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.


The Game of Tesla


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

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

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

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

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

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

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

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

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

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

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

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

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

They always do.


The Cartoon Put


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Source: The Dungeonmaster (1984)

Mestema: In a future reality I shall destroy you!

Paul: I reject your reality and substitute my own!

The Dungeonmaster (1984)

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

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

And pension obligation cartoons.

And top-line revenue cartoons.

And labor statistic cartoons.

And daily stock price attribution cartoons.

And risk-model cartoons.

And user / subscriber count cartoons.

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

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

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

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

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


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

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

But y’all. Seriously?

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

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

The impulse should be the complete opposite.

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

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

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

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

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

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

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


Sacrifice for Thee, Vast Wealth for Me


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

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

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

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

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

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

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

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

Dear fellow team members,

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

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

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

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

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

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

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

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

Doug Parker, that’s who.

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

Do The Right Thing

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

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

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

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

LOL. Don’t call me Shirley.

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

And took on an additional $14 billion in debt.

And bought back $13 billion of its stock.

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

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

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


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

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

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

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

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

Welcome to the Long Now.



Carny Barkers


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

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

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

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

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

Or a sack of oranges.

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

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

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

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

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

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

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

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

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

Certainly that’s been the experience for value investors.

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

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



Get Me Tools and a Beer!


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

Marge: Homey, what are you going to do?

Bart: <chanting under his breath> Crazy scheme, crazy scheme, crazy scheme…

Homer: Get me tools and a beer!

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

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

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

This is good news.

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

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

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

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

Source: Epsilon Theory

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

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

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

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

In other words, Yay, reshoring!

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

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

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

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

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


Deep Sociopathy


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

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

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

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

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

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

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

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

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

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

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

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

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

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

But wait, there’s more.

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

No, the fine was only $140 million.

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

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

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

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

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

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

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

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

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



Taiwan is now Arrakis


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He who controls the spice controls the universe.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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




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

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

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

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

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

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

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

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

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

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

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

But wait, there’s more …

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


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

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

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

Whee! Isn’t investing fun!

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

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

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

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

Pffft. They’ll be fine.

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




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

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

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

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

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

Since then we got this in April:

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

And now this on Tuesday:

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

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

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

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

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

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

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


An Advantageous Contagion


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

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

Never forget.

Never Forget

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

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

Pearls optional.

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

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

J.W. Goethe, Campagne in Frankreich 1792

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

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

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

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

Resignation Letter – Bari Weiss

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

A Letter on Justice and Open Debate

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

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

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

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

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