Narrative is not a Disease. Narrative is Us.

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.



Wall Street Used to Crunch Numbers. They’ve Moved On to Stories.   [Bloomberg]

U.S. business may have been talking itself into a slowdown.

That’s one way of reading a study by the Carlyle Group, using techniques from narrative economics –- an emerging field set to gain momentum with the publication of Nobel prize-winner Robert Shiller’s much-anticipated book on the topic.


So this article is part of the publicity effort behind Robert Shiller’s forthcoming book, Narrative Economics. I’m sure I’ll have more to say about the book after it’s formally released, and I’m glad that narratives are getting more mainstream attention, and imitation is the sincerest form of flattery, and Robert Shiller is a really smart guy. Yep, I think I’ll leave it there for now.

Ah, who am I kidding?

The central metaphor for Shiller’s book is that narrative = disease, that (some) narratives are “contagious”, and that the spread of an “infectious” narrative “virus” can best be understood through the toolkit of epidemiology.

I think this is … wrong … not just in its conception, but even more so in how Shiller’s book will be USED.

Narrative is NOT a virus. Narrative is not something that exists outside of us. Narrative is not something that infects us or just happens to us if we are unlucky enough to catch it.

NO.

Narrative is intentional. Narrative is motivated. Narrative is done TO us. Narrative is – quite rationally – embraced BY us.

Narrative is entirely human, entirely part and parcel of what it MEANS to be the human animal … a social animal.

I can’t express strongly enough how dangerous I think it is to conceptualize narrative as a contagious disease, rather than as the medium of a social game – the Common Knowledge Game.

Why?

Because a contagious disease is something to be CURED.

And that’s exactly how Shiller’s book is going to be used.

Here are some more quotes from the Bloomberg article above:

Central bankers can’t just watch. They need to promote their own narratives, too –- and it’s getting harder.

“I’m a shaman,” said Stefan Ingves, governor of Sweden’s Riksbank. “I’m a weatherman, I’m a showman, and I’m an economist.’’ But above all: “I’m expected to be, and I am, a storyteller. I tell stories about the future.”

“And if I’m successful in my storytelling,” he added, “people say: ‘Hmm, that’s reasonable.’’’

That’s Stefan Ingves, storyteller and central banker, shaking his finger at us and telling us HOW TO THINK about economic news and economic facts. Thank goodness!

Because in the Shiller universe of narrative = disease, it is the “reasonable” narratives of experts and academics that serve as the medicine for narrative epidemics like Bitcoin or market panics or gold buggishness or real estate booms or “talking ourselves into a recession”.

Just like these guys. They’re all doing EXACTLY the same thing that Ingves is doing.

Although I’d wager a lot of money that only 70% of these guys would be seen by Shiller or Ingves as promoting a “reasonable” narrative.

I think it’s a cop-out to think of narrative as disease, as something that just happens to us from time to time, as if it were some act of god.

Because if that’s how you think of it, then obviously that’s something that an “advanced” society should want to FIX. And how does an advanced society “fix” this?

Through the Nudge.

There is another way.

The other way is the anti-nudge. The other way is the encouragement of an individual autonomy of mind.

Clear Eyes, Full Hearts, Can’t Lose.

Not from the top-down, but from the bottom-up. Not from a political party, but from a social movement.

This is Make/Protect/Teach.


Sparks, Arcs and Trademarks

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


We are on record saying that the thing we’d watch out for to spot a change in the nature of the the ongoing US/China trade and tariffs saga is the escalation of rhetoric into ‘national security’ language. There have been flashes of such language at critical points in the negotiation – points in time where, say, a lack of progress on agricultural product purchases leads to someone bringing up Taiwanese sovereignty or the national security implications of IP theft or, uh, hypersonic missiles. But in general, these escalations, which we think have the potential to change the character of the game into a political game in which scorched earth on trade is the optimal strategy, have stayed outside of the core of the trade and tariffs narrative structure.

Today, however, we spotted this near the top of the Zeitgeist.

Federal funding for Chinese buses risks our national security [The Hill]

It’s a guest opinion piece from a few (seemingly esteemed, as far as I can tell) former military and intelligence officers.

The switch from a petroleum past to an electrified future is handing the United States an opportunity to own its transportation future. However, we will only have one attempt to realize this chance. If we do not counter China’s EV ambitions now, we risk losing this golden opportunity to bolster our energy security — and place our transportation needs for the foreseeable future into the hands of our greatest strategic rivals.

Now, I’m not sure if one year’s federal funding for Chinese-made EV buses and the resultant battery infrastructure reliance rises to the level of a national security risk. I don’t say that snarkily or doubtfully – I honestly don’t know. My instinct is to say that of all the threats to the independence of US energy sources (and energy-adjacent tech like this), this struck me as being a not especially terrifying one. There are some serious “why am I reading this now?” qualities to this piece that I hope should jump out to any regular Epsilon Theory reader.

But let’s take it at face value anyway.

Because even if we do, the fact that this rose to the top of the Zeitgeist is probably related, in part, to its linguistic connectedness to popular pop culture debates about Tesla’s new competition in the EV space, to heightened financial markets attention to energy narratives in September, and to broader political discussion of climate change in connection with recent town halls and primary debates. And so I am not convinced that this is the “National Security Escalation” we are looking for.

But that’s my story, not a fact.

Clear eyes on this one, and open.

When Meta-Analysis Goes Meta

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


A JPMorgan bot analyzed 14,000 Trump tweets and found they’re having an increasingly sharp impact on markets [Business Insider]

I don’t think it is really a secret to anyone who spends much of their day monitoring financial markets that President Trump’s social media habits have a, well, habit of creating bouts of volatility. So when JPMorgan created their Volfefe Index (cute, guys), I don’t think anyone was really surprised at what they discovered.

As a result, JPMorgan said: “A broad swath of assets from single-name stocks to macro products have found their price dynamics increasingly beholden to a handful of tweets from the commander in chief.

It also shouldn’t be surprising to anyone – especially anyone who has been reading our ET Pro monitors that have been making this point since December 2018 – that no narrative has captured the market’s attention quite like the ping-ponging of China and trade war narratives.

JPMorgan also noted that his “market-moving” tweets were less popular in terms of likes or retweets, but also they tended to contain the same keywords: China, billions, dollar, tariffs and trade. The bank also said that tweets containing Mueller were categorized as market moving.  

What is surprising to me – or at least interesting – is the fact that this analysis is at the top of the Zeitgeist. It isn’t that China, or trade, or even Trump tweeting about these things is connected to everything else being written about in financial media. It is that the analysis of the influence of missionary behaviors is itself part of the Zeitgeist.

Welcome to the party, folks.

There’ll be a lot of introductions to make now that you’re all here, but first, I want to warn you about those guys in the corner. They’re the “it’s just short-term volatility – no one really takes any of this seriously” crew. After they tell you their names, they’ll let you know that these silly things don’t matter to their process because they’re very long term, and have absolutely done enough education with their clients to keep them from hitting the eject button after a historically minuscule drawdown, you see. You could tell them et in Arcadia ego, but I’m not sure it would do any good.

This group is also prone to seeing the emergence of this kind of analysis into the foreground as a destructive force to its influence, like pulling the curtain on the Wizard of Oz, or shining a bright light into a dark room. Once everyone knows that everyone else, along with a bogeyman we call ‘The Algos’, are establishing their positions based on how they think everyone else will respond to Trump tweets, that should break the illusion and make people realize that it’s time to focus on things that matter again, like their five-year drop-down model and commodity price scenario analysis for that sweet MLP GP. Right?

Unfortunately, the effect is usually the opposite. If you’re playing the Keynesian Beauty Contest or Dick Thaler’s Dinner Party Game, common knowledge about the game itself affects the winning strategy. Our collective awareness of second- and third-degree gameplay by other participants accelerates our perception of the need to shift to deeper levels ourselves. As I wrote back in 2008:

Playing a third-degree game is too daunting a task to consider for most, and so curiously, even in the mathematically deterministic version of the game that has a Nash equilibrial ‘correct’ answer, the takeaway is the same as in the beauty contest: you usually win by guessing that others are playing a mix of one to two degrees of the Common Knowledge Game. Some people buy and sell on fundamentals, and some on how they think people will react to them.

But as Ben discussed in The Three-Body Problem, we think that this is changing. We think it has changed. We think that the violent expansion of communications policy by global central banks and the accompanying expansion of always-on media has meant more participants shifting to third-degree thinking. The reason we talk about Narrative so much is that we find it a useful meta-expression of and proxy for exactly the kind of mental model a third-degree participant must construct. When we refer to Narrative, we mean it as an expression of what everyone knows that everyone knows.

The Fundamentals are Sound (February 8, 2018)

Why does this matter? What should it mean to us that investing based on common knowledge is…common knowledge? I think it means that awareness of and sensitivity to narratives will necessarily be part of the professional investor’s playbook for the foreseeable future.

After all, that’s what we mean by the Zeitgeist.

I’ve Got a Secret

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


I’ve Got a Secret was a TV game show that aired from 1952 to 1967, where debonair white people would smoke cigarettes, sport bow ties and ermine stoles, and crack wise as they quizzed “contestants” about their secret pastime or accomplishment. My god, how I miss Kitty Carlisle.

Anyway, I thought a lot about I’ve Got a Secret when I saw the recent financial media brouhaha over Michael Burry and passive investing. But probably not for the reasons you think.


The Big Short’s Michael Burry Sees a Bubble in Passive Investing  [Bloomberg]

“The bubble in passive investing through ETFs and index funds as well as the trend to very large size among asset managers has orphaned smaller value-type securities globally,”

The Big Short’s Michael Burry Explains Why Index Funds Are Like Subprime CDOs  [Bloomberg]

“Central banks and Basel III have more or less removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies — these do not require the security-level analysis that is required for true price discovery.”


Okay. Whatever. The whole index-funds-are-like-subprime-CDOs thing is silly, but that’s the headline writer setting this article up for clicks. Burry – like every small cap value investor since the dawn of time – is saying that the market doesn’t appreciate the information he’s uncovered about his small cap value stocks, and that there are structural reasons why the market doesn’t appreciate that information. Not exactly fighting words.

But judging from the reaction on Fintwit and elsewhere in the financial blogosphere, you would have thought that Michael Burry had run over someone’s dog.

It’s the reaction to the Michael-Burry-says-passive-investing-is-a-bubble stories that made me think of I’ve Got a Secret.

I mean, you had celebrated former-alpha-guy-turned-asset-gatherer Cliff Asness leap to Twitter to call Burry a “monkey who typed Hamlet” (but don’t worry, it’s okay to say this because it was done in a self-deprecating way), “histrionic”, and full of “inarticulate nonsense.” I lost count of all of the urgent “debunking” blog posts to the Michael-Burry-says-passive-investing-is-a-bubble story.

It’s just weird.

To be fair, it’s also weird how passive investing becomes the scaffolding for any number of Grumpy Grandpa strawman positions, most notably the “this will blow up ANY DAY NOW” argument, the “those darn computers!” argument, and the “in praise of index-hugging active managers and their … [checks notes] … price discovery” argument. I claim zero association with those positions in what I’m about to say, so don’t @ me.

There IS a bubble here. It’s a behavioral bubble I’ll call ABB.

Always. Be. Buying.

And the Common Knowledge surrounding passive investing – what everyone knows that everyone knows about passive investing – is what blows this bubble.

Everyone knows that everyone knows that passive investing beats active investing.

Everyone knows that everyone knows that stocks as an asset class ALWAYS go up over time.

And if that’s the case, then why in the world would you pay more for someone to use their discretion in picking this stock or that stock? No, no … just harvest the inevitable returns that stocks in a general sense ALWAYS provide by putting your money in an inexpensive, systematic buying program. If you think yourself particularly clever, then by all means express this systematic buying program in terms of “factors” or “betas” instead of this index or that index, but the important thing is to ABB.

Always. Be. Buying.

Index funds and any other passive investment vehicles are really important, excellent things for investors. I get that. I am not railing against their existence.

But you cannot separate the Always. Be. Buying. impulse from index vehicles and pretend that they are just the intellectually simple, straightforward expression of market exposure that they are in theory.  They are loaded with “be long” MEANING for everyone.

THAT’S THE BUBBLE.

Now I know this will come to a shock for many, but there was a time when this was not the accepted faith of markets.

Gerald Loeb, co-founder of E.F. Hutton, happily immersed in the tape.

This is a picture of Gerald Loeb, who co-founded E.F. Hutton and was Warren Buffett-level famous back in the 1950s and 1960s … back when I’ve Got a Secret was in its heyday. And this was The Secret about markets that Gerald Loeb thought he knew:

Buy and hold is for chumps.

In the 1950s and 1960s, everyone knew that everyone knew that Gerald Loeb was right. This was the investment Common Knowledge of the day. This was the gospel and the MEANING of the business of Wall Street.

No one remembers Gerald Loeb today.

Which is a shame. But not surprising.

Did Gerald Loeb know The Secret to markets? Of course not. But did Gerald Loeb know A Secret to markets? Yes, he did. And did his secret WORK for the markets of his day? Absolutely. Would his secret work TODAY in a different Common Knowledge environment? Not a chance.

Do YOU know The Secret to markets, that stocks as an asset class ALWAYS go up over time?

Or do you know A Secret to markets, one that works because it is the Common Knowledge of the day?

I think it’s the latter. Which means it will work until it doesn’t. Which means it will work until the Common Knowledge changes.

That’s my Secret about markets. It’s far from Common Knowledge. But pass it along and let’s see what happens.


PS – We’ve written a lot about passive investing and indexing. And by we, I mostly mean Rusty, who has some great notes on the subject. Like these:


The Industrially Necessary Egg

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.



Indonesia Says Throw Eggs Away to Support Chicken Meat Prices  [Bloomberg]

“In Indonesia, the chicken comes before the egg.

At least in the sense that the government is asking poultry breeders to throw away 10 million eggs or give them away for free in an attempt to support slumping chicken prices. It’s hoping that a reduction in the number of eggs that may hatch will shrink chicken supplies and prop up retail prices that are near a three-year low.”


No idea why a Bloomberg piece about the collapse in Indonesian poultry prices was one of the day’s most interconnected financial media articles in narrative-world … probably just the sheer absurdity of a world where destroying 10 MILLION eggs is a reasonable policy for propping up the fortunes of industrial protein farmers.

But I’ll take any opportunity to reprint the very first Note from the Field, the very first note to link my experience as a dilettante farmer with my experience as a professional investor.

Here’s a section of that note in the clear, originally titled “Fingernail Clean”, but better titled:

The Industrially Necessary Egg


In modern farming and in modern investing, we have become prisoners of the monoculture. It’s efficient. It’s necessary for a mass society of ever-increasing Desire.

But here’s the thing …

In the investment monoculture, you’re not the farmer.

Fresh eggs are, in fact, one of the best things in life, and they (almost) make up for the necessity of dealing with the evil reptilian brain of the modern-day chicken. A fresh egg is notable for both its yolk (an orange-yellow that seems to glow, not the flat yellow-yellow you get in a store-bought egg) and its white (the fresher the albumen, the greater its coherence, so that you can, for example, poach a very fresh egg without putting vinegar in the water). A fresh egg is also notable for the fact that, depending on where it was laid and when it was collected, it may have dried chicken poop on the shell.

Now an eggshell is semi-permeable, and a fresh eggshell has a thin anti-bacterial protective layer called the “bloom”, so you don’t want to soak it in soapy water, or really any water at all. You can use an enzymatic egg wash to loosen the “dirt”, but really all you need to do is moisten the spot and scrape it with your fingernail until it’s clean. Not scrubbed. Not pristinely clean. Just fingernail clean. That’s really the optimal outcome.

Here’s another truth about fresh eggs: you don’t need to refrigerate them. They’ll keep for a month just sitting out on your kitchen counter. They don’t rot. They don’t start to smell. They don’t serve as a Petri dish for salmonella or some other dread bacterium. Seriously.

So you don’t have to refrigerate your fresh eggs. But if you scrub your eggs all nice and perfectly clean, removing the anti-bacterial bloom layer in the process, then you have to refrigerate them. Similarly, if you start refrigerating an egg, then you have to keep refrigerating it. You can’t go back and forth.

Of course, you can’t scrape eggs fingernail clean on an industrial scale, and there really are dread diseases running rampant in every industrial protein monoculture facility, whether it’s for eggs or chickens or cows or pigs or whatever, which is why antibiotics are constantly fed to these animals. You can’t be certain that industrially produced eggs will get to a buyer within a month, and you certainly can’t be certain they’ll be kept at room temperature over that span. So you wash the hell out of the industrially produced egg, and you introduce it to refrigeration as soon as you can for storage and transport. That’s why the spotless, refrigerated egg is all we know. It’s necessary for effective and profitable industrial production.

But because the spotless, refrigerated egg is all we know, we believe anything to the contrary must be a defective and potentially diseased egg. Not a better egg, which is the truth, but a worse egg. A bad egg. You see this all the time when you give people fresh eggs. They’re disturbed if the eggs aren’t housed in an egg carton and cool to the touch. They get freaked out if the eggs aren’t perfectly, and I mean perfectly, clean.

We have been well and truly trained to accept the Industrially Necessary Egg as the Good Egg.

It’s the same with all dairy products. It’s the same with all industrially produced proteins. It’s the same with all industrially produced anything.

So many ideas that we take as immutable truths of safety or goodness, whether those truths concern the food we eat or the stocks we buy, are not truths at all. They are conveniences, and not conveniences for us, but for the sellers of the food we eat or the stocks we buy.

Do you really think that an ETF (and let’s recall what those letters stand for — an Exchange Traded Fund) was designed for your benefit? I wrote the following in September, 2015 in an Epsilon Theory note called “Season of the Glitch”. It bears repeating.

The key letter in an ETF is the F. It’s a Fund, with exactly the same meaning of the word as applied to a mutual fund. It’s an allocation to a basket of securities with some sort of common attribute or factor that you want represented in your overall portfolio, not a fractional piece of an asset that you want to directly own. Yes, unlike a mutual fund you CAN buy and sell an ETF just like a single name stock, but that doesn’t mean you SHOULD. Like so many things in our modern world, the exchange traded nature of the ETF is a benefit for the few (Market Makers and The Sell Side) that has been sold falsely as a benefit for the many (Investors). It’s not a benefit for Investors. On the contrary, it’s a detriment. Investors who would never in a million years consider trading in and out of a mutual fund do it all the time with an exchange traded fund, and as a result their thoughtful ETF allocation becomes just another chip in the stock market casino. This isn’t a feature. It’s a bug.

More recently, both Rusty Guinn and I have been hammering on this point in Epsilon Theory notes: ETFs are the epitome of active trading. They exist because we can’t help ourselves. We demand the ability to actively manage our portfolio on a minute-by-minute, second-by-second basis. We’re addicted to the “news” on CNBC and the rush we get from playing the hand and the false sense of security we derive from the immediate liquidity and the false satisfaction we derive from making the decision ourselves. We fancy ourself to be a macro investor — able to select this sector or that sector, this geography or that geography, this theme or that theme, this asset class or that asset class — and that’s why ETFs exist. We’ve been sold the idea that we’re excellent macro investors, just as smart and observant and on top of things as all those fat cats we read about. We’ve been sold the idea that it’s a Good Thing for us to “take control” of our portfolio and give the boot to all of those “so-called experts” with their “out of control fees”.

It’s a powerful idea because, like all powerful ideas, there’s more than a little truth to it. Fees are often too high. Experts and advisors are often just marketing shills. That’s all true. But what’s also true is that you are not an excellent macro investor. Sorry. And more to the point, there’s no need for you to be an excellent macro investor and still achieve your investment goals. But so long as we allow ourselves to be well and truly trained into believing that the Industrially Necessary Financial Innovation is the Good Financial Innovation, it’s harder to achieve those goals. Like a store-bought egg, ETFs are occasionally necessary, and always convenient. But they can’t hold a candle to a fingernail clean fresh egg.


Gell-Mann Gravity

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.



There are three topics which, despite being wonkish or technical subjects pertinent to specific industries or social fields, seem to always manage a connection to all the narratives floating around in global financial news:

  • New Hampshire and Iowa electoral caucuses
  • Companies buying back their own stock (don’t worry, I’m not going there)
  • Rare earth metals

Welcome back, old friend.

I had honestly forgotten about this story, but extra kudos to the writer here for the very appropriate scare-quotes around “liquidity.” The world just wasn’t ready for crowd-sourced terbium oxide markets, y’all. All the same, the story is worth reading just to remember how wacky the world of finance, real assets and commodities can be.

Yet I’m far more interested in why rare earth metals stories tend to be so front-of-mind for so many news outlets. Yes, I think it has something to do with discussions of commodities, trade and China to which some language here is connected. Yes, rare earth metals actually are specifically important to some industries and not as broadly distributed in current production as we might like.

AND another thing. I think there is a special class of topics which are simultaneously (1) widely believed to be a powerful catalyst for future events and (2) really complicated. They are ripe with potential to make us victims of Gell-Mann Amnesia. They are also ripe with potential to exert disproportionate influence on the attention paid to these topics. People and outlets want to cover topics which everyone knows that everyone knows will be a catalyst for future events. In media, as in politics, as in financial markets, people make their name on these kinds of predictions. For better or worse.

That is Gell-Mann Gravity.

I am not saying that I have insight into whether control of rare earth metal deposits is or isn’t (or won’t be) a catalyst for some Big Thing. For all I know, I will have grandsons fighting for the New England Confederation in both the Greenland and Chinese theaters in the Great Neodymium War. I’m also not saying this particular article has anything wrong with it. But I think I do have some insight into how common knowledge about catalysts shapes the way that we talk about them – and read about them.

My humble suggestion: consider adding “Does this topic exert Gell-Mann Gravity?” to your tool kit of Fiat News tells and “Why I am reading this now” heuristics.

LEEROY JENKINS!!!

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.



The Fed Shouldn’t Enable Donald Trump  [Bloomberg]

I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable. Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election.

There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.

Bill Dudley, former President of the New York Federal Reserve Bank

No there’s not.

An argument that the presidential election falls within the Fed’s purview, I mean.

There’s no argument at all. Not unless you’re a … you know … technocratic fascist who believes that hedonic adjustments to iPad prices offset real world increases in food prices.

And that’s certainly one plausible explanation for Bill Dudley’s now infamous opinion piece in Bloomberg Opinion this week, where he says that the Fed should explicitly use monetary policy as a weapon against Donald Trump’s presidency.

There are four such plausible Occam’s-razorish explanations for this article, IMO:

A) Bill Dudley is a technocratic fascist.

B) Bill Dudley has lost his mind. In a sad clinical sense.

C) Bill Dudley is a MAGA sleeper agent.

D) Bill Dudley is Leeroy Jenkins.

Now I realize that these options are by no means mutually exclusive, and I have zero interest in plumbing the depths of Bill Dudley’s mind if not soul to ascribe relative attributions, but for you non-gamers out there I’ll explain the Leeroy Jenkins option.

In 2005, a home video of a group of World of Warcraft players went ‘viral’, as the kids would say. While one of their members – the aforementioned Leeroy Jenkins – is in the kitchen making a plate of food, the rest of the group engages in an exhaustive planning session for making an assault on a near-impregnable fortress of evil monsters. They solidify the plan and are confident in its success, but Jenkins walks back from the kitchen and – without any consultation with his partners – attacks the evil fortress head-on and berzerker style, yelling out his battle cry, “LEEEEEROY JENKINS!!!”.

The entire party is slaughtered by the horde of evil monsters that Jenkins triggers.

And that’s going to be the outcome here, too.

Because now when Trump tweets that the Fed is his political enemy … it’s no longer a joke.

Because now if the Fed does NOT cut 50 bps in the September meeting, they will face a withering political attack … and they will lose that fight.

Because Bill Dudley just widened the widening gyre by a country mile.

My prediction:

Within six years, regardless of who is elected in 2020, the Fed as we know it will no longer exist.

It will be explicitly brought within Executive control, no different than, say, the Department of Homeland Security.

I’m not saying that’s a good thing and I’m not saying that’s a bad thing. I’m saying that’s what I think will be.

And the evolution of capital markets into a political utility will be complete.


When Non-News Becomes Fiat News

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Image result for hong kong residential real estate

Want to know what common knowledge about the paramount importance of the China Trade War looks like in financial media?

Hong Kong Clashes Put Brakes on Property Boom [Dow Jones]

The headline is ominous.

“Hong Kong’s formidable property market is straining, as protest pressures add to those created by an escalating U.S.-China trade spat and slowing global growth.”

OK, strong lede. I can tell this one’s gonna be juicy.

“The city has been hit by a “perfect storm” of trade tensions and spiraling protester-police clashes, Wharf Real Estate Investment Co. Chairman Stephen Ng told media earlier this month. He said sales at the company’s two flagship malls, Times Square and Harbour City, had suffered.”

It’s happening, people!

“The impact on the residential sector has been smaller. At the city’s top 10 private housing estates, homeowners sold 19 apartments in the first four weekends of August, four more than in the same period a year earlier, Centaline Property Agency data shows. The company said sales picked up during the most recent weekend, aided by anticipation of persistently low interest rates and after some homeowners reduced prices.”

“The realtor’s Centa-City Leading index, a gauge of used home prices, has fallen by 1.1% in seven weeks, after hitting a record high in late June.”

Wait, what?

“Still, Louis Chan Wing-kit, Centaline’s Asia-Pacific vice chairman, said many prospective buyers had canceled viewing tours, as protests disrupted transport and dented investor sentiment. Weekends are prime time for both viewings and the biggest protests.”

This…this is a story about canceled open houses?

Look, Lord knows that we’ve all learned that under the right circumstances, any drop in real estate prices can be a big deal (something something Gaussian copula). There are times when a 1.1% drop in some real estate markets would shock the world. But home prices in a market like Hong Kong behave like risky assets, not just in their natural volatility but in their beta to junior securities in related markets. And with all that’s going on in that neck of the woods right now? Yeah, maybe another 2016 is in store. Or another 2017. No idea.

I also know that a market slowing down after years of roaring growth is a story.

But this piece doesn’t sit at the top of the Zeitgeist because it seeks to tell the story of a market that has flattened after an almost uninterrupted decade of growth. It sits at the top of the Zeitgeist because it strains to find powerful connections to as many negative events as possible when the connections – a couple tough weekends for open houses, really? – are banal, at best. It could serve as a thesaurus for negative media coverage of an issue. Rattled. Outbreak. Diminish. Dented sentiment. Perfect storm. Positives are dismissed as “much-hyped.” It closes with a fiat tell – good ol’ nonetheless – which leads to an almost reluctant closing.

“Nonetheless, analysts don’t expect too severe a pullback. Supply remains tight, and a currency peg to the U.S. dollar means local interest rates track those in the U.S., which helps keep mortgage costs down.”

“Mr. Chan at Centaline, and Will Chu, property analyst at CGS-CIMB Securities, both said they expect home prices to fall in the second half, bringing price growth for the whole year to about zero.”

The point isn’t that there is nothing interesting going on in Hong Kong real estate from an investment or social perspective. The point is that when the narrative is that China Trade War is the only thing that matters, our consumption of media tells every story almost completely through the lens of that narrative, with all of its baggage and all of its dire implications.

If you feel your information being drawn toward the gravity of China Trade War language, simply knowing – as my childhood taught me – is half the battle. Consider how it affects your thinking. Consider how it might affect the thinking of others. Clear eyes.

You Can’t Take It Back


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. On the weekend, however, we run the same analysis on…well, everything else. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.



A chorus of boos echoed through Lucas Oil Stadium in Indianapolis on Saturday.

This was a strange thing.

It was strange because it was a pre-season game. You don’t usually hear boos or cheers of any magnitude at these games. They are low-energy exhibitions played mostly by athletes who won’t make the team.

It was strange because this was Indianapolis. Not Philly or New Jersey, where they’d boo the Dalai Lama just because some guy cut them off in traffic earlier. Or for no reason at all.

Strangest of all, the booing didn’t come after a bad call by a referee. It didn’t come after an especially poor play. It wasn’t a response to poor effort on the field, poor play-calling, or any of the usual reasons for this kind of outburst. It came as the players walked off the field and was directed at the home team’s franchise quarterback – Andrew Luck.

The media had just leaked moments before that Luck had retired at the age of 29, you see.

Andrew Luck retires, appears to be savagely booed by Colts fans in Indy after stunning news breaks during game [CBS News]

The backstory – there’s always a backstory – is that Luck was mentally and physically exhausted after years dealing with and rehabbing from a nagging, persistent cascade of injuries from playing football. A kidney laceration. Torn cartilage in multiple ribs. Concussion(s). Torn abdominal muscles. Torn labrum in his throwing shoulder. And now a lingering strain of something in his calf and ankle. These are just the ones that made the list, things that kept Luck out of games. They don’t include the scrapes, bumps, stingers, bruises, cuts and (probably) more than a couple seeing-stars episodes that he was able to fake the sideline medical staff into ignoring.

No need to deify or lionize here. Luck knew what he was getting into by playing football. He made a lot of money. He’s not asking anyone to shed tears for him. His body and brain were telling him it was time to go, even if it was 10 years before anyone thought he would. And go he did.

Leave aside for a moment that we’re talking about cheering for the color of shirt on a field most associated with the city where we or our parents got offered a job. There might be a couple people who booed Andrew Luck who still revel – or at least still agree – with what they did. But I don’t think it’ll be very many. I think there are a few thousand people who woke up Sunday morning feeling like garbage. I think they’ll remember that they booed one of their favorite team’s best players ever in a special, iconic moment where they should have been cheering. Over time some of those brains will allow ego to overwrite reality with stories like, “It all happened so fast, and we were just responding out of raw emotion”, or “Actually, I was booing because he made his decision so late, when our team couldn’t do anything about it.” Typical brain doing typical self-preservation stuff.

Amid the clamor of a booing crowd, it is easy to convince ourselves that “Andrew Luck deserves our boos” has become common knowledge simply because we see a lot of people in our immediate vicinity expressing it. In our social and professional communities built around some shared value, philosophy or idea, we often do the same kind of thing. We would have zero trouble surrounding ourselves with enough people to convince us that the reasons to believe a stock is a long-term zero or that bitcoin is going to a million by 2025 were common knowledge. Doing the same in political sub-communities would be even easier.

You can explain a lot of this as the emotional, behavioral, adrenal response of herd behaviors. Sure.

But the more pernicious effects, and the ones which are usually marshaled in attempts to tell us how to think, are the ostensibly intellectual ones. We really start to convince ourselves that a narrative is at play on which we must act now.

Some days, y’all, it’s just worth remembering: You can’t take it back.

My Dinner with Neel

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


My Dinner With Andre (1981)

“They’ve built their own prison, so they exist in a state of schizophrenia. They’re both guards and prisoners, and as a result they no longer have – having been lobotomized – the capacity to leave the prison they’ve made, or to even see it as a prison.”

My Dinner With Andre (1981)

The US Federal Reserve should use forward guidance now [FT]

The global economy is slowing, US business investment has stalled and the yield curve, which reflects market expectations of future interest rates, has inverted — a quirk that preceded previous recessions. How should monetary policy respond?

The Federal Open Market Committee, of which I am a participant, will consider this question at our September meeting. Absent some surprise reversal in these economic developments, I will argue that we should not only cut the federal funds rate, but that we should also use forward guidance to provide even more of a boost to the economy than a rate cut alone can deliver.

Neel Kashkari, President of the Minneapolis Federal Reserve Bank

I haven’t been very nice to Neel Kashkari.

He is my poster child for the concept of the stalking horse, and here’s a sample of what I’ve written about him in the past.

And okay, I’ll admit it. This FT opinion piece that he wrote the other day absolutely triggered me. It’s just so … Neelish … with rare gems like this:

“If the Fed had made a firm commitment to keep overnight rates at zero for the next 10 years, the 10-year treasury rate would likely have been close to zero.”

This is what passes for deep thought on the pages of the FT these days.

As the kids would say, I can’t even.

How does the Fed of today bind the Fed of ten years from now, Neel? How does that work, when it won’t be the same people and you meet every six weeks or so to set new policy on a purely discretionary basis?

FFS.

So triggered as I was, I leapt to Twitter to register my displeasure and begin a rage engagement.

I know, I know … not very nice. Maybe even “nasty” as our President would put it if I were the Danish prime minister.

But then the weirdest thing happened. No, @neelkashkari did not reply to my mean tweet. But he DID reply to one of the people who replied to my tweet. So I replied to that.

Now I figured that would be the end of that. In fact, I took this screenshot and tweeted:

“I mean, there’s not a chance in hell that Kashkari engages with this seriously, but since he asked …”

And then a miracle happened. We started a conversation.

You’ll notice that Neel is a fan of the strawman argument, where he will say that you are arguing for something (higher rates) that you aren’t. More on this later.

And here I thought we were done for sure. BTW, here’s the link to my note on risk-taking by corporations and why zero or near-zero interest rates kill that:

But no! We had one more strawman question.

NARRATOR: Neel was not genuinely interested.

There I go, being mean again. But I say that he wasn’t genuinely interested because these are the stock questions that Kashkari asks to intimidate people into submission: how do you get stronger labor results with higher rates and what specific announcement would you have made in year xxxx? Every town hall and every twitter exchange … these are the questions he asks to demonstrate some form of dominance over puzzled questioners.

So I said my piece and got it out there. But it wasn’t a real conversation. It was me talking to a wall.

And who knows, maybe one day I’ll get to have a genuine conversation with Neel or Jim or Jay or Lael or Richard or one of the gang. But I doubt it.

We can’t have a real conversation with central bankers because they are both guards and prisoners of the island of policy and thought that they’ve created.

They are Number Two in the classic TV series The Prisoner.

Yes, they are there to maintain order on the island and break the spirit of Number Six, but it’s not an accident that pretty much every episode has a new Number Two “in charge” of the island. Number Two answers to Number One. They are ALL stalking horses. They are ALL prisoners.

And sure, I’m a prisoner, too.

And sure, they’ve got that giant white ball following me everywhere in the form of their stock questions and press conferences and fake dialogues.

But I’d rather be in my shoes than Neel’s shoes.

Because I am not a number. I am a free man.

Be seeing you.


Nuke ‘Em From Orbit. It’s the Only Way To Be Sure.

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Aliens (1986)

Nuke the site from orbit. It’s the only way to be sure.

It’s the best line from a movie full of them.

I couldn’t help but think about the idea of nuking inhuman monsters from orbit, when I saw this PR release from Buckingham Palace today, as Prince Andrew comes clean about his relationship with Jeffrey Epstein.


Prince Andrew releases lengthy statement regarding his relationship with Jeffrey Epstein [Hello! Magazine]

“I am eager to clarify the facts to avoid further speculation. I have stayed in a number of his residences. During the time I knew him, I saw him infrequently and probably no more than only once or twice a year. At no stage during the limited time I spent with him did I see, witness or suspect any behaviour of the sort that subsequently led to his arrest and conviction. I have said previously that it was a mistake and an error to see him after his release in 2010 and I can only reiterate my regret that I was mistaken to think that what I thought I knew of him was evidently not the real person, given what we now know.”

It’s the most convoluted, putrid, horrific, non-apology apology sentence ever written: “I was mistaken to think that what I thought I knew of him was evidently not the real person, given what we know now.”

Prince Andrew is “appalled” by everything associated with Jeffrey Epstein. In fact, “His Royal Highness deplores the exploitation of any human being and the suggestion he would condone, participate in or encourage any such behaviour is abhorrent.”

LOL.

Also, this.

Interestingly enough, this isn’t even the most egregious post-Epstein-death PR tour. Here’s the taker of the proverbial cake, courtesy of Wall Street Journal “writer” John Stoll and his co-conspirators, the entire L Brands public relations team.

Trusting Jeffrey Epstein Taught a Retail Legend a Hard Lesson: Be Careful Whom You Trust  [Wall Street Journal]

“L Brands’ founder Leslie Wexner, who accused the disgraced financier of stealing vast sums of money, recalls his father’s warning about too much optimism.”

You see, this is why billionaire “retail legend” Les Wexner, a man who sells bras and panties to little girls under the Pink brand, gave tens of millions of dollars, a gigantic Manhattan townhouse, and power of attorney over all of his funds to Jeffrey Epstein – because he was just too nice of a guy. Because, gosh darn it, he was just too optimistic and trusting.

Oh well. Lesson learned!

It’s the most corrupt “article” printed in a major American publication that I have ever read, a stain on the souls of the “writer” and everyone who green lit its publication.

Haha. Souls. As if.

Weird how this is all happening after Epstein is shut up permanently, isn’t it?

Nuke the royals and the oligarchs from orbit. It’s the only way to be sure.


Food Innovation Meets Financial Innovation

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


In one of our most-read notes ever – Too Clever By Half – Ben gave a succinct definition of financial innovation:

Financial innovation is always and in all ways one of two things — a new way of securitizing something or a new way of leveraging something.

We are now securitizing wokeness. Behold:

Beyond Meat investment frenzy paves way for Wall Street’s first vegan ETF [CBS News]

The U.S. Vegan Climate ETF, which is expected to launch next month, will likely be the first that investors are served up.

OK, so maybe that’s not a precise definition of what’s happening – although in fairness, I’m still not sure I know what a “Vegan Climate” is. Still, it follows a pretty common pattern for the pop-up thematic funds. Jam some buzzwords into a fund name (check), push it to market as quickly as possible (check), and find a way to get some media attention from an outlet that has no earthly idea how many funds like this are born, live and die in a single week (check).

If you’re feeling like this is creeping into the zeitgeist, well, you’re right. That’s why it’s in our Zeitgeist feature: The language in this article was among the most highly connected to that of all financial news published in the last few days. You probably remember a couple days ago when the Times and some other outlets picked up the Business Roundtable’s meta-game positive announcement about ‘stakeholders.’ I’ll withhold the snark. Read the thing and make up your own mind.

OK, maybe a little Fiat News-related snark: have you ever seen a piece about Big Corporate CEOs in which these were the pictures selected? The cool, soothing backdrop? These are not your father’s Rich, Evil, Old Dudes. These are Wise, Confident, Trustworthy, Responsible Executives. Well, everybody except for Larry, I guess. Can’t a guy catch a break?

Chief executives who are members of the Business Roundtable, include, left to right, front row: Julie Sweet of Accenture North America, Brian Moynihan of Bank of America, Tim Cook of Apple, Robert F. Smith of Vista Equity Partners of Austin. Back row: Jeff Bezos of Amazon, Mary Barra of General Motors and Larry Fink of BlackRock.

Still, whether it’s metagame playing by CEOs vying to not get their birthday parties taken away by the next (or incumbent) administration, or strike-while-the-iron’s-hot launches of nominally thematic funds which end up just holding Apple and Microsoft anyway, the social and political perceptions of Wall Street and financial markets are very much in the Zeitgeist. In our parlance, ‘we’re going to do something about corporate responsibility’ is a cohesive narrative with moderate-to-high attention.

But like most ‘financial innovation’, SRI – oops, ESG – oops, ‘impact investing’ comes and goes from the zeitgeist with some regularity. Part of its coming and going are the inevitable claims by those involved that it will be different this time. People are finally ready! Y’all, I worked on M&A processes which included two of the bigger SRI shops in the US back in the mid-2000s. I’ve seen the CIMs, the internal and external marketing plans before. Same language.

But as we’ve highlighted in detail for our ET Pro subscribers, the rise and fall of these narratives is entirely pro-cyclical. When markets have been lulled into complacency by supportive policy and good long-term returns with no major drawdowns, this is the friendly form that financial innovation takes. When a shock to equity markets or the economy punches everyone in the mouth, boardrooms and investment committees alike go from woke-to-S-R-what in about five seconds flat.

None of that means this or anything else is a bad product or that it shouldn’t exist. I have no idea, and as long as it isn’t being sold with some mythical alpha argument, I have zero problem with a clear-eyed vegan climatologist buying a financial product to express something about themselves. I have zero problem with the person on the other end of that making a buck from it. Or for feeling good about it, for that matter.

But for FAs and others wondering if this is a forever thing, if we’re reaching a new normal on these issues, I wouldn’t pay attention to the ebbs and flows of financial narratives. I’d be laser focused on political narratives, and the extent to which wealth inequality politics are brought front-and-center. That’s where you’ll see this zeitgeist manifest in changes that really may influence your business and your day-to-day processes for working with families and individuals.

Frauds and Traitors

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Invasion of the Body Snatchers (1978)

No one does crazy better than Donald Sutherland. Except Christopher Walken, of course.


General Electric CEO calls the scathing report that accuses the company of Enron-like fraud ‘market manipulation — pure and simple’ (GE)    [Business Insider]

GE CEO Larry Culp fired back at accounting expert Harry Markopolos on Thursday, calling his allegation of fraud an act of “market manipulation” done for personal gain.

GE shares plunged by as much as 14% on the report. 

The report alleged GE was committing fraud “bigger than Enron and WorldCom combined,” and that the company’s accounting left it “on the verge of insolvency.”

The company’s audit committee director also hit back at Markopolos and called on readers to “carefully consider the motivation behind this report.”


I’ve got zero problem with Harry Markopolos making a buck from his research, including getting a cut of the profits from a short trade. ZERO.

I also think it’s a typically myopic management reaction by Larry Culp and his cronies to focus on how Markopolos is getting paid rather than on the substance of the accusations.

Hey, Larry, no one who is selling your stock (or shorting it) cares how Markopolos is getting paid.

All they care about is whether GE has actual real-world liability here, so why don’t you focus on THAT.

But I have a big problem with Markopolos yelling “Fraud!” when what he really has is a decent short thesis.

To be clear, I LOVE a good short thesis. I made my living for a lot of years as a not half-bad short seller. As for the particulars of this case, I was shorting Genworth before it was cool to short Genworth, and I am intimately familiar with the games that can be played with consolidated financial statements, especially in the O&G world. More broadly, GE has been the gift that keeps on giving to any short seller worth his or her salt over the past decade.

But I also know what a fraud looks like. A fraud looks like what Dennis Kozlowski did with the Tyco books. A fraud looks like what Bernie Ebbers did with the Worldcom books. A fraud looks like what Jeff Skilling did with the Enron books. A fraud looks like what Dick Fuld did with the Lehman books.

This doesn’t feel like that to me.

The essential Markopolos thesis (as I understand it) is that GE is under-reserved for its long-term care insurance obligations that were part of the Genworth disposition and that GE is shielding an investment loss on Baker Hughes by keeping the BHI financials consolidated with the GE financials.

Okay. Aggressive accounting and playing for time as they seek to right the ship. Time they might not have. Got it. Love it. If I were still running a short book, I’d be all over this.

But it doesn’t smell like fraud to me, and I have a real problem with throwing that word around casually under any circumstances. I have an enormous problem with throwing that word around casually when you’re getting paid for the short thesis.

It’s the same problem I have with guys like Kyle Bass, who yells “Traitor!” whenever someone says golly, I’m not down for a trade war or any other kind of war with China.

Now Kyle says that he’s out of all of his short-China positions, and I’ll take him at his word. I guess. At this point, Kyle’s business persona and interests are so wedded to an escalating US-China conflict that I think it would be impossible for him to eliminate the personal financial implications of his public statements.

And don’t get me wrong. I understand that China is an implacable adversary to the United States.

But I also understand that there are real traitors in this world, none of whom are patriotic Americans who favor less conflict and more engagement with China in order to win the long game.

Just as I understand that there are real frauds in this world, none of whom are law abiding management teams who employ legal accounting practices in order to win the long game.

Throwing words like “Fraud!” and “Traitor!” around so casually … it doesn’t reveal the true frauds and the true traitors.

It makes it easier for them to hide.


When Potato Salad Goes Bad

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


(c) Gary Larson

I really miss The Far Side.

I thought about this Gary Larson cartoon when I heard a live example of a narrative going bad on CNBC yesterday, before we even got into the whole “buh, buh the yield curve” ™ thing.

The Macy’s narrative went bad yesterday.


Bloodbath at Macy’s: Stores see ‘massive bleeding off of traffic and customers’   [Fox Business]

“Rising inventory levels became a challenge based on a combination of factors: a fashion miss in our key women’s sportswear private brands, slow sell-through of warm weather apparel and the accelerated decline in international tourism,” Macy’s Chairman and CEO Jeff Gennette said in the earnings release.

“We took markdowns to clear the excess Spring inventory and are entering the Fall season with the right inventory to meet anticipated customer demand.”


What do I mean when I say that the narrative went bad?

On Tuesday, the Macy’s narrative was “I think they can make their comps.”

On Wednesday, the Macy’s narrative was “I think they can cover their dividend.”

The Macy’s narrative is no longer about its P&L, but about its balance sheet. In narrative-world (if not the real-world), Macy’s is now fighting for its life. The question is no longer whether Macy’s turns a nice profit, but whether Macy’s can survive.

The Macy’s story is broken.

This oldie but goodie ET note is driven by a beautiful line from Arthur Miller’s “The Crucible”:

“Until an hour before the Devil fell, God thought him beautiful in Heaven.”

Or in the modern context, until an hour before Macy’s earnings release, Jim Cramer thought the company was a Buy. The next morning? Not so much.

What’s the moral of this story, other than that God hath no fury like Jim Cramer scorned?

When a company’s story breaks, the stock breaks, too. And not just for a little while, but for a loooong time.

Healing a broken stock can take years and years. It requires a new story to replace the old, broken story. It may never happen.

Just ask GE.


A Cartoon in Three Parts

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


We use the term cartoon a lot. Perhaps some definitions are in order.

When we call something a cartoon on Epsilon Theory, what we mean is an active attempt to create common knowledge about what a thing means, or alternatively what matters about that thing. When Nike embraced Kaepernick, they actively sought to create polarized knowledge about what buying Nike products or stock meant. They succeeded. I’d argue that Chick-fil-a has done the same, albeit somewhat more subtly. In our own industry, Vanguard has done this, too, by cultivating a belief that index investing was a synonym for low cost investing. It isn’t.

Yes, brand is a kind of cartoon.

There are other kinds of cartoons, too. Not every company is a consumer product company for which a polarizing political statement will have the effect that Nike’s did. Instead, these cartoons exist in financial terms. The company doesn’t tell you what their brand means. Instead, they tell you which metric about their company or stock really matters. It’s a tougher game to play, because – at least superficially – there are theoretically people who couldn’t care less what management thinks. Back when they still existed, we called these people ‘value investors.’ But the whole game of cartoons is the creation of common knowledge – what everyone knows that everyone knows – and even if you know that cyclically-adjusted net unique monthly eyeballs is not a Thing, your own time horizons as a fund manager / analyst probably won’t permit you to ignore the two layers below you in the Keynesian Beauty Contest that believe that everyone else believes it is a Thing.

The “Top Line” cartoon is a simple, successful example of this kind of thing. So long as the underlying products – and sources of cheap capital – support it, the Top Line cartoon can be sustained for a very long time. Many of the other examples (we usually pick on Salesforce.com) look far more like examples of reductio ad absurdum than the Top Line cartoon’s gentle story-telling. The tell-tale signs, I think, are esoteric, business-specific metrics or accounting treatments over which management has substantial control and the public limited visibility.

The language of these cartoons is, in fact, so indicative that our own NLP analysis tends to arrange guidance, statements and financial results from heavily cartoonified companies into very distinct clusters. These are the articles which don’t so much publish management’s discussions about the business or financial results as much as they do about the measures being promoted by management (or in some cases, the sell side) as the right way to understand that company’s results.

The success of cartoon management has been such that these clusters have grown to dominate the news and company-produced content in many of the economic sectors we track. This is part of the zeitgeist. And today, it is really part of the Zeitgeist. To wit, the second most closely connected article to all other financial markets articles published in the last day or so comes from an industry that is almost entirely built upon a foundation of cartoon management.

Aurora Cannabis’ Guidance Was ‘Manna From Heaven’, Cannabis One CEO Says [The Street]

It’s a short video and a short article, but if you grew up listening to earnings calls in which management teams protested their indifference to short-term opinions floating around the market in favor of long-term growth opportunities, you’ll be delighted to hear how this has changed. Manna from heaven isn’t a monumental growth opportunity or a phenomenal new product or research breakthrough. Manna from heaven is now the relaxation of negative short-term narrative pressures on stock price.

The number three article in our ranking this morning is a defense of one of the oldest forms of cartoonification – the clever use of accounting to present results in a particular light. And so it is linked to all those other cartoon-creation articles by language. What language? Misleading. Accounting. Inflated. Adjusted. And “reaffirmation of guidance”, a precious term which often seems to cover all sins.

Australia’s Treasury Wine rejects report alleging it inflated profit [Reuters]

And when the belief in a cartoon fails, how far can you fall? Pretty far. This is the fifth most connected article in today’s Zeitgeist run (and for those inevitably curious at what I skipped over today, it was an Art Cashin “whistling past the graveyard” piece and a Cramer “what I learned from soft pretzels” article – you’re welcome).

Care.com Founder to Step Down as CEO Months After WSJ Report [WSJ]

No, of course cartoonification doesn’t always mean taking a creative interpretation of inventory accounting rules or their application. It doesn’t mean fraudulent representations about fundamental business practices. Sometimes it really is just telling people “the right way” to think about your company, product, results, or even yourself. For that reason, we think that anyone and any company who doesn’t see controlling their cartoon as part of their job is making a mistake. Narrative isn’t evil, even if it is used a vessel for many evils.

But much of the impulse behind cartoon creation is the same as the impulse behind other drivers of the Long Now. It is behind what some of us unserious people mean when we insist on using the term financialization. No, not the idiotic meme of “things mean rich people do to make money for shareholders instead of supporting this social value I hold!” We mean the things which people allocating capital have incentives to do because those incentives align with maximizing the current perception of value rather than actual long-term value.

Financialization – again, in our own use of the term – is little more than a belief that there are incentives to deploy capital and labor resources to ends other than long-term value creation, that our present always-on media, social landscape and transformation of financial markets into political utilities aggravate those incentives, and that this might be bad.

The Long Now is how this tendency permeates not only financial markets but our personal financial decisions, friendships, life decisions, political engagement and cultural participation.

Cartoons are the engine behind both.

Clear eyes – control your cartoon.

Full hearts – control the extent to which controlling your cartoon may be keeping you from pursuing things of lasting value.

The Last Chance

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


The John Walker, Last Cask – the final release of The John Walker. An elegant, triple-matured whisky including rare expressions from ‘ghost’ distilleries. Beautifully presented in a handmade Baccarat crystal decanter, with a bespoke design by Hand Engraver of Glass to Her Majesty the Queen, Philip Lawson Johnston.

There are a lot of angles we could take here.

Advertising and PR isn’t always missionary behavior, although its primary aim is usually similar. Companies want to cultivate common knowledge about a brand or a product. Talking about that would be, if you’ll forgive the expression, very on-brand for us.

We could write about the power of luxury and act-as-if narratives in context of Fiat World and the Long Now. Pretty on-brand there, too.

But neither of those on-brand takes is why we’re featuring this press release.

The Last Chance to Taste an Icon of Scotch Whisky [Press Release]

We are featuring this press release because the language it uses makes it the single most connected article in all of financial media today. Not a trade war article. Not a Trump politics article. Not the Fed. Not NIRP. Not currency wars.

Whisky.

And not just any whisky. An absurdly expensive, Rube Goldberg blended construction of old whiskies (not even sure it qualifies as Scotch, actually – a lot of non-barley grain). I love whisky, but have never had this one – it’s $4,000 a bottle, y’all – so maybe it really is some kind of ambrosia. But the main feature here is the use of really old barrel staves, only so many of which exist. It’s a thing which isn’t very likely to impart much of interest to the beverage, but is certainly rare. Because it is designed to be rare.

The reason this sits at the top of our Zeitgeist is because there are few narratives that define that Zeitgeist more than narratives of scarcity and access. Whether think-pieces on expanding definitions of Qualified Purchasers or Accredited Investors to give more investors access to alternatives, or discussions of scarcity in context of Bitcoin, or pension plans discussing why they’re trying to get access to higher capacity mid-market growth / accelerator funds pretending to be venture capital, this language is everywhere.

But there are whiskies that are rare because they have been aged in a barrel made from staves with limited availability and poured into a custom crystal decanter which is then lovingly placed into a burled wood box, all of which are designed to create scarcity, and there are whiskies that are rare because there is a natural lack of something desired. Oh sure, a 1966 Springbank Local Barley or, say, one of the last releases from the now-shuttered Port Ellen are still speculative investments. You are still betting, in the end, on how much someone else values a thing of which there is only so much to go around. Anyone who tells you there’s a whisky in the world for which the drinking experience is worth $4,000 more than comparable options has lost the plot.

But it is different. Of course it’s different. When things really get hairy, the attention paid to the narrative of scarcity is still dependent on the narrative of desirability of the scarce thing.

If you are sold investments on the basis of that scarcity – or told that you should pay this fee or that on a basis of scarcity or access – beware the similarity in language between the true and counterfeit. Not all scarcity and access is created equal, even if the language used to describe them is.

Are You Sweet Talking Me?

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Thug: I wanted to come by and personally say thank you. You’re making me good money. I’m making you good money.

Joker: Are you sweet talking me?

Suicide Squad (2016) – executive produced by Steve Mnuchin (no, I am not making this up)

It’s my favorite part of any Batman movie … that scene where the henchman pays a visit to the crazed supervillain – the Joker is the gold standard here – and you just know that the meeting is about to go terribly, terribly awry for the thug.

I couldn’t help but think of that classic trope when I read this article the other day:


Trump Berated CEOs Of ‘Big Three’ Airlines In Private Meeting, Says Report   [International Business Times]

The CEOs of the Big Three — American Airlines, Delta Air Lines and United Airlines — met with the President, in hopes of getting a positive outcome but ended up being on the wrong side as Trump berated them in the meeting.

During the yelling session, the President asked American Airlines CEO Doug Parker why the airline’s stock price had fallen despite a surging market.

Trump also reportedly reprimanded Delta airlines, whose CEO Ed Bastian was not present, for buying aircraft worth billions from European firm Airbus and pointed out that  Qatar Airways — one of the companies the U.S. airlines have a beef with — was buying its jets from Boeing.

NBC news quoted a person who had attended the meeting: “The President kept going back to it [Bastian’s absence], there was a lot of yelling.”

For almost a year, the Big Three carriers have been in a tussle with Qatar Airways, Etihad and Emirates, claiming that the Gulf-based airlines were undercutting them by offering below-market fares, aided by government subsidies.

The CEOs had presumed that the President would take their side in the dispute.

The meeting quickly turned into a confrontation, with Akbar al-Baker [Qatar Airways] calling the American CEOs ‘liars’ and President Trump hitting back.


I mean … we’ve all been there, right? It’s the meeting where we are all prepared and all confident that we have the agenda under control, that we know how to “manage” the Boss or the Board, but then it all goes wrong. You can feel it start to go bad with some stray comment or someone on your team who’s late to the meeting, and then before you know it all hell breaks loose and the Boss is yelling at YOU.

It all goes sideways.

I physically LOL’d when I read this note, because you just KNOW that Parker and Munoz and Bastian were CERTAIN that they had this meeting with Trump wired from the get-go. They had Peter Navarro set up the meeting, they had Kudlow there, they had Bolton there … they had even run ads on “Fox & Friends” to tee up Donald on this!

Nope.

Not enough sweet talk, I guess.

Plus the Qatar Airlines dude brought a powerpoint deck showing all of his Boeing purchases, and he “fought back hard”.

I don’t feel bad for Parker and Munoz and Bastian and the gang. They’re all thuggish mini-oligarchs, and the sole purpose of this meeting was to wield the power of their government to further their oligopoly against some other oligopoly wielding some other government’s power.

But I gotta think this has happened one way or another every single day for the past two-plus years, where thuggish mini-oligarchs (and not-so-mini-oligarchs) have the run of the place. Where you go in for a meeting with someone you think is the President of the United States, but it ends up being a meeting with the Joker.

It’s a funny scene in a movie.

It’s a crappy way to run a country.


The Donkey of Guizhou

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Yes, this is an actual photograph from an actual Chinese zoo, where a live donkey was dropped into a tiger pen.


A Forever Trade War Looms as Trump Deepens Battle With China  [Bloomberg]

China Takes On Trump by Weakening Yuan, Halting Crop Imports  [Bloomberg]


“There were no donkeys in Guizhou until an eccentric took one there by boat; but finding no use for it he set it loose in the hills. A tiger who saw this monstrous-looking beast thought it must be divine. It first surveyed the donkey from under cover, then ventured a little nearer, still keeping a respectful distance.

One day the donkey brayed, and the tiger took flight and fled, for fear of being bitten. It was utterly terrified. But it came back for another look, and decided this creature was not so formidable after all. Then, growing used to the braying, it drew nearer, though it still dared not attack. Coming nearer still, it began to take liberties, shoving, jostling, and charging roughly, till the donkey lost its temper and kicked out.

“So that is all it can do!” thought the tiger, greatly pleased.

Then it leaped on the donkey and sank its teeth into it, severing its throat and devouring it before going on its way.

Poor donkey! Its size made it look powerful, and its bray made it sound redoubtable. Had it not shown all it could do, even the fierce tiger might not have dared to attack.

– Liu Zongyuan (773-819 AD)

The fable of the Donkey of Guizhou is as well known in China as any of Aesop’s fables are known in the West, even to the point of reenacting the tiger murder scene for the “entertainment” of visitors to certain zoos. It’s a fable that every Chinese Politburo member knows just as surely as every American Cabinet member knows the fable of the Ant and the Grasshopper.

My point in relating the fable of the Donkey of Guizhou is not that I believe China is the tiger and the United States is the donkey in our current trade-war-going-to-currency-war.

My point in relating the fable of the Donkey of Guizhou is not that I believe the current United States president is a braying donkey in his “easy to win” trade-war-going-to-currency-war.

I mean … I do, but that’s not my point.

My point is that Chinese political leadership believes that they are the tiger and the current United States president is a braying donkey.

This sort of fabular narrative – this sort of meme – is every bit as strong and “real” as our fabular narratives and memes.

Our political leadership believes they have “leverage” and are playing the stronger hand. Chinese political leadership believes that, too.

That’s what makes a Game of Chicken. That’s what makes a game that is decided by political will, not by resources or starting positions.

This will get worse before it gets better.

This is the Second Horseman.


Threat Display

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


This intimidating stance is enough to make even the most inquisitive bird move away

After a competitive game has gone on long enough, when we are all so tired of hearing the constantly changing stories, we all start to wishcast a little bit. We either see light at the end of the tunnel or we see one party being pushed to the brink. And we usually see whichever one best reflects the way our portfolios are positioned.

It is certainly the case that a competitive game CAN be made into something else. We argued at various points in late 2018 and early 2019 that existential / political rhetoric was coming dangerously close to transforming the US/China Trade War into a different kind of game. But as recently as the report we published in July, we warned that treating Game of Chicken rhetoric like existential escalation was a mistake:

The cohesion of these narratives, however, has fallen fairly sharply. We don’t think this means that it isn’t dominating the market’s attention – we think it means that more missionaries are joining the fray to promote their own narrative.

For now, we are not seeing the same existential saber-rattling. It is a short period, so we would not overreact. Still, some aspects of a now-global narrative war begin to look more like a Game of Chicken again. Take risk on their unpredictable outcomes at your own peril.

ET Pro Trade and Tariffs Monitor – 6.30.2019

Welp.

That hasn’t meant any fewer articles pushing a particular view on the calculus of the trade engagements, however, or how Tweets and threats influence the posture of each participant. Here’s one such piece that sat at the very top of the Zeitgeist this morning:

Trump Is Pushing China Ever Closer to the Edge [Bloomberg]

Only days after the U.S. and China described their first return to the trade negotiating table since May as constructive, Donald Trump shattered the truce by announcing new 10% tariffs on Chinese goods ranging from smartphones to children’s clothing.

Source: Bloomberg

Extra credit for spotting the Fiat News angle here.

“The renewed standoff throws up in the air how the trade talks can proceed: Both sides were due to meet in Washington in September. Observers said it dims any prospects for a near-term breakthrough and sets the ground for a protracted dispute between the world’s two biggest economies.

Yet Trump’s hawkish stance only extends so far. Asked by reporters on the situation in Hong Kong, he labeled the recent protests “riots,” adopting the language used by Chinese authorities and suggesting the U.S. would stay out of the issue.

The escalation was swift and unexpected. Walking it back may not be as easy.

Source: Bloomberg

It’s here that the, ahem, news article goes astray in its analysis. Every author describing a Game of Chicken will be tempted at some point to identity the ‘point of no return’, some arbitrary place where ‘walking it back isn’t easy’. The temptation to be the one who called the ‘turning point’ is so alluring as to be almost completely irresistible.

Let’s say it together, with feeling: the odds of a Game of Chicken are unknowable. If you think you know where the parties stand, if you think you’ve figured out whose hand is stronger, if you think you know where each party’s leverage puts them, then you are wrong.

In our judgment, the threat of the transformation of the Trade War into a purely political game in which Trump and the CCP use it as club to stifle internal political dissent is absent from the narrative, killed stone dead by the US’s passivity on Hong Kong (perhaps the easiest opportunity to make political hay on China ever given a sitting US president).

This is and remains a Game of Chicken. This is a threat display.

Never mistake a threat display for a transformation in the type of game being played.


The Joy of Fiat News

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


There may not be a single news outlet on the planet that doesn’t dabble in Fiat News techniques from time to time. That is the nature of a competition game, after all – the rules are defined so that you either play or you lose.

But nobody – nobody – does Fiat News like the New York Times does Fiat News. Sure, CNN, MSNBC and Fox are a bit bolder, using every tool at their disposal to grey the line between analysis and news, to introduce affect into every term, to assign and present coverage that is at once entirely factual and entirely misleading. If we were being supremely charitable (and we won’t be – this is just a hypothetical), you might even argue that the Foxes and MSNBCs of the world are Not-Even-Fiat-News in some meta sense of the idea, simply because everyone knows that everyone knows that a decision to visit those pages is a decision to read a lot of opinions masquerading as news. They’re Not Even Pretending Anymore (TM), as someone might say, so if you’re reading them with any semblance of earnestness, you’ve basically given up.

But the sheer joy with which the Paper of Record publishes obviously affected content as news is a different thing entirely. And in their case, they really are still pretending. I am confident that this piece was published with a serious belief that it met news standards. I’m confident that view is still held. And yet.


Elizabeth Warren on a Wealth Tax [New York Times]

Look, we haven’t identified a systematic way to track down affect and intent in image selection, but to grossly paraphrase Justice Stewart, I know it when I see it. Let’s just say that the Times’s proprietary archive of GOP candidate images was somewhat less flattering. I won’t hold it against you if you disagree. This is clearly in Rusty’s-opinion-land.


“By now, Senator Elizabeth Warren of Massachusetts is known for being the candidate ready with a plan. But back in January, she was just getting her campaign started. And one of her very first proposals was to impose a wealth tax.”


But this isn’t. This is some sublime A-level Fiat News. The lede of the piece is an unclothed common knowledge missionary statement that communicates zero factual content and an assertion described as something that is ‘known.’ By whom? I dunno. Based on what? No idea. Maybe it’s true. It is certainly the impression that I have, but that raises some uncomfortable questions about how, exactly, ideas about what we all know we all know enter our collective subconscious. Hint: it’s pieces like this.


“When the United States government wants to raise money from individuals, it taxes what people earn — the income they receive from work or investments. But Ms. Warren wants the government to also tax the accumulated wealth — think stocks, real estate and retirement funds — held by the very richest Americans.”


This is not a Fiat News point, but an aside to say how delighted I am that anyone thinks ‘retirement funds’ represent a meaningful portion of this figure.


“It is expected to generate $2.75 trillion in revenue over a 10-year period — money that could help pay for expanded social programs.”


Passive construction probably isn’t halal with the style guide anyway. But when you omit the “who”, you aren’t just communicating vaguely. You are effectively presenting what amounts to an estimate, projection or judgment as a fact. The inclusion of the paired-up issue that follows is pure affect. Whether it’s Facebook Boomer Memes about “every dollar spent on X could have been spent on wounded veterans”, or a New York Times writer saying that we could use these taxes to expand social programs, you know you’re dealing with someone who wants you to draw a relationship between two things which does not exist.

That relationship is not intrinsic. Presenting it is an emotional appeal. Every time.

That’s what it means for someone who has a subtler grasp of the tools of Fiat News to tell you how to think.

There are plenty more to be found, but the last one may be the best.


“Well-funded opponents of the tax would be nearly certain to wage a legal battle against it.”


It’s obviously analysis rather than fact, but what is so marvelously plain about this statement is its intent to prime the pump on the issue. Before you hear any opposition, we want you to know that it is “rich people” who oppose doing all these good things.

Here’s the funny thing: putting aside big constitutional issues for a moment, I think that a wealth tax is generally better and more conducive to freedom than an income tax. It aligns better with what government ought to do, which is to act as an ongoing defender of the assets of its citizens against threats both internal and external. Paying like we would pay for insurance makes sense to me. The hilarious absurdity of any attempt to actually value what rich people own, however, means that I prefer to shift more of our tax structure to capital gains from income rather than try to pretend we know what someone’s private assets are worth year-to-year. It’s a view I think Ben shares, albeit in a more exaggerated way, perhaps.

In other words, this isn’t about us disagreeing with Warren, because in a lot of ways, we don’t. As always, this is about how we’re being told how to think. And it’s all the more seductive when it IS an idea we actually favor.