The Zeitgeist – May 7, 2021


Here’s what we’re reading and working on this week at Epsilon Theory.

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Every item in this email is a discussion thread on the Epsilon Theory Forum – a safe space to speak your mind, a safe space to find like-minded truth-seekers. Watch from a distance if you like, but when you’re ready … join us.

Now Hiring

From a Wall Street Journal article on Thursday:

Millions Are Unemployed. Why Can’t Companies Find Workers?

In a red-hot economy coming out of a pandemic and lockdowns, with unemployment still far higher than it was pre-Covid, the country is in a striking predicament. Businesses can’t find enough people to hire.

Rising vaccination rates, easing lockdowns and enormous amounts of federal stimulus aid are boosting consumer spending on goods and services. Yet employers in sectors like manufacturing, restaurants and construction are struggling to find workers. There are more job openings in the U.S. this spring than before the pandemic hit in March 2020, and fewer people in the labor force, according to the Labor Department and private recruiting sites.

If only there were some mechanism by which companies could entice people to work for them. I dunno, it’s a real head scratcher.

What Sort of Business is Investment Banking?

If you haven’t read Marc Rubinstein’s note we published this week, it’s well worth checking out!

So fortunate to have the chance to republish some of Marc’s notes, and his meme-craft is beyond compare. Honestly, this is the best meme I’ve seen on Fintwit in a loooong time.

Origins of the Panopticon

Also well worth checking out is the podcast we put out this week — In Praise of Bitcoin. I think this is our best pod yet, not just for what it has to say about Bitcoin, but as a good entry point to what Epsilon Theory is all about.

Part of what Epsilon Theory is all about is pointing out modern implementations of the Panopticon … a proposal from the late 1700s for the perfect prison, where the inmates (that’s us!) willingly enforce the jailer’s discipline on themselves.

An ET Pack member sent me this DM regarding the origins of the Panopticon concept, which I found fascinating! Yes, Jeremy Bentham proposed the design as a perfect prison, but it was his brother Samuel who originally conceived the idea as a way of forcing shipyard laborers to accept fiat and snitch on each other regarding their favored form of compensation: leftover lumber.

Ben, forgive me if you already know this bit of panopticon history, but I didn’t see it mentioned in the original ET Panopticon note, nor hear it in the recent Bitcoin podcast. I thought you’d enjoy it if you aren’t already familiar:

I believe it was in fact Jeremy’s brother, Samuel Bentham, who developed the concept for the Panopticon.

The inspiration for its development came from Samuel’s time working in British naval yards and trying to develop a way to enforce laborers to ACCEPT MONETARY WAGES as a form of remuneration. They didn’t want the currency, they wanted “chips” — bits of unused material from the ship building process for which they could negotiate value.

Excellent reading on the topic here. And credit for my knowledge of this to the late, great David Graeber, who mentioned it in Debt, IIRC:

But the Windmills!

From a Wall Street Journal article on Friday:

As Texas Went Dark, the State Paid Natural-Gas Companies to Go Offline

The Electric Reliability Council of Texas activated a program that pays large industrial power users to reduce their consumption during emergencies. But the grid operator, known as Ercot, didn’t know who was being paid to participate in this program and what type of facilities were getting shut off, it has since acknowledged.

The Journal’s analysis of grid records shows that participants included dozens of critical pieces of natural-gas infrastructure. Ercot ordered them to stay off for more than four days, as gas prices surged to extraordinary levels and some power plants stopped producing electricity because they couldn’t get enough fuel to function.

The estimated value of the program for the five days of the blackout was about $2 billion—and participants including oil-and-gas companies earned a portion of that for turning themselves off at Ercot’s behest.

“Ercot officials told the Journal that it was unaware it was cutting off some gas supplies when it ordered the big industrial users to stop using power.”

The Best Way to Rob a Bank – Epilogue

Here’s a follow-up from our note on the Greensill fraud and all its associated raccoons: Greensill made its bankruptcy filing!

We’ve saved this document for posterity on our servers, and you can download it here: Greensill BK Filing.

I haven’t had the chance yet to review this masterpiece in detail, but I’m certain that there must be some choice nuggets in here for enterprising Epsilon Theory readers to unearth.


The Zeitgeist – April 30, 2021


Here’s what we’re reading and working on this week at Epsilon Theory.

Every item in this email is a discussion thread on the Epsilon Theory Forum – a safe space to speak your mind, a safe space to find like-minded truth-seekers. We’re not crowd-sourcing ideas for being better investors and citizens, we’re pack-sourcing them.

Clear eyes. Full hearts. Can’t lose.

Watch from a distance if you like, but when you’re ready … join us.

To receive a weekly full-text email of The Zeitgeistplease sign up here. It’s free, and your email will not be shared with anyone. Ever.

The Narrative Machine

Randall Munroe of xkcd fame posted this yesterday. Like all of Munroe’s work, it’s brilliant and Truth with a capital T.

It’s also a great intro to the research side of Second Foundation Partners (our company name … like Alphabet is to Google, so is Second Foundation Partners to Epsilon Theory, just on a slightly different scale).

What Randall is describing here with scientific paper archetypes is the same for ALL financial media. There are a finite number of narrative archetypes {n} that can be applied to any financial entity [x], and they map directly to subsequent investor behaviors. Think of all the squiggly lines in Randall’s drawings as the “facts” in any financial news story you hear or read. Or as I put it In Praise of Bitcoin:

In exactly the same way that there are only, say, a dozen archetypal scripts for every TV sitcom episode ever filmed, or in exactly the same way that there are three acts to every modern movie screenplay, so is there an underlying structure and a finite number of underlying archetypes to the media coverage of every market entity.

This is what we’re currently cataloguing with the Narrative Machine. It’s extremely cool (imo), but also more than a little scary!

The Primacy of Scale

From Blackrock’s earnings announcement, AUM grew +40% for the year ended 3/31/21.

Blackrock now has more than 9 TRILLION American dollars under management.

I mean … wut?


These kinds of systemic states – the massive accumulation of financial scale – are plain and simple a direct product of the digitalization of money. In a more physical world it would be impossible for a single firm to achieve that Primacy of Scale.

It is my belief (must be – this is my second post about it – its a whole movement in my mind! j/k 🙂 that the transformation of money from paper to digital is as significant event as the transformation of knowledge from spoken to written and that we keep trying to jam the new tech into the old systems.

The result? A single firm has the ability to do something like capture and manage $9trillion dollars of wealth.

And no, this isn’t just about Crypto (although it has huge intersections with that space) – its about everything. Its about how your behavior changes when you no longer pay for things in cash or where you can borrow reliably from other or where the transaction cost of small loans becomes close to zero…its about a massive transformation in the laws that govern what is possible in our financial world.

We are cavepeople (ugh that sounds like a indie pop group) trying to understand what to do with this rocket fuel we just discovered. We need to learn to build rocket engines.


It’s the digitalization of everything, right? Atoms to bits, or whatever Negroponte was writing about way back when. I think of digitalization as the crystallization of information, the stripping away of the physical shell of information, and we imbue more information in money than anything else.

One other point, though. At the same time we have seen the triumph of scale in everything that can be digitalized, we have seen a similar triumph of scale in the purely physical world (farming, mining, transportation) as well. There’s a political dimension to all this in addition to the technological dimension of digitalization.


Oscar Nonsense

Multiple interesting narrative topics here:

1. How did the Boseman-as-icon narrative emerge so powerfully in the first place? There’s certainly a social/racial dimension to the role he played in Black Panther and the huge meaning that role and movie had for a lot of Americans. But the outpouring vs, say, Philip Seymour Hoffman, who died tragically at a similar age and with a far more storied career, is fascinating to me. At a certain point, it seemed everyone knew that everyone knew immediately that Boseman was a superstar, and I don’t remember anything prior to that sudden emergence.

2. How does the social loafing of “I assume Boseman will win, but I’m voting for Hopkins” become such a widespread thing?

3. How did a non-year for cinema – especially in the public! – affect the common knowledge dynamics of a race like this? It is a rare year when I have seen more than half of the nominated films, but it is also a rare year when I’ve never even heard of half of the nominated films.

4. Is there no amount of poor execution (seriously with that NFT and ending build-up?) that can affect the prestige of the Oscars? I know we all make fun of it and say “Oh, they’re so dumb now”, but everyone STILL knows that everyone knows that the Oscar is the only film award that matters. If this doesn’t CAN that change? Does it?

The Genius of Taylor Swift

I’m a big fan of what Taylor Swift is doing with a re-recording of the Fearless tracks (she owns the song copyrights, but not the recording copyrights).

Ben Thompson at Stratechery wrote a good post on this ( with an excerpt noted and underlined by a Pack member.


The Pack member’s comment on the underlined passage … “Tom Schelling and Taylor Swift would have understood each other perfectly.”

I agree! Great example of game theory in real life!


I’m a long time Swiftie and Fearless was one of my favorite albums. For those who haven’t spent more than a decade following her every move, here’s the breakdown.

The original Fearless was released in 2008 and is the Joe Jonas breakup album. This is where songs like You Belong With Me, Love Story, and Forever & Always come from. This album gave her the first of many Grammys and made Taylor the youngest winner of a Best Album Grammy at 20. The You Belong With Me video is what started the Taylor v Kanye saga. This is the album that made her *Taylor Swift* and not another blonde country singer.

For Fearless (Taylor’s Version), she rerecorded all of the original songs with slight differences from the original recordings due to different sound mixing and the fact that her voice has matured. There are also several “new” songs that were written in 2008 but weren’t included in the first version. I love them all.

The really interesting part of this for me is that only Taylor Swift could have done this. There are a few singers who could probably rerecord an album and have it sell well, but Taylor is one of the only artists who is all but guaranteed a best selling album no matter what she does. She’s also only able to rerecord the songs because she wrote them all. She lost control of the master recordings, but because she wrote all of the songs herself she has the copyright and can rerecord them without issue.


I’m trying to picture some junior analyst at Carlyle explaining to the people at the pension board of Saskatchewan why they should expect lower returns this quarter because the ABS they sold them was funded by royalties on Taylor Swift songs.

Desperate Yuppie

Yes, this is OUR Pack.


The Zeitgeist – April 19, 2021


Here’s what we’re reading and working on this week at Epsilon Theory.

To receive a weekly full-text email of The Zeitgeistplease sign up here. It’s free, and your email will not be shared with anyone. Ever.

What’s Happening in the Chinese Financial Sector?

I think the blow-up of Chinese asset manager Huarong ($42 billion in outstanding debt!) and the recent tightening of Chinese monetary policy are the biggest stories that NO ONE is talking about.

Here’s a Bloomberg article on Huarong. It’s a classic fraud like Greensill, only much bigger. The Chairman/CEO was executed (!) in January for his crimes, and now the company has suspended its earnings report. Huarong bonds are trading at 52. LOL.

Huarong Debacle Highlights Problems at Hundreds of Chinese Banks – Bloomberg

As for China tightening and IG spreads widening, I’m shamelessly stealing this chart of the effective yield on China investment grade credit issuers from a note ET contributor Brent Donnelly wrote last Friday.

China IG Yield

Money quote: That move from a 2% yield to a 3% yield comes in a maximally benign global risk environment with risk parity en fuego yesterday. That makes it even uglier.

Fact check: TRUE.

Stock Trading by US House Members

ET Pack member Brad forwarded this website that focuses on stock trading by US House Reps. Some crazy data here, like the fact that Gilbert Cisneros made nearly 700 separate stock trades in 2020 in his PA. LOL. Talk about a degen.

Economics in Nouns and Verbs

An academic paper by W. Brian Arthur at the Santa Fe Institute. As the Pack member who recommended this to me described it, “a small rewiring of my brain happened when I read it.”

“Standard economic theory uses mathematics as its main means of understanding, and this brings clarity of reasoning and logical power. But there is a drawback: algebraic mathematics restricts economic modeling to what can be expressed only in quantitative nouns, and this forces theory to leave out matters to do with process, formation, adjustment, creation and nonequilibrium. For these we need a different means of understanding, one that allows verbs as well as nouns. Algorithmic expression is such a means. It allows verbs (processes) as well as nouns (objects and quantities). It allows fuller description in economics, and can include heterogeneity of agents, actions as well as objects, and realistic models of behavior in ill-defined situations. The world that algorithms reveal is action-based as well as object-based, organic, possibly ever-changing, and not fully knowable. But it is strangely and wonderfully alive.”

When I read the abstract for this paper I thought it might be awful, but it’s actually VERY thought provoking and has a lot of links to narrative theory. And yes, there’s an ET note on that:

We’re Doing It Wrong

The market is not a clockwork machine.

The market is a bonfire.

The Bear Case for Inflation

Here’s the Q1 2021 Hoisington letter, hot off the press:

I like Lacy a lot. But I think the long bond is his hammer and everything becomes a nail. Specifically, I get the debt trap concern, but I think this is mechanistic and tautological (over a long enough time period), so that you end up minimizing/downplaying expectations, common knowledge, and more pressing macro factors, like a reversal in globalization.

Volatility Suppression and You!

And finally, a full thread from the ET Forum this week …

@Spotgamma has a *great* post up that I think would be of interest to the pack. *IF* they are correct, when the current volatility suppression regime has its inevitable hiccup, it’s going to be quick & violent. To the downside.

Key takeaway: “This implies that the cost of buying options is cheaper relative to any point this quarter, and likely since February of ’20.”

Would love to know what the pack thinks. I am in agreement with spotgamma & am looking for reasons why they are wrong. I can’t find any, which concerns me that I’m missing something obvious.


Interesting. Intellectually, I understand the dynamics of options trading, but like all equity-focused PMs I am actually just an options dilettante. I don’t have a good “feel” – or any feel at all, really – for immersive options trading, so I don’t know if gamma squeezes are for real or if they’re the slightly more cerebral equivalent of the risk parity boogeyman that gets trotted out whenever markets go down for whatever random-walk reason.


I trade options as a pro for a small boutique fund. First, I concur with Ben that so called “gamma-squeeze” might be the most suitable ex-post narrative justification for sudden, unexpected rally or dip after they happened. Recently they have also become the hallmark of some well-known head quants like Nomura’s Charlie McElligott or JPMorgan’s Marko Kolanovic who can be legitimately regarded as trustful “missionaries” in the Street. Secondly, it is still true that under certain circumstances – for instance in coincidence with monthly or quarterly multiple technical expirations- such forced buying or selling by dealers around some key flip-from-positive-to-negative Dollar Gamma levels can be able to throw the market over the cliff by a sort of self-fulfilling prophecy mechanism. Just my two cents though.


I have nothing to offer on the dynamics/mechanics of options per se. I do have a view on what it means to have an exploitable feature of a game come into the common knowledge of a crowd intent on disrupting the established order.

Whether it was directly, indirectly or not at all caused by the options play – the power of the Options Artefact has become legend and many new, creative minds will be looking at options and their underlying leverage, not in accordance to the established lore, but as a new toy/weapon to deploy in creative and unusual ways.

My expectation is that over the next 12-24 months we are going to see some unexpectedly creative uses of systemic hidden leverage by the r/wsb crowd in an effort to mess with the system. If my experience in prior MMORPGs is at all relevant (and I think it is) – god help the system. Its in for a wild ride.


Yes, this is OUR Pack.

Every item in this email is a discussion thread on the Epsilon Theory Forum – a safe space to speak your mind, a safe space to find like-minded truth-seekers. We’re not crowd-sourcing ideas for being better investors and citizens, we’re pack-sourcing them.

Clear eyes. Full hearts. Can’t lose.

Watch from a distance if you like, but when you’re ready … join us.


Hot and Cold


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We are in a cold war with China.

That is, as we say, not a prediction. It is an observation.

Feel free to disagree with it. But you also ought not to read anything too portentous into the term. Cold wars aren’t declared, after all. Observing their existence is the limit of what we can do.

In any case, what I mean by the term isn’t complicated. Two political belligerents are now engaged in a foreign policy whose objective is to thwart through all means short of firing weapons the expansion of influence, the establishment of additional international military infrastructure and the expression of territorial control over contested lands, sea lanes or airspace by the other.

I suspect that you might have read the below piece (or one like it) reporting on the statement and sanctions from the EU and US concerning China’s treatment of Uyghur Muslims in its western reaches. If you asked yourself, as we often counsel, “Why am I reading this now?”, it was not because western politicians only just discovered to their collective horror the depth of what is happening in Xinjiang.

U.S., allies announce sanctions on China over Uyghur ‘genocide’ [Politico]

About a week before you read that, perhaps you read coverage of the Quad Summit. It was a highly public meeting among its members – India, Australia, Japan and the United States – to begin the process of contesting the scope of the CCP’s sphere of influence within east and southeast Asia.

Quad Summit’s Vaccine Deal Is Biden’s Bold First Move in Asia [Foreign Policy]

A couple weeks before that, it might be that you read about the USS John McCain steaming through the Taiwan Strait for the first time during the Biden presidency (as an aside, I’m not sure which style guide encourages the use of the verb “rule” for what it is that American presidents do, but nuts to that).

U.S. Navy warship sails through Taiwan Strait for first time under Biden’s rule [NBC News]

Maybe you have read weeks of coverage of the Anchorage meetings, or Secretary of State Antony Blinken’s reference to Taiwan as a “country”, or explicit multi-lateral expressions of commitment to the defense of Taiwanese sovereignty.

In his first trip to Asia, Blinken warns China not to use ‘coercion and aggression’ to get its way [CNBC]

This is certainly not surprising to those who already knew that Taiwan is now Arrakis.

Yet while the emerging geopolitical struggle is not being called a cold war just yet, it is being called everything that a cold war is. It is only a matter of time before an influential politician, writer, journalist, executive or publication begins issuing missionary statements framing and phrasing it as a new cold war. Then some U.S. State Department official will say very officially that it is not a new cold war, at which point everyone will know that everyone knows it is a cold war and throw away all pretense.

And that’s when the narrative war will get hot.

The last time we went down this road, the Soviet Union had a lot of propaganda notes they could play domestically. There were, however, only a relative few they could play to any real effect abroad. What we today call whataboutism is in part referential to the art form it became under Soviet propagandists. In short, they discovered that they had a ready response to any criticism of their brutal and arbitrary system of justice, policing and treatment of political prisoners: “Sure, but what about racism in America?”

If that makes you nod your head a little bit, well, that is the point. The most effective propaganda doesn’t lie. It tells a truth and insists that all facts must be framed around that truth. If you aren’t willing to buy into that framing, well, then clearly you just aren’t honest enough to believe the truth they told you.

That is why the narrative war in this case will operate on another level. The CCP – and yes, our own government – doesn’t just have a few of these notes to play. They have the whole damn piano.

The China dispute is embedded in our most highly charged political narratives. This cold war will be fought in the hot war of narratives about ‘China flu’ and the ‘Wuhan coronavirus.’ It will be fought in the narrative of those terms as inherently racist. It will be fought in narratives about the ‘Biden’s family’s corruption by the CCP’ and ‘the crusade by the political right to create a corruption narrative.’ It will be fought in narratives about a news media that downplayed the betrayals of the world by the WHO and CCP in order to pin COVID-19 squarely on the Trump administration. It will be fought in narratives about a political movement that tried to distract from its own policy failures to pin COVID-19 squarely on Beijing. It will be fought in narratives of de-globalization, reshoring and ‘proximity sourcing.’ It will be fought in narratives of Chinese dominance over Bitcoin mining and whether that jeopardizes narratives of decentralization.

If you’re like me or most Americans, you will probably think somewhere between half and all of those narratives are nonsense. It doesn’t matter. In narrative world, any one of those narratives can be weaponized into targeted and divisive propaganda.

The China dispute is embedded in our most highly charged cultural narratives. This cold war will be fought in the hot war of narratives about how ‘the NBA showed in the Daryl Morey situation that all they care about is sales in China’, and about how ‘the backlash against LeBron James’s support of Beijing over Morey is another sign of American casual stay-in-your-lane racism.’ It will be fought in narratives about American board rooms, C-Suites and ESG offices that couldn’t care less about profiting from the CCP’s abuses of Uyghur Muslims as long as companies say Correct Things about the social and environmental causes that really matter. It will be fought in narratives about companies that don’t care about those causes so long as they say Correct Things about the patriotic implications of opposing CCP influence.

If you’re like me or most Americans, you will probably think those narratives are even more nonsensical than the political versions. It doesn’t matter. In narrative world, any one of those narratives can be weaponized into targeted and divisive propaganda.

The China dispute is embedded in our most highly charged social narratives. We are only days removed from the brutal murder of eight spa workers, most of whom were Asian-American women. We are in a period in which Asian-Americans of various national origins are experiencing an increase in targeted acts of violence and aggression. In just the past week, a Vietnamese-American friend of mine in Brooklyn was followed for several blocks in his own neighborhood by someone shouting racial slurs at him (incorrect racial slurs, too, which I suppose makes it racist in several ways at once). Do you think this very real thing that is happening isn’t going to be pulled into the hot war of narratives? Do you think that the prevailing counternarrative – that the US media went out of its way to frame this emerging racism exclusively as part of Trumpian White Supremacy while ignoring its unnerving prevalence in several other communities – is not going to be pulled into the narrative war, too?

So yes, lots of adjacent narratives out there, ready to be directed toward whatever purpose. What’s the point?

The point is that most of us are under the impression that a protracted conflict with China – even a cold war-style geopolitical struggle – will increase national unity. This is the old saw about politicians looking for an external enemy to unite around, and it is usually true, even if we usually mean it cynically.

Not this time.

Our conflict with China is deeply embedded in every fault line of our existing internal divisions. I fear that a cold war with China will lead to a hot war in narrative world that makes the widening gyre of our politics veer further away from a center that can hold. I think that’s true in financial, economic, political, social and cultural markets alike.

We can’t do much to stop it. We CAN prepare how we will identify and respond to it in our consumption of news and social media, and more importantly, in our relationships and interactions with others.

Clear Eyes. Full Hearts.


A Change in the Water


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Every morning, we take the previous day’s financial news – all of it – and run it through the Narrative Machine to see if any interesting clusters pop out as a topic for us to write about in one of these quick Zeitgeist notes. And when I say clusters, I literally mean clusters – the building blocks of a graphical representation of linguistic connectivity.

But when I say clusters, what I really mean is patterns. I really mean changes in the narrative structure.

We’re not doing this to learn new facts. We’re not really interested in the specifics of what people are saying. We are very interested, though, in how people are saying it. We’re looking for changes in how we talk about what is important in markets and investing.

We’re looking for changes in the water in which we swim.

That water is changing today. It’s changing a lot.

Increasingly, the common knowledge of our investment world – what everyone knows that everyone knows – is that inflation is a problem and you should be focused on it.

For example, today in a popular financial news media aggregator,, of the 21 articles highlighted on their frontpage aggregator, 6 of them were about inflation … is it here? is it coming? what does it mean for your portfolio? does Bitcoin fix this? etc. etc.

Again, I have zero interest in the specifics or the facts or the message or the sentiment of these selected articles (even though one of them was yesterday’s Epsilon Theory note). What interests me a lot, though, is the CHOICE made by the editors and algorithms of to select these articles over all of the other financial news stories available to them. What interests me a lot is the recursive ENGAGEMENT that these articles and their shared linguistic structures trigger in readers, such that they will look for more articles on this topic, which means that more articles on this topic will be written. This is how common knowledge happens. This is how the water in which we swim changes.

Now, you might personally believe that inflation is NOT a big deal or a big concern. That’s fair. Reasonable people can disagree on this. You might also look at the consensus about inflation in this metric or that metric and similarly conclude that inflation is NOT a big deal or a big concern. Also fair.

Fair. But it doesn’t matter. At least not for making money. Neither what you personally believe (what Keynes called 1st-level decision making in the famous game theory example he called the Newspaper Beauty Contest) nor what everyone apparently believes (the consensus, or what Keynes called 2nd-level decision making) will make your investment decisions work out successfully for you.

The thing that moves markets – the thing that will make your investment decisions work out successfully for you – is what everybody believes that everybody believes.

It’s 3rd-level decision making. It’s common knowledge.

This has been the core message of Epsilon Theory from the start. This IS the Manifesto. Over the past eight years, we’ve published more than 1,000 notes on Epsilon Theory, and every single one of them starts here.

The Epsilon Theory Manifesto

Our times require an investment and risk management perspective that is fluent in econometrics but is equally grounded in game theory, history, and behavioral analysis. Epsilon Theory is my attempt to lay the foundation for such a perspective.

Today we’re building an active community of investors and citizens who see the world through the clear eyes of narrative and common knowledge. And more importantly, treat each other with full hearts. Clear eyes, full hearts, can’t lose!

I think that the Epsilon Theory Pack can work together to understand what’s really happening with inflation in both real-world and narrative-world, and then figure out effective investment strategies to deal with it.

If you want to read more about what we’re doing and why we’re doing it, here you go:

The Opposite of 2008

In 2008, the US housing market – together with a Fed that thought the subprime crisis was “contained” – delivered the mother of all deflationary shocks to the global economy.

In 2021, the US housing market – together with a Fed that thinks inflationary pressures are “transitory” – risks delivering the mother of all inflationary shocks.

And if you’re interested in digging even deeper to find out how the Narrative Machine can help with your investment decisions, please consider ET Professional. If you send an email to [email protected] we’d be happy to share some of our research and monthly narrative Monitors to see if it’s a useful research service for you. It’s not inexpensive ($2,950/yr), but the license covers a small investment team and, in the immortal words of Don Barzini, we are not Communists!


Danish Food-Safety Expertise for the Win


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Danish food-safety expert Peter Ben Embarek, speaking on behalf of the WHO delegation

The World Health Organization just concluded its 4-week investigation (two of which were spent in quarantine) of the original Covid outbreak in Wuhan, China. If you enjoy throwing up in your mouth a little bit, you can read the entire Wall Street Journal article on the press conference here. If you’re not so inclined, here’s what the WHO team of 17 scientists, flanked by 17 Chinese scientists, announced:

1) The SARS-CoV-2 virus most likely originated in an animal and jumped to humans, probably outside of China.

2) It is highly unlikely that the SARS-CoV-2 virus originated at the local Level 4 biolab doing gain-of-function research on coronaviruses.

3) It is entirely possible, though, that the SARS-CoV-2 virus was originally brought into China on packages of frozen food. American pork, maybe? Perhaps Brazilian beef? Russian squid? Saudi Arabian shrimp? China says that it has detected the virus on all of these.

In concluding remarks delivered by Peter Ben Embarek, “a Danish food-safety expert who spoke on behalf of the WHO delegation”, we learned that “the virus could have taken a long and convoluted path involving movements across borders before arriving in the Huanan Market”, and that the fact that “frozen farm products were sold in the market” means that “further studies on the source of animal products in the market as well as research on similar products still being sold elsewhere” are the clear next steps for the investigation.

Or as Peter Daszak, another member of the WHO team said, “I think our focus needs to shift to those supply chains to the market, supply chains from outside China, even.”

As for that local Level 4 biolab doing gain-of-function research on coronaviruses, the WHO team “was reassured by hearing of the high biosafety protocols adhered to in the city’s major labs, including the Wuhan Institute of Virology”, during their guided tour of the facilities, which took “several hours”.

In reaching its conclusions, the WHO team literally spent more time “visiting a museum celebrating China’s success in controlling the virus in Wuhan and a frozen food storage facility at a local wholesale market” than at the Wuhan Institute of Virology.

I wrote this article about the original failings of the World Health Organization almost exactly one year ago. Nothing has changed.

The Industrially Necessary Dr. Tedros

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

The World Health Organization continues to place the political interests of patron states above all else.

The World Health Organization is a necessary part of the Chinese narrative machine.

It’s more than a disgrace. It’s more than a humiliation of the thousands of researchers and clinicians who do good and important work through WHO funding.

It’s a betrayal of the entire world.


Hammers and Nails


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From the original video to 9 To 5 by Dolly Parton

By Rusty Guinn

We humans are not very good at thinking about non-linearity.

When a process interacts with another process – or itself – our usually deep capacity for pattern recognition and estimation goes out the window. I could be referring to viral spread, or why we have concerns about B.1.1.7 becoming dominant in the US. I could be referring to the effects of leverage, concentration and liquidity in investment portfolios.

But not today. Today, I am thinking about the effects of a vastly larger world population and the effects of always-on social media that is deeply embedded in our lives. I am thinking about how these two things interact. I am thinking about how in our lifetimes it has become significantly harder to trust the quality and balance of information we receive and incorporate into our decision-making.

And no, I don’t mean garden variety media bias on some political dimension, like the left-wing bias of MSNBC or the right-wing bias of Newsmax. I mean bias – a measurable tendency toward a particular framing, presentation or interpretation of information – as an endemic feature of media. The systematic presence of Fiat News on a million different dimensions.

To that end, I’d like you to read this opinion piece on NBC News. It rose to the top of our Zeitgeist for unsurprising reasons. Super Bowl commercial coverage always does.

It is going to make you angry.

Dolly Parton’s 2021 Super Bowl commercial is playing a rich man’s game [NBC News]

If you did read the piece, I am sorry. If you elected to skip over it, allow me to give you the highlights: an NBC News opinion contributor watched the Squarespace Super Bowl commercial in which Dolly Parton switches her classic tune to “5-to-9” as part of celebrating how website-building technology can help people surviving office drudgery express themselves or start their own business or passion outside the office. The contributor then calls this “The Gig Economy” and spends a few hundred words tut-tutting Dolly for playing a role in it. After all, she should have known better given the obviously subversive intent of her original song and all the good work she’s done, but apparently she’s just about that “filthy lucre.”

Ignore that a hit piece being about Dolly Parton is prima facie evidence that your argument is wrong. Ignore that it’s a damn commercial. Asserting that Big Tech promotes memes of financial independence! around the actual gig economy is NOT preposterous. Asserting that businesses have long promoted memes of workism and “family” in manipulative ways is NOT preposterous. Yet the fulcrum on which the entire article rests – that dreaming and working and making your LIFE about anything other than your job is The Gig Economy! and all of the memetic badness that represents – is absolutely preposterous.

Towards the end of this NBC News piece, you see where it is going:

I’d bet my bottom dollar that the true horrors of the gig economy and of America’s broken economic system never came up.

The premise, if you will, is that someone contributing a song to a 30-second commercial spot for a website hosting company should have leavened their participation with the consideration of whether celebrating after-work passions appropriately accounts for the often poor treatment of labor in America. It is “but why didn’t you talk about…” with the volume cranked to 11.

I think you could dismiss this as part of the hot take economy that has infected all traditional media. You wouldn’t be wrong. I also think you’d miss something if you did. The world of 2021 is big enough, prosperous enough and connected enough to support literally any beat. There is no shtick so salacious, no conspiracy theory so cockamamie, no narrative so niche that it cannot attract an adequate community to sustain it. If there is a cancel-culture beat, a cancel-culture-isn’t-real beat, and a there-isn’t-a-cancel-culture-isn’t-real-beat beat, you’d better believe there is an everything-is-about-corporatism-manipulating-labor beat.

One way or another, a piece about the intersection of the Super Bowl and labor was going to be written. After all, to a hammer, everything looks like a nail.

Friends, make no mistake: we are a hammer, too. We are able to exist because of these forces. We see narrative and missionary behavior everywhere. We see the widening gyre of a polarized America everywhere, too. These are our hammers and a lot of things look like nails to us. We are happy if you read what we publish. We are even happier if you subscribe.

We also really hope we aren’t even close to the only thing you read.

I described this as a force of non-linearity because I think it is a change in kind more than it is a change in magnitude. That is, it isn’t just that news is becoming more biased on some continuous scale. It is that the average piece of information you consume today is far more likely to have been produced by someone wielding a very specific hammer.

It is easy for us to take a look at the outlets, social networks, lists, substacks, authors and podcasts we consume and judge whether we think we’re getting a good mix of various biases on common dimensions like politics or opinions about how markets work. It is much harder to think about whether our sources are sufficiently large to insulate us from persistent idiosyncratic frames.

In the past, we have counseled that fellow consumers of mass information ask often the question, “Why am I reading this now?” I’d suggest one more regular query:

What are their hammers and what are their nails?


For Leon Black is an Honorable Man


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You can read the full report filed by Dechert LLP on behalf of the Board of Directors of Apollo Global Management here.

We are told by the lawyers hired by the Board of Directors of Apollo Global Management to investigate the Chairman of that same Board of Directors that the $158 MILLION Leon Black transferred to his personal friend and convicted child sex trafficker Jeffrey Epstein was for “legitimate advice on trust and estate planning, tax issues, issues relating to artwork, Black’s airplane, Black’s yacht, and other similar matters”.

We are told that the bulk of the funds were transferred “on an ad hoc basis based on Black’s perceived value of Epstein’s work”, with no agreements signed or unsigned. We are told that the bulk of the funds were paid for tax advice that would only realize potential gains well in the future, advice that was later determined to originate not with Epstein but with Black’s regular tax lawyers.

Payments of this magnitude and in this manner seem unlike the behavior of any enormously wealthy person in the history of the world, particularly a man whose enormous wealth has been notoriously built on precisely the opposite behavior, but Leon Black says this is the truth.

And Leon Black is an honorable man.

We are told by the lawyers hired by the Board of Directors of Apollo Global Management to investigate the Chairman of that same Board of Directors that they have “seen no evidence that Black or any employee of the Family Office or Apollo was involved in any way with Epstein’s criminal activities at any time”.

We are also told that Black’s friendship with Epstein goes back to the mid-1990s, and that before and after Epstein’s 2008 conviction for solicitation and procuring of minors for prostitution, Black “regularly visited” Epstein at his New York townhouse for afternoon “social visits”, as well as Epstein’s Paris apartment, his Palm Beach home, his Santa Fe ranch, and his private Caribbean island.

Yet Leon Black says that he merely saw Epstein as “a confirmed bachelor with eclectic tastes, who often employed attractive women”, a man whose criminal offenses were “limited to a single instance of soliciting a 17 year old prostitute” who “had shown Epstein false identification suggesting that she was not underage”. Yes, Leon Black believes “in giving people second chances”.

And Leon Black is an honorable man.

They’re all honorable men. Men of stature. Lions of Wall Street.

Leon Black. Les Wexner. Jes Staley. Glenn Dubin. Larry Summers.

I speak not to disprove what Leon Black spoke,
But here I am to speak what I do know.

I know that the evil of Jeffrey Epstein would not have been possible without the actions of these honorable men, regardless of what remorse might be in their words today.

O judgment! thou art fled to brutish beasts,
And men have lost their reason. Bear with me;
My heart is in the coffin there with the American dream that once was,
And I must pause till it come back to me.


A Different Game


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The Zeitgeist on the day after a presidential inauguration is unlikely to catch anyone by surprise. It was the only topic of any significance in political news. It was the only topic of any significance in market news. The language used to describe this inauguration was central to nearly every topic over the last three days. Even sports.

The quantity of that coverage which would fit squarely into what we call Fiat News – news which is designed not to inform but to instruct the reader how to think about an event or topic – would also be unsurprising, I think. We could not shock you with an argument that the editorial side of nearly every national news outlet has been drawn into one end or another of our polarized politics. You would not gasp, I suspect, to learn that this often bleeds into the newsroom.

So I don’t expect you to do more than shrug that this was the inauguration coverage angle chosen by the New York Times, promoted on social media with the following, um, austere copy:

“Whether or not related to the former president’s absence, a bipartisan lightness seemed to prevail across the stage at President Joe Biden’s inauguration. Snow flurries gave way to sun.”

Washington Breathes an Uneasy Sigh of Relief [New York Times]

The piece is part of a feature series on the inauguration, but it is clearly being positioned as news, or at least news-adjacent. It’s got Washington in the dateline. It’s not marked as an editorial or opinion content in any way. And yet it contains descriptions of events which “evoked a mood”, which were “the most striking”, which “felt like a friendly gathering”, which “conjured a sense of respite”, and of “lightness which seemed to prevail across the stage.” In a helpful definition of Fiat News, the author offers a literal translation he’d like you to use for Biden’s speech: “Phew.” As it happens, I happen to agree with the author, yet I enjoy the peculiar benefit of realizing that this is an opinion and not a fact.

The usual suspects on the other side of the political spectrum are in the same business, of course, just in a smaller form factor. This brief Fox News article manages to jam in a lot Fiat News language. In only a couple hundred words, the reader gets multiple scare quotes, an “appears to be”, a subjectless “perceived” and multiple references to the loaded expression “pushing a progressive agenda.”

So if you were hoping that Trump’s departure would herald the triumphant return of the national media to its historical role as an agent for the people rather than a principal acting on its own account, your watch is not yet ended. Sorry.

All the same, I’d like to pose a brief question. If you were asked, “Was national media coverage of the inauguration of President Joe Biden more or less positive and friendly than it was for the 2017 inauguration of President Donald Trump,” what would you say?

Again, I think I can hazard a guess.

But by one objective – and woefully incomplete – lens, they were almost exactly the same.

I am talking about the lens of calculated sentiment, by far the most common method by which those commenting on markets, scraping news and scraping social media evaluate the nature of opinion language.

Using the standard sentiment scoring library from our friends at Quid, we estimate that the mean sentiment of 2017 coverage of the Donald Trump inauguration by national US media outlets from the day before to the day after the event itself was actually 15% MORE positive than the 2021 coverage of the Joe Biden inauguration.

What are the possible reasons this could be the case?

1 – Maybe media actually were more positive in 2017 coverage than they were in 2021;

2 – Maybe the sentiment library isn’t well-suited for this kind of analysis;

3 – Maybe the coloration from the connected Trump-related and COVID-related news made 2021’s coverage more negative than it would otherwise have been;

4 – Maybe affect creeps in not so much through explicitly positive or negative language, but primarily through framing, editorial coverage decisions, non-affected language of meaning and the decisions to include or exclude certain information from a news article;

5 – Maybe most news outlets and publishers have long since realized that the metagame – the strategy which survives repeated play – that permits shaping how people think about the news without them being acutely aware of it requires outlets to shy away from explicitly “positive” or “negative” biases in their language in favor of these techniques.

I won’t tell you what to think, but I’ll tell you what I think. I absolutely don’t think #1 is the case. That flurries-gave-way-to-sun nonsense wasn’t a New York Times exclusive, y’all. I think #2 and #3 probably are true – at least a little bit. But #4 and #5? I think they are the real story here. That story isn’t new. And I think that story has two lessons for us:

First, don’t expect the creep of editorial bias into news to hit you over the head with big, opinionated-sounding language like the articles referenced here. Framing and the willful or subconscious inclusion/exclusion of facts are the tools with which news is shaped into explanatory news without looking like it.

Second, if someone is selling you on natural language processing-based research about markets, politics or anything else that is built on the shifting sands of a calculated sentiment and nothing else, it is unlikely that what you are getting is useful.

A game in which the players know the rules against which they have been measured is a different game.


“Suicide Bomber” vs suicide bomber


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That’s a still from the police camera on 2nd Avenue in Nashville, Tennessee on Christmas morning, capturing the detonation of a large bomb. The bomber was killed, eight people were injured, and massive damage was done to an entire downtown city block, including the destruction of an AT&T telecom hub. Here are some photos of the damage, from a local news twitter feed:

While far less heinous than the 1995 Oklahoma City attack, where 168 Americans (including 15 children) were killed, the Nashville attack was the largest domestic terrorist bomb detonation in 25 years.

It is striking to me how silent the White House has been about this terrorist attack.

It is striking to me how national media has used the language of crime and police procedure in their coverage of the Nashville bombing, rather than the language of terrorism and political response.

The Nashville attack was carried out by a suicide bomber terrorist.

But because the bomber’s terrorist goals, whatever they were, do not fit neatly into a useful political narrative like “Antifa!” or “Law and Order!”, Trump says NOTHING about the attack, not even to recognize that it occurred or to thank first responders.

At least Biden did that. Even with Biden, though, the bomber’s terrorist goals do not fit neatly into a useful political narrative like “Proud Boys!”, so we get bromides like “the need for vigilance”. And that’s that.

So, yes, the Nashville attack was carried out by a suicide bomber terrorist. But not by a “Suicide Bomber”. Not by a “Terrorist”.

And without a politically charged cartoon to grab eyeballs and attention, national media organizations and national political organizations have next to zero interest in this story. Not completely zero. Maybe some MAGA or Q connection will turn up here, and then they’ll get interested again. But as things stand now, there will be essentially zero national news coverage of this event by this time next week.

Here, I’ll show you what all this looks like in the Narrative Machine.

Source: Epsilon Theory, Quid

This is a visualization of all unique major US media news stories over the four day period Dec. 25 through Dec. 28, utilizing the Natural Language Processing (NLP) and clustering/visualization software of our friends at Quid (now Netbase Quid, to be precise).

If you were to zoom into this graphic, you’d see that it’s composed pointillism-style of thousands of individual dots, each of which represent one of those unique major US media news stories. The individual dots are connected and colored and clustered by their linguistic similarity. I like to think of it like a star map, where the “gravity” of similar words and grammatical structures arranges these individual articles into clusters of similar meaning. Up and down and left and right have no importance in reading this “map”. What’s important is the centrality of the clusters (the more central you are to the overall map, the more connected you are and the more narrative gravity you’re exerting on everything else) and the structure of the clusters relative to each other.

[For more on how to read and apply these narrative maps, see The Epsilon Strategy]

So what we’re looking for in terms of narrative importance, roughly speaking, is a combination of size and centrality and connectedness. Just because you’re a big cluster doesn’t necessarily mean you’re an important cluster for the narrative … for example, Market News, that light blue cluster off by itself on the right, is the largest single cluster in the map, but it’s almost completely disconnected from the overarching narrative structure. Ditto for clusters on sports or movies or celebrity news.

Now I’ll zoom into the “center of gravity” for the map so we can see these narrative-crucial clusters:

Both the long yellow cluster and the long aqua cluster running vertically through this zoomed-in view of the US media structure over this four day period are general Covid-related clusters. You’ve got a third Covid-related cluster at the top of this zoomed-in view that’s solely focused on California cases and policies … as you’d expect, Covid exerts more “gravitational pull” on this narrative structure than anything else.

Trump’s claims of election fraud are that purple cluster, connected closely to the Georgia Senate runoff election cluster in green. Also as you’d expect. In a technical structural analysis, the Trump Election Fraud cluster is THE center of gravity of this entire map.

The small, central clusters – like the death of star Utah running back Ty Jordan – are always interesting to me. There weren’t many stories written about Jordan, but there was something about these stories that “clicked” with the narrative Zeitgeist. Weird, right? But I remember seeing this story when it first came out the day after Christmas, and I immediately clicked on it and read it. I bet a lot of you had the same experience.

The two clusters I want to focus on, however, are the Nashville Bomb cluster in orange and what I’m calling the Narrative-aware Crime cluster in pink.

The Nashville Bomb cluster is very straightforward. There’s a sub-cluster on the right composed of articles about the actual event … the explosion, the emergency response, etc. … and a sub-cluster on the left composed of articles about the subsequent investigation. It’s all very just-the-facts material, and without a more politically-charged hook for the material, you can see in the timeline of story clusters-within-the-cluster how the coverage transforms and diminishes over time. Today it’s pretty much an area-man-commits-a-terrible-crime-and-neighbors-are-puzzled story. Yes, he was a suicide bomber and a terrorist. No, he was not a “Suicide Bomber”. No, he was not a “Terrorist”.

Now here’s the Narrative-aware Crime cluster, by which I mean stories about crimes that are typically not as “big” as the Nashville bomb attack, but which plug neatly into a powerful social or political narrative.

THIS is where you find the Hunter Biden stories. THIS is where you find the Trump Pardon stories. THIS is where you find the Law and Order stories. THIS is where you find the Bad Parent / Urban Violence / Terrorist stories.

THESE are the stories at the heart of today’s American Zeitgeist.

God help us.


Russian Nesting Deals


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It isn’t very often that coverage of something as niche as SPACs (special-purpose acquisition companies) would make our list of the most linguistically connected financial news. Then again, thanks to 2020, I suppose we can’t really call SPACs niche news any more. Even if they were still consigned to the “weird stuff that seems very obviously designed to disproportionately benefit sponsors and allow management to do stuff they wouldn’t be allowed to do in other ways” bin, articles about the deal that triggered the Zeitgeist today probably would have risen anyway. Use language usually applied to each of private equity, private credit, asset managers and M&A in a single article and you’re at the intersection of a lot of newsflow. But the presence of other similar deals (like whatever in God’s name THIS is supposed to be) with similar language in the vicinity helps.

Dyal Capital Is in Talks to Merge With Owl Rock Through SPAC [Bloomberg]

Dyal and Owl Rock plan merger in one of largest Spac deals [Financial Times]

Dyal is a unit of Neuberger Berman. They raise funds from big asset owners to take minority stakes in asset managers, and have developed a bit of a specialty for doing those deals with private equity companies. It’s a notoriously complicated business, mostly because the reason the opportunity to make compelling investments exists (i.e. finding liquidity for stakes in asset managers without completely disrupting their business is hard) also makes it tough to get out of the investments they make. Dyal’s recent success doing so by effectively securitizing management fee streams from one of their funds was particularly clever.

So now they’ve turned a bit of that cleverness to their own capital structure.

The TLDR is this: one of Dyal’s funds bought a minority stake in one of the biggest private credit shops in 2018. Their funds bought a minority stake in a big direct lending / BDC sponsor firm earlier this year. The latter (HPS) formed the sponsor to a SPAC (Altimar) that has made a proposal that would merge the former (Owl Rock) with Dyal (the GP), its minority private equity investor.

Got all that straight?

It is hard to know much of what may be going on behind the scenes in this case. Neuberger is famously independent and employee-owned. In my experience (and opinion) it is run by one of the best CEOs in asset management, George Walker. It has a great culture in the authentic and non-B-school nonsense sense of the word. But as lovely as all that is, none of it really helps if you’re running a business unit like Dyal and desire operational independence or additional scale in your area of the market. Or a liquidity event.

It isn’t weird for a 100% employee-owned company or some subset of its employees to want a chunk of liquidity, if that’s part of what’s happening here.

It isn’t weird for a rapidly growing, somewhat off-core unit of a 100% employee-owned company to want a bit more independence, if that’s what’s happening here.

It isn’t weird for a private equity GP that dominates its niche to want to have a wider range of product to sell to its big clients.

It isn’t weird for a private lender, especially one with a meaningful leveraged loans business, to see some appeal in another source of good deal flow (although if I were an LP I’m not sure how much asset management sub debt I’d really like stuffed into my portfolio).

It isn’t weird for two alternative asset managers to believe that our environment is one which always favors more scale.

On the other hand, it IS pretty weird for a private equity GP to merge with a portfolio company through a SPAC sponsored by another portfolio company. Not weird enough to completely freak out. But weird enough, if I were a Dyal LP, to ask a few pretty pointed questions on our next call. Beyond the usual questions about any kind of disruptive M&A transaction, what would I ask?

  • If I were a compliance officer reading emails or the team’s Slack/Teams channel, how likely do you think that it is I would find discussion of a potential such transaction during diligence for the Owl Rock deal? How about during HPS? Any time since, especially before the SPAC filing?
  • Yes, I read that bit in the SPAC’s prospectus about that never happening with HPS. Got it. But seriously.
  • There’s quite a lot of thought in the SPAC prospectus devoted to carveouts for affiliates. Am I going to get all the details on the flow of funds and ownership here?
  • LPs are not going to be paying the carry on those two deals, correct?

Sometimes complicated is just complicated. And if there is any really big, traditional asset management company I’d still be willing to give the benefit of the doubt on something like this, it’s Neuberger (OK, maybe Wellington, too).

But this nesting doll of a deal IS weird and worthy of more than usual scrutiny, especially if you are an LP in one of these funds.

For the rest of us, maybe it’s not this structure that does it. And maybe it’s not the PWP SPAC merger rumored last week that does it. But SPAC world, especially when it comes to financial services and fintech companies, really seems to be careening toward Too Clever By Half territory.


Ten Times Faster Than The Sun’s Beams


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

Romeo and Juliet, Act 2 Scene 5

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

He was talking about thoughts of love, of course.

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

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








“offering hope”

“long waited”



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

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

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

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

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

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

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

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

But that’s the point.

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

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

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

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


You Can’t Handle The Lie


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I have a confession.

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

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

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

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

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

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

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

But something else happened, too.

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

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

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

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

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

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

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

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

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


We are all MMTers (Still)


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I don’t think it would be especially insightful for us to point out that everybody knows everybody knows stimulus talks are what market participants are paying attention to. At this point, I think the idea that this is common knowledge is, well, common knowledge.

We did, however, think that it would be interesting to see how different patterns of language were more or less common among stimulus-related news reports. In other words, we thought it would be fascinating to see which Fiat News expression of “what the stimulus is really about” was the most connected and which was the least.

The network graphs below – produced using software from our friends at Quid – show articles referencing “stimulus” language since October 1. A dot is an article. A “cluster” designated by color and proximity indicates highly similar language, as does a line between two dots. North/south and east/west have no meaning other than proximity. The most connected dots and clusters are those which demonstrate the most similar and connected language. For each graph below, the bold-faced lines and dots reflect those which also reference the language of a range of secondary topics (e.g. families, the unemployed, markets, etc.) as highlighted in the graph’s title.

Fiscal Stimulus is About American Families

Source: Quid, Epsilon Theory

Fiscal Stimulus is About Small Businesses

Source: Quid, Epsilon Theory

Fiscal Stimulus is About Financial Markets

Source: Quid, Epsilon Theory

Fiscal Stimulus is About the Unemployed

Source: Quid, Epsilon Theory

If I were to ask you, “In which of those graphs does it feel like the bold-faced dots and lines are the most connected to the overall structure of the graph”, I suspect I could account for most of the answers with one of the following:

1) They all seem pretty close; or

2) Maybe the “About the unemployed” map by a little bit.

And that’s correct. Qualitatively, which is to say intuitively, and quantitatively, based on our measures of narrative attention. In short, there are a LOT of missionaries out there trying to tell you what prospective stimulus is about and what other parties are trying to make it about. It hasn’t coalesced into a single narrative structure, so far as we can tell.

But what is fiscal stimulus absolutely, positively not about? If you answered any of “the deficit”, “the debt”, “small government” or “the budget”, you are today’s big winner.

Fiscal Stimulus is About the Deficit

Source: Quid, Epsilon Theory

When (or, y’know, if) the election concludes peacefully and the turn of the calendar arrives, you will read a lot of predictions about what from this insane dumpster fire of a year will become an essentially permanent feature of our world. Want a sure bet?

It’s this.

It’s budgets-don’t-matter-anymore-for-countries-who-can-print-currency narratives.

It’s MMT from either party and both at once, from capitalists and anti-capitalists alike.


How It Started. How It’s Going.


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If there’s a single common thread in everything we write about politics here at Epsilon Theory, it’s that we believe our domestic political games have been transformed from coordination games, where positive-sum gameplay is at least possible, into pure competition games, where only zero-sum gameplay exists. We believe that has happened without any change in the “rules” of our domestic political games, but through the actions of political entrepreneurs who “defected” from the way the game was traditionally played. Once one political entrepreneur enjoyed success from this defection, ALL politicians were forced to follow suit, permanently changing the nature of the game.

The exact same thing happened in the NBA.

The NBA has had a 3-point line since 1979. This is not a new rule. It’s been tinkered with over the past 40 years, almost always to make the 3-point shot more difficult, but there is absolutely nothing new about this RULE. And yet, over the past 13 seasons (the elimination of midrange 2-point shots begins in earnest in the 2007-08 NBA season), the way that the NBA game is played has been totally transformed.

There are no more 2-point shots that aren’t lay-ups or put-backs from near the basket. For all practical purposes, they do not exist. There are lay-ups and there are free throws and there are 3-point shots. That’s it.

How did this happen? Were NBA coaches in the 28 year period from 1979 to 2007 just not as smart as NBA coaches today? Could they just not figure out that this was the way to win games? Were NBA players in the 28 year period from 1979 to 2007 just not as talented as NBA players today? Could they just not hit a 3-point shot?

Nope, Daryl Morey happened. I mean, there were others with similar ideas, but I’m going to give credit to (my friend) Daryl Morey, the just recently departed GM of the Houston Rockets. Daryl Morey is an entrepreneur in the truest sense of the word – he had a new idea and the guts to stake his career on that idea. When he was promoted to the GM role by Rockets owner Les Alexander in 2007, he didn’t change the rules of professional basketball, he changed the idea of how basketball should be played within those rules. He constructed a team and found coaches who would play basketball to maximize the impact of the 3-point shot, and the Rockets enjoyed quite a bit of success over the next 13 years. In fact, the Houston Rockets had the second best won-lost record in the entire NBA over Morey’s tenure as GM.

But the Rockets never won a championship. Why not? Because equilibrium. Because any idea that gives any sort of marginal advantage in the individual competitions that make up the overall game of professional basketball will be immediately copied by other GMs and coaches. Because as brilliant as Daryl Morey is and as talented as James Harden is, there are enough equally brilliant and equally talented people in the NBA to wash out the fleeting advantage of a good idea.

Once Daryl Morey’s new idea became the common knowledge of the NBA – once everyone knew that everyone knew that the way to win NBA games is to maximize 3-point shots and lay-ups – then it became a permanent feature of the way professional basketball is played. It became an equilibrium.

And you can’t undo an equilibrium.

So today, any player who attempts a midrange 2-point shot will be benched, any coach who institutes a strategy for anything other than 3-point offense and defense will lose, and any GM who constructs a team that doesn’t emphasize 3-point shooting will be fired.

“Yay, 3-point shooting and lay-ups! Yay, free throws!”

Some people think this new NBA game is a good game. Certainly it’s working out just fine for basketball entrepreneurs. I think it’s a much worse game that we will never recover from without fundamental changes in the rules of the game. I think it’s not working out well at all for us NBA fans.

It’s exactly the same with politics.

Some people think this new political game is a good game. Certainly it’s working out just fine for political entrepreneurs. I think it’s a much worse game that we will never recover from without fundamental changes in the rules of the game. I think it’s not working out well at all for us citizens.



The Frustrated Money Manager


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Ex-cardinal and frustrated money manager Giovanni Angelo Becciu

Vatican used charity funds to bet on Hertz credit derivatives (FT)

Three years earlier [2015], part of a €528m Vatican portfolio “derived from donations” bought structured notes containing CDS as part of a bet that Hertz would not default on its debts by April 2020, the documents show. The company filed for bankruptcy the following month, giving the Holy See a narrow escape on the investment, which paid out in full.

Other investments made by managers for the Secretariat appointed by Cardinal Becciu include financing the 2019 film Rocketman — a biopic of the musician Elton John — according to fund documents seen by the FT.

The Secretariat also bought multiple luxury residential properties in London’s Knightsbridge, and securitisations partly comprising invoices owed by the Italian state to Vatican-controlled hospitals. 

The Secretariat’s investment in the London building known as 60 Sloane Avenue was made through a fund in Luxembourg in 2014 in a deal personally authorised by Cardinal Becciu. In June the Vatican’s state news service reported that Holy See prosecutors believe the investment caused “huge losses”.

It looks easy, doesn’t it? Managing a portfolio. Managing a football team.

We all think we could do it, which is why “frustrated money manager” is the core psycho-demographic that supports pretty much all financial media business models. Just like there’s a frustrated GM in all of us, which is why ESPN and sports talk radio exist.

The frustrated money manager is a very different animal than Davey Day Trader Portnoy, who – as best as I can tell – is a showman and impresario (compliments in my book) who uses trading and portfolio “management” to support his brand/media company and tout his direct investments (Penn National Gaming). Same with Jim Cramer.

No, the frustrated money manager is rarely public with his compulsion (or her compulsion, but honestly I think this is almost entirely a y-chromosome thing), unless he’s enjoyed a hot streak and starts bragging to his email buds. Which happens not infrequently in a bull market.

The frustrated money manager is almost always a smart, accomplished professional in his own field who believes VERY much in the existence of The Smart Money ™.

The frustrated money manager is almost always a liiiittttle bit on the make.

Like a Vatican cardinal.

It took me a long time to recognize the frustrated money manager within me, including when I WAS a money manager, and a non-frustrated one at that. And to be clear, I said “recognize”, not “eliminate” or something silly like that. No, we are ALL frustrated money managers. The only question is whether we let that dimension of our psychological makeup ruin our lives, like it did Cardinal Becciu and so many others.

Here’s the knowledge that helps me keep it under control in myself. You ready?

There is no Smart Money.

That’s the big secret. That’s the most important thing I have to say to my fellow DGs and frustrated money managers. Especially if you ARE a money manager. You can’t eliminate the DG and frustrated money manager in you, but you can control it. Internalize this little nugget and you won’t get taken for a ride to the point where you ruin your life. Please.


Scapegoating the Zeitgeist


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Shale Companies Had Lousy Returns. Their CEOs Got Paid Anyway. (Wall Street Journal)

It’s been a bad few years for investors in shale companies, but a pretty good few years for shale company CEOs.

The leaders of U.S. shale companies received some of the largest executive pay increases in corporate America, even as their shareholders lost billions of dollars, a Wall Street Journal analysis has found.

There’s something about Wall Street Journal headshots that make you look guilty.

Maybe it’s the black-and-white, maybe it’s the uncanny valley stippling, but whatever it is, I have no doubt that this is why the Wall Street Journal editors used this two-by-two composite of headshots as the social media image for their broadside against shale company CEO compensation .

Similarly when you dig into the article, the words are just filler for the four individual headshots, together with their cash comp and stock price performance data for the five year period 2015 – 2019.

I mean, you don’t even need to read the article to get your blood pressure up. Tens of millions of dollars every year to each of these guys. Hey, I could do their job for a fraction of that money! Clearly these guys are guilty of … something. But guilty of what?

In the eyes of the Wall Street Journal, the mortal sin committed by these CEOs – all of whom are professional managers, not founders or entrepreneurs – is NOT that their professional managerial compensation is ridiculous and extreme. No, the mortal sin is that it’s off-narrative, that there’s no pleasant veneer of positive “total shareholder return” to justify their professional managerial compensation. We are told that these four CEOs are over-compensated because the stock price is down, not that they are over-compensated, period.

These CEOs violated the “Yay, shareholder alignment!” narrative, and THAT is why they are singled out and hung out to dry by the Wall Street Journal.

These four CEOs are presented as “bad apples” in an otherwise perfectly healthy system of professional management behavior. They are presented as scapegoats for a SYSTEM of massive wealth transfer from shareholders to the professional managerial class.

This article is not an attack on that system. It is a defense. It is telling you that the system is fine … we just need to do something about these bad apple CEOs who do not properly “align” their compensation with shareholders.

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

Not founders. Not entrepreneurs. Not visionaries.

Nope … professional managers.

Just don’t expect to find that recognition in the pages of the Wall Street Journal.


Why Am I Reading This Now?


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GOP Senators Send Letter to Netflix Challenging Plans to Adapt Chinese Sci-Fi Novel ‘The Three Body Problem’ (Hollywood Reporter)

‘Game of Thrones’ creators David Benioff and D.B. Weiss are set to adapt the hit book trilogy for Netflix. The Senators’ accuse the streamer of “normalizing” China’s extra-judicial detention of over one million Muslims in Xinjiang, referencing past comments from the books’ author Liu Cixin supporting the program.

Fact #1: The Three Body Problem book trilogy by Liu Cixin is a fantastic work of art.

IMO it’s the most important work of science fiction since Asimov’s Foundation trilogy back in the 1950s, and I’m thrilled that Netflix is adapting it into a television/movie series (less thrilled that Benioff and Weiss are the guys in charge).

Fact #2: Liu Cixin is not outspoken on politics, but when he does speak, he is a non-apologetic apologist for the Chinese government’s brutal treatment of its Uyghur minority population.

Here’s the quote that everyone focuses on, from a June, 2019 feature article in the New Yorker:

When I brought up the mass internment of Muslim Uighurs—around a million are now in re-education camps in the northwestern province of Xinjiang—he trotted out the familiar arguments of government-controlled media: “Would you rather that they be hacking away at bodies at train stations and schools in terrorist attacks? If anything, the government is helping their economy and trying to lift them out of poverty.” The answer duplicated government propaganda so exactly that I couldn’t help asking Liu if he ever thought he might have been brainwashed. “I know what you are thinking,” he told me with weary clarity. “What about individual liberty and freedom of governance?” He sighed, as if exhausted by a debate going on in his head. “But that’s not what Chinese people care about. For ordinary folks, it’s the cost of health care, real-estate prices, their children’s education. Not democracy.”

Fact #3: Yesterday, five GOP Senators sent a letter to Netflix, saying that any adaptation of Liu Cixin’s work amounted to “normalization” of China’s actions against the Uyghurs, and that “Netflix’s decision to do business with an individual who is parroting dangerous CCP propaganda” amounts to “complicity” with the CCP.

You can download a PDF copy of the letter here.

The surface issue around these facts, of course, is whether artists are separable from their art.

Does the recognition and promotion of good art made by artists with abhorrent political opinions serve also to recognize and promote those abhorrent political opinions?

My answer is yes … if you’re a rhinoceros.

But if you’re still a human being … if you’re still able to hold two independent thoughts in your head at the same time … if you’re still able to believe that yes, China’s treatment of the Uyghurs is a grotesque evil deserving of implacable sanction and resistance AND yes, The Three Body Problem is an important work of art … then my answer is no.

To be sure, there is a spectrum of association between artist and abhorrent regime that plays a crucial role in how I’m answering this question. I mean, no one needs to be doing a Leni Riefenstahl retrospective in 1938. That said, I don’t think that any reasonable person could say that Liu Cixin is an unofficial spokesperson for the Chinese government like Riefenstahl was for Germany, and I definitely don’t think that any reasonable person could say that The Three Body Problem is a glorification of the grotesque Chinese state like Triumph of the Will was a glorification of the grotesque German state.

It is, of course, possible for well-meaning people to disagree on this question.

But I don’t think that the five GOP Senators who sent this letter to Netflix are well-meaning.

I don’t think these Senators care very much about this book adaptation and the indirect-at-best “normalization” of abhorrent political views held by the author of the source material. I don’t think that this letter was written out of a deep and abiding concern with the horrific treatment of the Uyghurs, because if that were true a letter to Mary Barra at General Motors might be just a wee bit more relevant and impactful.

No, I think this letter was written out of a deep and abiding concern with Netflix.

I think this letter was written to generate a “Whatabout?” talking point regarding Netflix in particular and Hollywood in general, so that any criticism of these GOP Senators and Dear Leader on the China political dimension can be blunted, and any attacks on the political opponents of these GOP Senators and Dear Leader on the China political dimension can be buttressed.

I think that’s why this letter was written NOW.

Which leads me to the best advice I’ve got for maintaining a critical distance from the barrage of Fiat News that seeks to weld our minds shut, to the best advice I’ve got for maintaining some resistance to our hard-wired tendency to fall into Gell-Mann Amnesia.

Whenever you read something in the news, always ask yourself:

Why am I reading this now?

Clear eyes. Full hearts. Can’t lose.


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.


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.