kong authorities refused permission for the June 4th vigil, and threatened to arrest any crowd that gathered for this purpose.

Next year, under the “national security laws” that Beijing will soon impose on Hong Kong, not only will the congregation of such a crowd be illegal (and simple arrest will be the least of the consequences for any protesters), but also social media or Internet remembrances of the June 4th massacre in Tiananmen Square will be punishable by fine and arrest.

Hong Kong, 1997

Washington DC, 2020

Can a Tiananmen Square massacre happen in the United States?

I doubt it. Although the possibility becomes both real and non-trivial if Tom Cotton and Donald Trump get their way and use the Insurrection Act to “put down” protests with regular US military troops or with paramilitary squads dragooned from federal prisons and the like.

Whatever your views on the validity or lack thereof for the protests themselves, if you don’t think it matters whether Lafayette Park is cleared by DC Police or cleared by these guys, you’re wrong. In fact, for the preservation of liberty and the Constitution of the United States, it’s really the ONLY thing that matters.

Can a Tiananmen Square rewriting of history happen in the United States?

Absolutely. It already is.

And not just in the appropriation of imagery and symbol, like Trump’s misbegotten St. John’s photo-op the other day. That’s trivial. That’s just silly.

No, the REAL rewriting of history is done by both the Democrats AND the Republicans, by both Fox AND CNN. The real rewriting of history is the creation of channeling narratives that tell you how to think about George Floyd and his murder in ways that fit THEIR interests, not yours!

The broad-daylight mass political protests are growing. Some police departments are doing a good job reacting to this. More will.

The dead-of-night mass criminal lootings are shrinking. A few police departments are doing a good job reacting to this. More will.

Over the next few days, hundreds of thousands of pissed-off Americans will protest a broken system of political representation and individual justice in cities and towns all across the country. And they won’t break a thing except the complacency and narratives of a corrupt two-party system and its crony capitalist supporters.

This isn’t a threat to democracy. This IS democracy.

Never forget.


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The Hertz Story Isn’t What You Think

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Carl Icahn, sharing a laugh

Hertz awards over $16 million in retention bonus to key executives (Reuters)

U.S. car rental company Hertz Global Holdings (HTZ.N) said on Tuesday it has paid about $16.2 million in retention bonuses to a range of key executives at the director level and above, days after the company filed for bankruptcy protection.

The company paid President and Chief Executive Officer Paul Stone $700,000, and Executive Vice President and Chief Financial Officer Jamere Jackson $600,000 as retention bonuses, Hertz said in a filing to the U.S. regulators.

Last week, the board of the company, which counts billionaire investor Carl Icahn as its largest shareholder with a nearly 39% stake, allowed it to seek chapter 11 protection in a U.S. bankruptcy court in Delaware.


My Twitter feed this morning was deluged with people calling out Hertz for awarding $16 million in retention bonuses to senior executives right before they declared bankruptcy.

Sure looks like a classic BITFD adventure in financialization, right? Where entrenched, self-dealing executives transfer vast wealth to themselves in the good times, protect themselves in the bad times, and leave 38,000 rank-and-file Hertz employees to twist in the wind.

But this is not that story.

The Hertz bankruptcy is not a story of entrenched, self-dealing management. Nope, if anything management is getting screwed here, and the $16 million in retention bonuses – spread over 340 employees – is on the way, way, way low end for what I’d expect. This feels to me more like an ultimatum for management than a reward, something like, “Take this to keep your mouth shut and rip up your employment contract, or hit the road and we’ll see you in court.”

Consider this. A week ago Kathryn Marinello was the President and CEO of Hertz, a position she’s held since January 2017. She’s out, left holding 408,000 shares of basically worthless stock. BTW, she spent more of her own money buying Hertz shares on the open market ($520,000) than she pocketed from sales ($355,000). Neither CFO Jamere Jackson (189,000 shares) nor new CEO and former EVP Paul Stone (48,000 shares) has ever sold a share of stock.

I mean, I don’t feel sorry for this crew. Marinello’s cash comp in 2019 was $3.6 million. CFO Jackson got $1.6 million in cash comp, and EVP Stone got $1.1 million. Sure, their stock holdings are now worth squat, but with the exception of 40,000 shares Marinello bought with her own money, they paid nothing for these shares.

But this is not a story of financialization by an entrenched, self-dealing management team.

It’s a story of financialization by an entrenched, self-dealing minority ownership team.

On June 30, 2016, Carl Icahn led a restructuring of “Old Hertz”, where the Hertz Equipment Rental Corporation (HERC) was split off from the car rental operations (Hertz Global Holdings). Each became a separate publicly-traded company (Icahn with 39% equity stake in Hertz and a 15% stake in HERC), each installed an Icahn-controlled board (not “controlled” in a legal sense, but controlled sure enough), and each started taking on massive amounts of debt.

How much debt?

Well, HERC has about $2.1 billion in long-term debt, against an equity market cap of only $830 million (and that’s more than twice what it was at the March lows). The equity position is what we might call a stub … a small piece of the enterprise value of the overall corporation (debt + equity – cash). If you want to understand HERC as an equity investment, you better focus your analysis on that debt position and how the company can support that kind of leverage!

As for the debt levels at Hertz … LOL.

Hertz has more than $19 billion in long-term debt, against a market cap that was (at its 2019 peak!) about $2.1 billion. Now there’s a stub for you.

It’s hard for me to adequately convey the playground that an insanely levered rental company – whether it rents cars or construction equipment – provides for a financialization genius like Carl Icahn. Between asset depreciation assumptions, cost of capital assumptions, and the ability to securitize or otherwise move assets off your balance sheet … the accounting cookie jar that a rental company gives Icahn is otherworldly. Keep in mind, too, that in 2017 – more than a year after Icahn took control – Hertz was forced to report that management had “identified material weaknesses in our internal control over financial reporting.”

And then this happened:

  • Per the 2019 10-k, Hertz paid Icahn-controlled companies $57 million in related party transactions last year, including property lease payments.
  • Per the 2019 10-k, Hertz pension plan obligations are now underfunded by $126 million.
  • Per the 2019 10-k, last year Hertz raised $750 million in new equity, $500 million in new debt maturing in 2026, and $900 million in new debt maturing in 2028. With those proceeds, Hertz redeemed $700 million of debt due in 2020, $500 million of debt due in 2021, and $900 million of Senior Second Priority Secured Notes.

So sure, you can get all worked up about the $16 million in retention “bonuses” that the Icahn board approved to 340 employees if you like.

Me, I’m more curious about the related party transactions, what happens to the pension fund, and who owned those second priority notes.


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Hateful Memes and Election Season

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As the core COVID-19 narrative shifts from the mixture of human and economic tolls that dominated news over the past few weeks to the coverage of lockdown relaxation across the United States, we are starting to observe other topics and language creeping back into the Zeitgeist for the first time.

Unsurprisingly, most of them have still been tangentially related to the pandemic.

For example, we are observing a lot of shared language in the ether about direct sales and e-commerce (a term I thought had gone out of vogue years ago, to be honest). The framing of these pieces positions them squarely – and consistently – in context of a response to pandemic-driven buying behaviors.

Pepsi Unveils 2 New Websites to Sell Its Products [The Street]

Likewise, there are fascinating micro-clusters of only-sort-of-coronavirusy language popping out in ways we have not observed before, too. For example, this standard wire service blurb is representative of a wide swath of health care companies reporting, affirming guidance and trading up a bit on the news. It is an odd bit of linguistic uniformity.

Mylan’s stock gains 2%, reaffirms guidance for 2020 [DJ Newswires]

And if you can manage to link a holiday like……Mother’s Day with COVID-19, well, then you’ll probably find your way to a brief top billing on our check for language with high interconnectedness across clusters and topics. Nice one, Mike.

Mike Rowe: Moms are ‘the ultimate’ essential workers [Fox News]

We have also observed that story stocks – the ones which have some kind of non-fundamental appeal that crosses typical demographic and investor style boundaries – frequently make their way to the top of the Zeitgeist. It is an unavoidable result of their connection to all sorts of other pop culture, technology, social and cultural trends. Which, in a nutshell, is what we mean when we call something a story stock.

Elon Musk says he’s willing to be arrested as Tesla reopens Fremont factory [NY Post]


Yet we are observing some emerging consensus topics and language that have little-to-no pandemic relationship, and which we think are likely to be our companions for the next few months. One of the biggest appears to be the role of AI and machine learning in the identification of patterns of online behavior. Or, in the words of researchers at Facebook, ‘hateful memes’.

Facebook says AI has a ways to go to detect nasty memes [ZDNet]

The article itself is largely a summary of a paper published by the Facebook AI team in connection with their prize-sponsored effort to crowdsource solutions to the problem of systematically analyzing combined text and image data (or other multi-modal forms) that typifies most internet memes. In short, it’s pretty hard to spot whether the most common type of internet meme is abusive, mean or hateful, and we’re still not very good at it. It is technologically fascinating exercise. It is also terrifyingly Orwellian.

To their credit, ZDNet asks some good questions.

A second question was what the scale of the problem is of hate speech at Facebook. Given that the premise of the work is to enlist AI to clean up hateful utterances on social media, it’s important to know things such as how much hate speech is removed on a regular basis, or perhaps a tally to date. Facebook declined to comment.

Facebook says AI has a ways to go to detect nasty memes (ZDNet, May 12, 2020)

M’kay.

There ought to be an impulse to ask “why am I reading this now?” in response to this piece, and perhaps even more so to the underlying Facebook research. It’s reasonable to wonder why its language is so deeply connected to other news being published right now. At risk of answering what is usually intended to be a rhetorical question, I’ll offer what I think based on the language I’m observing in other articles it was connected to: election season.

It’s here, and this is ripe territory for the top-down political narratives we will be discussing at much greater length in the coming weeks. If you have not prepared yourself for a news and social media cycle framed in highly polarized terms of misinformation / censorship / manipulation, now is probably your last chance.

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American Idol

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An 89 year old man who hasn’t gotten a haircut in months sits at the dais, alone, accompanied by a hotel ballroom all-purpose drinking glass filled with Coca-Cola and a stack of printed slides. The slides are text-only, black font on stark white. No frills.

The speaker is the most legendary investor and business personality in the world. His financial conquests have accrued an almost mythological tincture in their telling and retelling over the decades. He is Daedalus, having built a labyrinth of intersecting interests from insurance to electricity, and then a pair of waxen wings to fly above it all, with just a few dozen employees and contracts written on cocktail napkins. He is Midas, touching afflicted financial corporations in a time of mass insolvency with his rescue money and, more importantly, his imprimatur. One-eyed Odin sitting beneath the eaves of Yggdrasil, having paid a bodily price to have drunk from the Well of Wisdom. He is the Oracle, with tens of thousands braving the journey and the Omaha Embassy Suites to hear his annual pronouncements. …

Anyway, the old man spoke on Saturday. For a long time. The sparsity of text on each slide was in no way a signifier of whether or not he had much to say. Buffett was, as always, loquacious and brimming with interesting statistics – American history, market returns, inflation – turns out the Louisiana Purchase, at just 3 cents an acre, was an absolute steal.

But it wasn’t the same.

Josh Brown, This Version of Warren Buffett

Warren Buffett is the American Idol of investing. He is, as Josh Brown puts it so well here, an impossible combination of Daedalus, Midas, Odin and Oracle. He is a mythic figure, with a public persona and legend that goes far beyond his considerable investment skills.

Warren Buffett is a performer. That’s not a knock on him. Not at all! Public performance is what is required to be a mythic figure. Public performance is what is required to evolve from just a really good singer, someone who can hit all the notes, into someone who transcends mere singing and becomes an American Idol.

Really good investors – like really good singers – are not exactly common, but they’re not exactly rare, either. Transforming yourself from a really good investor into a Great Investor, on the other hand … well, that IS rare. And it only happens through the active creation of a personal mythology. It only happens through public performance.

There is no more powerful venue for public performance than a live audience.

This is how legends are made, whether you are a singer or an investor or a politician. This is how you build a following, not in the sense of casual fandom, but in the sense of zealotry. This is how Warren Buffett used the Berkshire Hathaway annual shareholder meeting to transform himself from a really good investor – probably a great investor – into a Great Investor.



Looks like fun, right? I’ve never made the hajj to Omaha myself, but I know exactly what it feels like. It feels like an SEC football game. It feels like a performance at the Apollo. It feels like a campaign rally. It feels like an inauguration. It feels like a papal sermon in St. Peter’s Square. It feels like a Veterans Day parade.

It feels AMAZING, and that’s true whether you are there in person or watching on TV. It’s better in person, for sure. But it’s not bad on TV.

So what happens when you take the live audience away from a great performer like Warren Buffett?

We, the audience watching from home, don’t think the performance is as good.

Not because the actual physical performance is any different! But because we, the audience watching from home, no longer have the cues to tell us how wonderful the performance is. The crowd can no longer watch the crowd, and that means everything for how the crowd consumes the performance.

This is why sitcoms have laugh tracks. This is why executions used to be held in public. This is why coronations and inaugurations still are. This is why, more than 25 years later, China still prevents any images of the protest crowds in Tiananmen Square from getting on domestic Internet sites. This is how riots start. This is how cathedrals are built. It is the power of the crowd watching the crowd, and for my money it is the most powerful social force in human history.

When the crowd can’t see the crowd, the crowd loses its interest in the performance. We get bored. We tune out.

Like Josh says, it’s just not the same.

Here, I’ll prove it.

In mid-March, the producers of American Idol made a tough decision. Just as they were about to begin their live performance schedule in Los Angeles, where the 20 Idol wannabes would be whittled down week by week, COVID-19 lockdowns made it impossible to maintain that production model. Rather than cancel the season altogether, the producers decided to retool with two weeks of filler material focused on the contestants’ backstories, followed by a resumed competition filmed at the contestants’ and the judges’ homes.

So we went from this in the 2019 American Idol season …



To this in the 2020 season …

Where the contestants literally sing to the camera from their living room or garage, and the entire show takes on the production values of a Zoom conference call.



To be clear, the actual singing is terrific! Seriously, there’s a ton of talent (diverse talent, too!) on this year’s show. The backing musicians are AMAZING, and the acoustics are not as bad as you would fear. No idea what sort of mixing or editing technology is required to make the final product turn out as well as it does, but the producers deserve a lot of credit here.

There’s just one problem. We, the television audience, think it sucks.

I compiled the apples-to-apples ratings data for the first twelve episodes of the 2019 and 2020 American Idol seasons (Sunday night to Sunday night, same network, same time slot), both on absolute numbers of viewers and the 18-49 year-old demographic (which really drives the economics of these shows). The line drawn between after the April 5, 2020 episode is when the production formats for the 2019 and 2020 seasons diverged.

With the elimination of a live audience format, year-over-year ratings have collapsed.

Seriously, with these ratings I’ll be surprised if this season of American Idol isn’t canceled before they crown a winner. Yes, the show still holds up pretty well against its time slot competition, but this just isn’t viable for whatever budget and projections ABC had coming into the season.


American Idol ratings by episode, 2020 vs. 2019

Take away a great performer’s live audience, and you take away their source of narrative power.

That’s true for American Idol. That’s true for Warren Buffett. It’s also true for Donald Trump.

You think Trump is happy to replace his live audience campaign rallies with televised press conferences? You think he doesn’t realize this is killing him politically?

Whatever you think of Donald Trump, if you don’t realize he is a great performer and a master of the Common Knowledge Game, you’re just not paying attention. Without live performances, he loses a major power source for the November election.

I think this is a big reason why Trump is pushing so hard to reopen battleground states.

And one more thing …

If any of the sports leagues are contemplating TV audience-only competition, my advice is to think again.

The power of the crowd watching the crowd is also true for sports leagues. Maybe more true for sports than for any social function other than war. Without a live crowd for the TV crowd to take its cues from, the TV crowd will quickly lose engagement and interest. Regardless of the level of competition, a disembodied audience is a bored audience.

And that’s the only true death for any performer in any field. That’s the only thing you can’t recover from in the modern age. Boredom.

Welcome to the age of bread and circuses, my friends. Same as it ever was. Especially here in the age of COVID-19.


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