The Lost Art of the Jawbone


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

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

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

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

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

Fear and Loathing in Las Vegas (1998)

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

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

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

Still can’t get over this gem from February.

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

Larry Kudlow to CNBC on February 25, 2020

But the Chinese Communist Party? Et tu?

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

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

Chinese Stocks Surge as Individual Investors Pile Into Market, WSJ

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

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


The Lystrosaurus


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An illustration of a particularly dapper-looking Lystrosaurus georgi specimen

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

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

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

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

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

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

Yesterday I got three emails.

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

If Inflation Is Coming, the Market Isn’t Ready

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

The State Of The Stock/Bond Relationship

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

Why It’s Time to Rethink Bonds

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

We aren’t predicting. We are observing.

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

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

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

We rang the bell here:

We rang the bell here:

And we rang the bell here:

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


No Country for Old Men


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

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

No Country for Old Men (2007)

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

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

Body Count

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

My other daily companion has been pain.

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

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

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

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

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

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

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

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

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

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

My lack of healthcare options is because of the virus.

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

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

Covid-19 is now in its endemic phase.

Self Assured Destruction

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

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

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

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

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


Misfortune vs. Carelessness


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

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

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

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

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

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

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


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

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


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


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

In a heartbeat.

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

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

Oscar Wilde, “The Importance of Being Earnest”

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

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

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

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

It’s a power thing.

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

Can you feel it?


Never Forget


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Tiananmen Square, June 4, 1989

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

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

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

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

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

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

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

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

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

Hong Kong, 1997

Washington DC, 2020

Can a Tiananmen Square massacre happen in the United States?

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

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

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

Absolutely. It already is.

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

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

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

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

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

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

Never forget.


The Hertz Story Isn’t What You Think


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Carl Icahn, sharing a laugh

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

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

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

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

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

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

But this is not that story.

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

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

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

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

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

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

How much debt?

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

As for the debt levels at Hertz … LOL.

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

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

And then this happened:

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

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

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


Hateful Memes and Election Season


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

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

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

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

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

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

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

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

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

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

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

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

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

To their credit, ZDNet asks some good questions.

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

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


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

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


American Idol


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

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

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

But it wasn’t the same.

Josh Brown, This Version of Warren Buffett

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

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

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

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

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

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

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

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

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

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

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

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

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

Here, I’ll prove it.

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

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

To this in the 2020 season …

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

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

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

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

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

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

American Idol ratings by episode, 2020 vs. 2019

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

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

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

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

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

And one more thing …

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

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

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

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


That Old Canard


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If there is one defining feature of high attention narrative structures, it is the crowding out of off-narrative topics and language. Since mid-March, financial media has been all-coronavirus, all-the-time. That is, with the exception of the occasional diversion into the nightmarish adjacent world of oil and gas.

In the last week or so, however, we have observed a surge in “how the world will be different” language across financial media. We have observed that language in pieces nominally about other things, like earnings, guidance or the fortunes of various industries. We have also observed that language in pieces dedicated to the idea that how we consume X will be changed forever.

Here is one that rose to the top of our Zeitgeist run this morning.

CEOs Changing The Way We Invest, Trade, And Manage Our Money During COV-19 [Forbes]

It’s a stretch to say that this piece is really about anything. It is a laundry list of companies, buzz words and CEOs that straddles that line between news, analysis and advertisement that Forbes Contributor content is all about. SEO-bait.

Now, it isn’t a new idea that the COVID-19 pandemic will “change everything about the way we do business forever”. Zoom, Amazon, Netflix and Softbank have been trading on changing sentiment about this idea for weeks. What IS new is that the language is now so ubiquitous in marketing, advertising, puff pieces, corporate statements and actual news that it is creating connections – at least on some slow virus / shutdown news days – that are as strong as the core narratives of COVID-19’s impact on the market itself. It is now common knowledge that every company must tell a story about how it will actually emerge stronger from COVID-19 than it was before.

In short, it is becoming a cartoon.

‘Cartoon’ doesn’t mean that the underlying thing being caricatured is fake or unimportant. Quite to the contrary, most cartoons are built around really emotionally charged truths. And that old canard about companies being purpose-built for the future that technology will bring us? That’s a powerful cartoon because it IS often the most important thing that some companies have to demonstrate to the market or customers, even if it’s a bit silly on its face.

Just as often, however, that same cartoon becomes the sine qua non for all companies and institutions, even those whose businesses are probably just fine the way they are. Or companies who should be thinking more expansively about how this could be an opportunity to transform things about their business that haven’t been working correctly. Or companies who should be thinking about much more important and vastly more difficult to predict second- and third-order effects of an event like this – not “does all this online services utilization during the coronavirus pandemic mean it’s the right time to make our big push into low margin robo-advisory services?”

Remember, it was last year that the institutions who will tell us that their vast experience delivering a premium online experience for a post COVID-19 world were telling us that the future was in personal, physical cafe environments in their brick-and-mortar bank branches. When something becomes a cartoon, it changes how people make decisions in the real world to fit the cartoon.

We are now in the phase of the “how is COVID-19 going to change the world forever” process. Be careful out there.


Through No Fault of Their Own


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Scott Wapner, CNBC host, interviewing Chamath Palihapitaya on April 10

“I think we all agree with you that more money for Main Street is needed. But maybe not in spite of the money to all of these companies and whatever that make up the economy, as well. More money is needed everywhere, perhaps.

Why does anybody deserve to get wiped out from a crisis created like this? It’s like a natural disaster! Why does anyone deserve to be wiped out? Wouldn’t that be immoral itself?”

Richard Clarida, Fed vice-chair, in WSJ interview on April 13.

“Mr. Clarida also dismissed a question about whether the central bank had created a “moral hazard” that encouraged risky investor behavior when the Fed moved quickly to backstop swaths of credit markets.

“This is entirely an exogenous event,” said Mr. Clarida, noting how the virus—not private-sector behavior—had forced widespread business closures and revenue losses.”

I, for one, am delighted to learn of the “Through No Fault of Their Own” exemption to stock market risk.

What a relief to learn that there’s no need for the plebes to hog all of the money, that so long as investment losses are from an “exogenous event” as opposed to “private sector behavior” – whatever the hell that means – the Fed will provide unlimited amounts of money – their words, not mine – to make the rich investors whole.

Could this possibly be a bad idea … some form of moral hazard … for the federal government to insure the rich investors against capital market losses by buying TRILLIONS of dollars in financial assets and providing TRILLIONS of dollars in interest-free loans liquidity facilities? You know, provided that these losses weren’t their fault.


These are exactly the same people who paid off Goldman Sachs 100 cents on the dollar with their AIG losses in 2009. You think they give a flying fuck what you think about moral hazard or precedent or optics or fairness or decency? You think these oligarchs and their CNBC/fintwit Renfields care about ANYTHING other than getting their MONEY back?

Why, it would be immoral NOT to pay off the rich investors on their market losses. I mean, sure, let’s hope that Congress gets its act together and throws a bone to the poors, but c’mon, man. First things first.

Besides, you wanna know the REAL moral hazard here? Wanna know what sort of immoral behavior your sociopath “leaders” are worried about encouraging?

South Carolina Sen. Lindsey Graham, joined by fellow Sens. Ben Sasse and Tim Scott in bemoaning the moral hazard of overly generous unemployment benefits.

“Claiming the relief package will encourage people to stay out of the workforce, Graham told reporters that the bill “pays you more not to work than if you were working,” noting that it would provide the equivalent of $24.07 an hour in South Carolina versus the state minimum wage of $7.25 an hour. “If the federal government accidentally incentivizes layoffs, we risk life-threatening shortages in sectors where doctors, nurses, and pharmacists are trying to care for the sick, and where growers and grocers, truckers and cooks are trying to get food to families’ tables.”‘

I am not making this up. It’s the old Welfare Queen argument, all dolled-up for the age of COVID-19. Can’t make unemployment too attractive, you know … all those good-for-nothing poors will laze at home eating bonbons and sucking on the gummint teat instead of getting off their ass and doing an honest day’s work.

Meanwhile, back at the ranch, the Big 4 airlines will be accessing tens of billions of dollars in cash grants and easy 10-year loans, all explicitly designed to support entrenched management and equity shareholders. But hey, fret not, concerned citizen! Management will be prevented from making more stock buybacks until Sept. 30, 2021. That’s a whole eighteen months of no stock buybacks, so don’t tell me that Wall Street doesn’t understand shared sacrifice. And yikes! Management will also have to get by on their current salaries for the next three years, as hard as it may be to imagine the privation and human misery that will entail.

Oh yeah, here’s the stock-based comp, not including salaries and bonuses and deferred comp, for the CEOs of the Big 4 airlines since 2014.

One day, and soon, there will be a reckoning. Time to choose a side.


The Miracle Max of MBS


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Miracle Max: Don’t rush me, sonny. You rush a miracle man, you get rotten miracles. You got money?

Inigo Montoya: Sixty-five.

Miracle Max: Sheesh! I never worked for so little. Except once, and that was a very noble cause.

Inigo: This is noble sir. His wife is… crippled. The children are on the brink of starvation.

Miracle Max: Are you a rotten liar!

Inigo: I need him to help avenge my father, murdered these twenty years.

Miracle Max: Your first story was better.

The Princess Bride (1987)

We have published fewer Zeitgeist notes in the last few weeks. The reason won’t be surprising: they’d all be about the same thing, more or less. Sometimes certain language dominates market attention.

This is one of those times.

Even then, there are occasionally articles which hit our screens and so capture the spirit of the age in multiple ways at once that it would be almost criminal of us not to include them.

This is one of those times.

Colony’s Barrack Urges Margin Call Moratorium in CMBS Market [Bloomberg]

In most Zeitgeist submissions, we excerpt enough of an article to give you a sense of what it is about and why we think its language brought it to the top of our Zeitgeist dashboard. In those cases maybe it isn’t necessary to read the full article. I hope you will make an exception for this one – read it in full. Once you do, I suspect you’ll get the same sense that I did.

This is not news.

This is not even fiat news.

This is a press release.

The article’s opening salvo permits its subject – Colony Capital Chairman Tom Barrack – to frame the issue of bailing out CMBS investors in morally loaded terms: doing so would represent “cooperation” and “support.”

“America needs the immediate cooperation and support from our banking sector,” Barrack, chairman and chief executive officer of Colony Capital Inc., said in a white paper he posted on Medium.

Source: Bloomberg, Colony’s Barrack Urges Margin Call Moratorium in CMBS Market (3/29/2020)

In the very next paragraph, the author helpfully provides contrasting ethical framing for what the banks are currently doing. Instead of cooperating and supporting, they are demanding and seizing.

The threat of widespread defaults has caused waves of selling in the market for commercial mortgage-backed securities. Banks in turn are demanding cash and seizing collateral from vehicles that borrowed to invest in CMBS and other forms of asset-backed debt, a practice that drives down prices even further. One index of mortgage REITs, or real estate investment trusts, has collapsed by more than 50%, in part because of those margin calls.

Source: Bloomberg, Colony’s Barrack Urges Margin Call Moratorium in CMBS Market (3/29/2020)

From there the article simply cribs the emotional appeal straight from Colony’s Medium article and Barrack’s Twitter feed.

At stake, he said, are trillions of dollars in securities owned by insurers, asset managers, pension funds — even banks themselves…If the investment vehicles get such relief, they can subsequently grant forbearance to the hotels, retailers, malls and other tenants and borrowers who can’t pay rent or interest while the economy is largely shut down because of the pandemic, Barrack said.

Source: Bloomberg, Colony’s Barrack Urges Margin Call Moratorium in CMBS Market (3/29/2020)

Then, because it’s 2020 and this is how we do it now, the article presents – verbatim – Barrack’s tweet arguing that the only way to help American enterprise is by bailing out leveraged investors in commercial real estate securities. Words fail.

The only way to accomplish relief for American enterprises is by receiving forbearances on the interest obligations that real estate owners and mortgage real estate investment trusts owe to the banks and their other security lenders.

Source: Twitter, Posted 8:57 PM, March 28, 2020

There are no challenges to factual assertions made by the subject. No alternative views are presented. No counterpoint is provided. No contextual facts are sourced. Do you, dear reader, think that Mr. Barrack’s role as the chairman of President Trump’s inaugural committee might be a newsworthy addition to the article’s cheerful characterization of him as a “longtime friend?” The article does nothing to shed new light on a topic. It provides a free lectern and and a megaphone for the advocacy aims of one particular market missionary looking to establish a preferred narrative.

Apparently it also serves as the promo for an interview – today on Bloomberg TV!

Look, I’m not mad at Tom for bringing his mostly dead asset class to Miracle Max and asking for a miracle. That’s his job.

I’m also not mad at the author for seeking out knowledgeable, well-known interview subjects to probe about current issues and news. That’s his job (and in full disclosure, many of his interviews are really very good).

But there is an emerging news practice of “presenting verbatim what famous people said” under the tenuous guise that what a wealthy, famous person said or tweeted is inherently newsworthy in itself, rather than newsworthy in context of some broader event of public interest. This practice played a not-insignificant role in the woefully unchallenged and uncontextualized repetition of talking points from WHO leaders, New York City health officials and others in many outlets over the past few months. It has been the on-air M.O. of financial media for far longer.

More importantly, the practice forms a critical part of the machinery of narrative construction and transmission.

Clear eyes.


The Python and the Pig


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Seattle-area emergency room

NYC declares state of emergency, de Blasio says coronavirus ‘could easily be a 6-month crisis’ (CNBC)

The city now has 95 confirmed COVID-19 cases, with 42 of them reported in the last 24 hours, he said. More than 1,780 people are under voluntary quarantine in the city, with an additional 29 people under mandatory quarantine, he said. By next week, the number of cases in the city is projected to rise to 1,000, he said. 

Here’s what I think de Blasio (and every mayor of every big city in the United States) is looking at. This is data publicly available from NYC Health.

The graph below is a count of the number of NYC emergency room visits PER DAY over the past twelve months where the chief complaint was an influenza-like illness. You see a big spike from November through January. That is seasonal flu. But you also see a new spike over the past two weeks. This is coronavirus.

I really don’t think this is some resurgence of seasonal flu for two reasons. First, for the entire online NYC Health dataset (goes back to 2016), there is no second spike in any year. Second, look at the demographics for ER-reported influenza-like illnesses broken down by pre-Feb and post-Feb. During the seasonal flu spike, the most impacted age group was children age 0-4 years. During this more recent spike, the most impacted age group (by far) was adults age 18-64. This is not the seasonal flu.

CV-19 is not coming to New York City. CV-19 is here. It’s been here for a while. It’s going to get much worse before it gets any better.

By much worse I mean that the NYC healthcare system – one of the finest in the world – is about to be slammed beyond anything they have ever seen. ER visits and patient testing is where it begins. It moves from there through the system, ending in ICU wards. The process is like a python swallowing a pig, except this isn’t a pig. It’s a whale.

From what I read and hear, I think that de Blasio and Cuomo are fully aware of the situation and taking every possible step to prepare the healthcare system for the deluge. It would be nice if we had this sort of leadership on a national scale, but I’m not holding my breath. Frankly, I’ll be thrilled if the White House is just not actively hampering the efforts that need to be made here.

Every local and state leader needs to look at what’s happening in New York and understand that this is your crystal ball. This is your future. You can ignore it or you can prepare. It’s truly your choice.

Every citizen needs to understand that your local and state leaders have the ability to make that choice. They will listen to YOU. So make your voice heard.




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Death inspires me like a dog inspires a rabbit.

If Hitler invaded hell I would make at least a favorable reference to the devil in the House of Commons.

That first quote is from Twenty One Pilots and the second is from Winston Churchill. I thought about both while listening to Donald Trump’s address to the nation last night.

I think Trump’s speech last night was constructive. Weeks late? Yes. Too late? Maybe. But it was his first public statement on CV-19 that reflected seriousness and resolve in the national interest. It was his first public statement that wasn’t overtly corrupt. It’s a start.


As for the policy specifics and the bizarro delivery and the walk-backs afterward? I don’t care. As Churchill also said, “war is a series of blunders,” and god knows there is no end to the blunders we have gotten and will continue to get from this guy.

But for the first time our federal government is treating the fight against this virus like the war that it is.

Is it pathetic and sad that it took this long? Of course. But now here we go. And there is no country in the world that mobilizes for war more effectively than the United States.

As for the market reaction to Trump’s speech today? Please.

The fact that the market doesn’t “like” Trump’s speech is exactly what made it a constructive speech in the national interest.

Like it or not (and I hate it) Donald Trump is President of the United States for the next TEN MONTHS. My reaction to his speech is not about giving him “credit”. It’s not about giving him a “grade”. It’s not about gnashing my teeth and rending my garments over a man who I think has betrayed the public trust at every turn and is the most damaging President in the history of the Republic.

Screw all that. I’m way past THAT.

The ONLY thing I care about now is fighting this war. The ONLY thing I care about now is saving lives.

Welcome to the fight, Mr. President. Hope you stick around.


How do we save lives?

First, and most importantly, we help our neighbors.

The Non-Linearity of Need

In a potential recession, need isn’t evenly distributed. In a pandemic, that’s even more true. The time to start helping is now.   … Continue reading

Second, we end #DontTestDontTell.

#DontTestDontTell is not just a policy embarrassment. It is not just simple bureaucratic incompetence. #DontTestDontTell is a willfully corrupt betrayal of our country and its citizens, and it is our moral duty to howl our anger and discontent.

You can read about #DontTestDontTell in Epsilon Theory notes here and here.

You can see it here, in Alabama.

Alabama Secretary of State John Merrill: “We don’t need for people to be concerned about something that may not ever happen.”

Alabama has tested 10 people for coronavirus. TEN.

5 million people live in Alabama. Including my 78-year-old mother who’s a substitute teacher and uses a prednisone inhaler for her asthma and her more-than-occasional pneumonia. Shelter in place, Mom, shelter in place.

Alabama, like all states, is getting a chunk of the $8 billion in federal funds recently allocated to fight CV-19. For Alabama that comes to $8.15 million. Know what they’re gonna spend their money on? “Public health communications.” In Alabama-speak, that means posters. Wash-your-hands posters.

Also, a task force has been assembled. Like the Avengers.

Here’s what the task force wants you to know about CV-19. This is from March 6th.

“The Alabama Department of Public Health has issued guidance to hospitals and healthcare centers regarding testing for the virus and encourages Alabamians to take the standard protocol for cold and flu season.”

Yep. Alabamians like my mother and my brother and my sister-in-law and my nephew and my nieces and my childhood friends are “encouraged to take the standard protocol for cold and flu season.”

And you wonder why I am so angry.

Tick-tock, Alabama, tick-tock.

Third, we move to a war-time footing to protect our emergency responders and healthcare professionals, and to bolster our healthcare system.

Specifically that means a national mobilization of manufacturing capacity to make personal protective equipment (PPE), respiratory and anti-viral therapeutics, ventilators, and ECMO equipment to support the surge in CV-19 patients who will require not just hospitalization, but intensive care treatment. It means a broadening of patient under investigation (PUI) criteria and a complete revamping of patient testing and ingestion protocols, including airborne-secure (negative air pressure) facilities inside and outside hospitals and clinics … wherever healthcare professionals come into contact with potential or actual infections.

Specifically that means utilization of domestic military bases as treatment facilities and isolation wards. It means coordination of state and local authorities with the Dept. of Defense to establish regional command, control, communication and intelligence (C3I) capabilities at tertiary medical centers. Yes, direct coordination with the DOD. It’s the most competent, well-resourced C3I organization in the world, and they are present in every domestic battlefront in this war. Yes, tertiary medical centers. They are the most competent, well-resourced medical organizations in the world, and they are also present in every domestic battlefront in this war.

Whether we have a >4% death rate from CV-19 (Wuhan) or a <1% death rate (Singapore) is entirely up to us. It is our choice! If we prevent our healthcare system from being overwhelmed, then we win. If we don’t, we lose. It’s really as simple as that.

Are we almost out of time?

Absolutely. Tick-tock.

But we all see the danger now. All of us rabbits see the virus dog chasing us. Even Donald Trump.

I said it at the start of this note and I’ll say it again, there is no country in the world that mobilizes for war more effectively than the United States. And I know you won’t believe me, but I tell you it is true:

This will be our finest hour.


The Mozilo Market


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Angelo Mozilo, tanning bed aficionado and former chairman/CEO of Countrywide Financial

I’m willing to bet that fewer than half of Epsilon Theory readers know who Angelo Mozilo is. And that’s a shame, because no one better epitomizes the intense financialization of the American stock market from 2001 – 2007 than Angelo. No one better epitomizes the corrupt lending and securitization practices that led directly to the Great Financial Crisis of 2008 than Angelo.

The fact that Angelo Mozilo was allowed to pay a $67 million fine (leaving him with only … oh, $400 million or so left over) on SEC insider trading charges and walk away scot-free from ALL criminal prosecution is something I will NEVER forgive Eric Holder and Barack Obama for. Google “friends of Angelo” when you get a chance. Only Dick Fuld, who oversaw the Repo 105 fraud at Lehman (and who also skated from any criminal OR civil prosecution), makes my blood boil more than Angelo Mozilo.

But this isn’t a note about Angelo Mozilo.

This is a note about Countrywide’s quarterly earnings call in 2008, when Angelo, in response to an analyst’s question, said that sharply increasing mortgage delinquencies and failures were NOT limited to sub-prime, but were now in Alt-A mortgages, too.

I’ll never forget that call. With one comment, Angelo gave the lie to everything Ben Bernanke and Hank Paulson had been saying about the “well-contained” nature of the sub-prime mortgage crisis. You could almost feel the thermonuclear energy coming off that call and spreading throughout the professional investment community.

Markets were never the same after that.

From that call forward, no professional investor responsible for Other People’s Money trusted a single word they heard from Bernanke or the Bush White House on the “containment” of sub-prime delinquencies. No professional investor worth his or her salt trusted a single word they heard in the following months from Merrill and Bear and Goldman and Citi about the marks they had on their RMBS assets. This wasn’t just a US thing. The Europeans were much more flagrant liars. Even as all hell started to break loose for US banks in the summer of 2008, European banks valued their massive portfolios of Alt-A securities at 97 cents on the dollar, all rated AAA, natch. They were ALL liars. All of them. Without exception.

After that Countrywide earnings call in 2008, I trusted NO ONE in government or Wall Street to tell the truth about the mortgage crisis.

And that’s the way I feel about COVID-19 today.

In 2008, you could not trust a single word that anyone in government or the financial services sector told you about their exposure to bad mortgage securities. And because you had zero trust … because you had zero visibility into the actual exposures that banks actually had … you SOLD.

In 2020, it’s exactly the same thing. I do not trust a single word that anyone in the U.S. government (or the Japanese government or the Chinese government) tells us about our exposure to this virus. I believe that most professional investors feel the same way.

And when you have no trust … you SELL.


Kitchen Sink It

Sometimes it’s best to go straight for the trident.

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I have been under withering (if modestly deserved) friendly fire recently for posing a riddle and sitting on the answer. It is with some hesitation that I pose another.

Relax. I won’t make you wait for the answer this time.

What is every marginally competent CEO AND every financial journalist on the Coronavirus beat planning right now?

Kitchen sinking it.

Let me show you what I mean. Here are three of the top five most linguistically connected financial and market news articles published a couple days ago. If watching Michael Bloomberg self-immolate on stage isn’t crowding out all of your short term memory, maybe you’ll remember these articles:

Apple Shares Drop After Virus Warning Rattles Tech Investors [Houston Chronicle]

Apple’s coronavirus warning wasn’t a total surprise, but magnitude rattles Wall Street [DJ Marketwatch]

Apple Investors Get Nervous After Tech Giant Cautions on Coronavirus Impact [The Street]

Yeah, me neither. Why? Because in two trading days the stock bounced right back to where it was before Apple gave markets its guidance on Coronavirus impact. As I’m writing, it’s about 10 basis points away.

A similar story hit the Zeitgeist yesterday for Puma – who reported half their stores in China being closed – and Adidas, who reported an 85% drop in sales compared with the same period last year. And that’s just sales impact.

Adidas and Puma warn of coronavirus sales drag [Financial Times]

Those stocks, on the other hand, barely attempted a headfake downward before bouncing well into positive territory. Let’s make the obligatory (and important!) observation that stock prices are driven by a billion things. Let’s make the second observation that investors are not stupid, and that active investors who owned these stocks probably knew before formal guidance that they had stores in China. They have probably read something about the Coronavirus. Presenting that day’s price behavior as a simple, straightline function of the announcement event alone is obviously silly.

And yet: if you were CEO of a company that’s been sitting on some bad assets, postponed cash outlays or ugly one-time expenses that you needed an excuse to vomit out, and you saw the collective yawn with which markets have viewed other negative Coronavirus-related guidance, what would you do?

You’d kitchen sink it. Let it all out, fellas. You’ll feel better afterward.

We’re seeing an entirely different type of kitchen sink on the side of institutional missionaries in central banks and financial media, and it’s a familiar story. Here’s one of the most connected stories in today’s Zeitgeist run:

Fed Flagged Coronavirus Risk at January Meeting [NY Times]

The Fed wants us to know they’re on it. Financial media wants to make sure that everybody knows everybody knows that the Fed is on it. It’s our old friend “The Narrative of Central Bank Omnipotence.” Is that why stocks guiding on Coronavirus fears have been greeted with a yawn? Why a serious regional health issue with non-zero global pandemic risk hasn’t really manifested in risky asset prices? I think you’d be kidding yourself to say that it’s not at least playing a role.

But what’s more interesting to me is how media calls for us to connect our expectations for central bank action with the Coronavirus problem have been positively related to the level of focus on the pandemic itself. In other words, when the share of equity market news that is focused on the Coronavirus increases, the share of THAT news which is focused on central bank response increases too. When the day’s updates feel a little bit more dire, we immediately start talking about throwing the kitchen sink at it. When you hear us talk about the drum beats of narrative, this is what we mean.

What does it all mean? Well, we won’t tell you that good or bad news on Coronavirus won’t matter to markets or stocks, especially in the short run. Clearly there are people who are going to try to trade on news and their predictions of it. But if I had genuine concerns about Coronavirus-related risk for a portfolio position, at least for now I’d be a little less focused on predicting, and a little more focused on observing missionary statements about Fed/ECB policy.


Love in the Time of COVID-19


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A professional baseball game during the Spanish Flu epidemic of 1918

The problem in public life is learning to overcome terror.

Gabriel Garcia Marquez, “Love in the Time of Cholera”

Within a few months, the reality of COVID-19 will overtake the propaganda of the CCP and their toadies at the World Health Organization, as real-world companies begin making real-world economic decisions to maintain their enterprises in the face of a real-world threat.

Those decisions will be led by sports franchises.

I realize this sounds pretty out-there to most people. As my father used to tell me, “Ben, being two steps ahead is like being one step behind.”

And I get it. We’re still playing the “Confirmed Cases!” game, where countries like Indonesia claim that COVID-19 doesn’t exist within their borders because they’ve tested … checks notes … 64 people. Where more people apparently caught COVID-19 on a cruise ship yesterday than in Africa and the Southeast Asian sub-continent combined. Where the World Health Organization parrots the (literally) party line from China even though WHO-sponsored doctors have published study after study showing that the China data is a crock.


But it hit me like a ton of bricks this morning that the “Confirmed Cases!” game is now giving way to the reality of living with a global pandemic when I saw this announcement from the organizers of the Tokyo marathon.

Tokyo marathon to cancel entries from general public (Reuters)

Tokyo marathon organizers have decided to cancel entries from the general public for the event scheduled on March 1 due to the coronavirus outbreak, Tokyo Shimbun newspaper reported on Monday.

About 38,000 people from the general public were scheduled to run in the event, Japan’s biggest marathon, the paper said.

So I’ll just say this as simply as I can. Three things:

First, this is absolutely the right decision.

Second, the 2020 Tokyo Olympics are finished as a spectator event. Not happening.

Third, if you’re a professional sports league and you’re not making contingency plans to shut down your stadiums and run next season in front of TV cameras only, you’re just not paying attention.



Source: Chris Arnade, via Medium

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In full disclosure, we didn’t identify today’s article in our NLP-driven screen of political and financial markets news. Medium posts don’t make our database. But it felt like part of our Zeitgeist to me. I think it will to you, too.

We have mentioned Dignity and its author Chris Arnade in our livestream feature on a few occasions. Why? First, because it’s a lovely book and worthy of your time. Second, Chris is a former markets professional, which makes a lot of what he has to say relevant for a big part of our audience. He understands our language. But we also think his framework for thinking about class in America – and his willingness to uncondescendingly apply it to better understand the frustrations of a huge, demographically diverse swath of Americans – is useful. And powerful.

He shared a piece yesterday that he had written last year called “D in the McDonald’s.” It is an interview with a former computer worker with a passion for math who also happened to be living in a truck in the parking lot of a McDonald’s. I don’t want to reprint it in full, because I think you should read it there. But I want to share a piece that did jump out at me. As you’ll find, Arnade doesn’t offer many simple answers.

It’s a good thing, too, because there aren’t any.

As I drive away I think I must be missing something, some simple explanation for why D is homeless, some reason why a man who worked with computers for 30 years is living in a truck. I spend lots of time with homeless people and I usually can say within a few seconds a glib reason for them being on the streets. It is usually mental illness, or drugs, or a physical handicap, or aggression, or a lifetime of jails and prison. Or all of that. With D there is no obvious simple explanation.

D in the McDonald’s (Chris Arnade on Medium, June 2019)

I’m not even an armchair sociologist, but if you’ve lived in different parts of what Arnade calls back-row America, even as a lucky-as-hell front-row (if McDonald’s-loving) son of an engineer, you can’t help but see the shared trait among the poor: a belief that they have few or no options. Sure, the reasons are different, but those reasons coalesce into the same feeling in a small oil-bust town in southeast Texas that they do on inside-Broadway Washington Heights and outside-University City West Philadelphia.

A lot of policy and a lot of charity is directed to fixing the sources of that belief that are external and tangible. In other words, we focus a lot of our energy on fixing the ways in which some people in America really don’t have many options. We invest in education and job-training, we regulate prejudicial hiring, we create social safety nets to prevent some forms of bad luck from eliminating optionality in life for our fellow Americans. A hundred other angles to address the many ways in which life choices might be limited. We disagree as a country about the scale and scope of these policies and who ought to be executing them. Still, I think that if you asked most full-hearted Americans if they wanted a political and social system that permitted unbounded mobility, you’d get resounding agreement.

The other side to the belief in the lack of options – and the one that is very hard to come up with answers for – exists in the stories we tell. Our narratives about the poor. We have a lot of them. But here, Chris puts his finger on one of the most powerful: in America, everybody knows that everybody knows that poverty is inextricably related to immorality. Conservative politicians circle the wagons around and campaign on welfare abuse and unhealthy / fraudulent use of food stamps as if they were a widespread budgetary disaster. Hundreds of charismatic and pentecostal churches (and yes, both principally white and black churches among them) embrace a prosperity gospel attaching God’s favor or anger as the sole cause of financial circumstance. Liberal leaders gloat about educational attainment in the Deep South as a predictor of Bad Political Views. The people who “cling to their guns and religion” will remember that characterization for a generation.

This idea is deeply, broadly shared cultural common knowledge.

But here’s the thing: forget about whether you think any of the above cases have some basis in fact. Yes, sometimes people are poor in part because they did bad things. Dumb things. And sometimes they get rich for the same reasons. I’ll leave it to someone else to parse through root causes, because I’m not here to lionize or condescend to anyone. Even if I were, I don’t know how to weigh goods and bads.

What I do know is that the narrative of immorality-based poverty has power far beyond whatever truth lies underneath it. It changes how WE behave. It changes our perceptions of the dignity of other Americans and of their agency. It colors our perceptions of their motivations and it permits us cover for ingratitude and unkindness. And yes, I think it also affects the willingness of many who would benefit from getting back on their life’s path – or just being shown the trailhead, for God’s sake – to ask for or accept that assistance. How much help would you or I accept from someone we suspected offered it as a good deed to an undeserving wretch like us?

I don’t know if one of us being in a position to tell D in McDonald’s something practical about graduate school, or to offer love and help in a moment where a belief in a lack of options was crystallizing in his mind, or to connect him with someone we knew who needed someone with his skills might have opened up a new path for him to change his life for the better, or at least to make him happier. I do know that there are a thousand thousand others where we can and do have that power. Full hearts.

Clear eyes, too. We published a short piece this week about many of the memes that influence our behavior. We argued that there would be a time to sing new songs – once we’ve stopped singing the songs our powerful institutions required of us.

I think this might be a good one to start with.


The Promised Land!


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Every once in a while, narrative-world gives you a gift that just keeps on giving.

So it is with outgoing CEO Ginni Rometty’s regime of despair at IBM.

I mean, I haven’t even gotten to the billions of dollars frittered away on stock buybacks. We still haven’t seen the 8-k IBM will file after the close on a Friday afternoon detailing the tens of millions of dollars that the board will lavish on Rometty as she walks out the door.

I’ve already compiled all 167 of Rometty’s SEC Form 4s to figure out just how much money in stock comp alone she’s sucked out of IBM. The answer to our puzzle is over $100 million.

Once You Buy a Prize, It’s Yours to Keep

I’m not even going to count Rometty’s salary and annual cash bonuses. I’m not going to count the corporate jet. I’m not going to count the Augusta National membership and all that. Nope, you’ve gotta work hard to fritter away a national treasure like IBM into irrelevance, so let’s not begrudge the woman whatever tens of millions of dollars she’s been paid in cash comp  … Continue reading

But today my focus is on the IBM-sponsored hagiography that is springing up like slime molds on the underside of rotting swamp cabbages.

It starts with this:

Which is drawn from this:

Rometty’s Legacy: Leading to IBM’s Promised Land [Chief Executive]

Moses may have been able to see the Promised Land, but that doesn’t mean he could complete his mission to lead the people there. A different skill set was needed, and Joshua was selected. No one faults Moses for his time in the desert.

History will be equally kind to Ginni Rometty, the CEO of IBM. The company’s share price may have lagged rivals over the last few years, but inside the company—deep inside, where it counts—Rometty has transformed IBM in every possible way, setting the stage for a promising next chapter. IBM’s stock is up 25% just this past year.

Some cynical business media never quite got the story right, and it was eye opening that the same respected business voices who preach against short-termism were focused solely on the 4 percent jump IBM’s stock took on the news of Rometty’s retirement, rather than the foundation she’d laid for the years to come. So much for long-term investment, technological transformation, community impact and “ESG,” right?

— Yale professor Jeff Sonnenfeld, winner of the Epsilon Theory lifetime achievement award for narrative construction in service to the oligarchy, popularly known as The Renfield.

The author of this quite serious analysis where Ginni Rometty is favorably compared to … checks notes … MOSES, is none other than Yale professor Jeff Sonnenfeld, who is also the founder and leading light of the Chief Executive Leadership Institute, a non-profit “school for CEOs featuring applied research and peer-driven learning” that generates a multi-million dollar revenue stream for the Yale School of Management.

Would it surprise you to learn that Jeff Sonnenfeld works hand-in-hand with Chief Executive Group, a decidedly for-profit company that, among other things, runs the Chief Executive website that published Jeff’s little paean to Ginni Rometty?

Would it surprise you to learn that IBM is a major sponsor of Sonnenfeld’s Chief Executive Leadership Institute?

Would it surprise you to learn that Jeff Sonnenfeld presented Ginni Rometty with the … checks notes … Yale Lifetime of Leadership Award and the … checks notes, does a double-take, and checks notes again … Yale Legend of Leadership Award?

Yes, apparently the Yale Legend of Leadership Award is a real thing. And “prestigious”, too, according to Jeff’s hand-written Wikipedia entry.

Would it surprise you to learn that Jeff Sonnenfeld has been doing this stuff for literally decades, to the point where even the New York Post catches on to his act?

Being friends with Yale prof Sonnenfeld has its benefits [NY Post]

Three times in the past 16 months, Sonnenfeld has written opinion pieces or been quoted in the media supporting a company or CEO who was honored by his Chief Executive Leadership Institute or was a financial backer of his biannual CEO Summit, The Post’s research reveals.

None of the op-eds disclosed either the financial backing the companies supplied to the Sonnenfeld-led nonprofit or that CELI had honored their CEOs.

— by Josh Kosman and Michelle Celarier (April 15, 2015)

Actually, I would bet a lot of money that Nelson Peltz tipped off the NY Post to dig into the Sonnenfeld puff pieces around his DuPont activism, but still, good for them to publish this article five years ago.

Not gonna lie, I can’t wait to dig into the Form 990 for the Chief Executive Leadership Institute.

Like I say, it’s the gift that keeps on giving.

One more thought on all this for today.

There is no structural difference between the “conspiracy theories” of Zero Hedge and the “serious opinions” of Chief Executive. The only difference is whether the constructed narrative supports the status quo or challenges the status quo.

And yet Zero Hedge is banned from Twitter for making up narratives from the flimsiest of “facts”, while Sonnenfeld and his fellow Renfields are celebrated for doing exactly the same thing.

Clear eyes, friends. Clear eyes.


Once You Buy a Prize, It’s Yours to Keep!


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Outgoing IBM CEO Ginni Rometty has filed 167 SEC Form 4s detailing her stock transactions in the company.

So I downloaded and compiled all of them to see how much money she has sucked out of IBM, just like I did for outgoing Boeing CEO Dennis Muilenburg.

Shot, Chaser.

So I downloaded and compiled every SEC Form 4 filing that former Boeing CEO Dennis Muilenburg has ever made, to answer one simple question: how much money did Dennis Muilenburg suck out of Boeing over the last ten years? … Continue reading

As with Muilenburg, I’m not even going to count Rometty’s salary and annual cash bonuses. I’m not going to count the corporate jet. I’m not going to count the Augusta National membership and all that. Nope, you’ve gotta work hard to fritter away a national treasure like IBM into irrelevance, so let’s not begrudge the woman whatever tens of millions of dollars she’s been paid in cash comp, and let’s not begrudge her the well-deserved downtime on the links or sipping mint juleps in her green jacket. Besides, cash comp is for suckers. Just ask Jamie Dimon.

So here we go. Ready?

Over the past fifteen years, Ginni Rometty has acquired or been granted about 850,000 shares of IBM stock (all of this information is publicly available in the SEC Form 4s). Most of this stock was given to her gratis, but she had to pay to exercise some of this as options. The total price paid for all of these shares by Rometty was $25.7 million, which works out to an average price of $30.31 per share.

Rometty has sold more than 550,000 of these shares over the years in more than 50 separate transactions for a total of $84 million, at an average price of $152 per share. For those of you keeping score at home, the current IBM share price is $143, so as you can imagine, Ginni has been pretty good at timing these sales over the years, with more than 100,000 shares sold around the top-tick of $200 for the stock back in 2012.

That leaves about 295,000 shares still in Rometty’s hands as of her last Form 4 filing, which have a current market value of $42 million.

So over the past fifteen years, Ginni Rometty has $84 million in realized stock gains and $42.4 million in unrealized gains, at a cost basis to her of $25.7 million.

That’s $100.7 million.

To be clear, THIS IS JUST THE OPENING BID. We still haven’t seen the 8-k filing from IBM where they will detail her going-away prize money. Just as with Muilenburg, there will be tens of millions in deferred this and long-term incentive that.

But don’t call it severance.


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

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

But until that day … Yay, Capitalism!

PS. Here’s a fun fact. Did you know that Ginni Rometty was on the board of AIG from 2006 – 2009?

You really can’t make this stuff up. No one would believe you.


You Had One Job


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I haven’t been this angry since the United States government allowed Jeffrey Epstein to die …

I’m a Superstitious Man

Whether Epstein killed himself or not is the least important part of the story. I’m blaming the people in the room. They’re ALL guilty of the SYSTEM of Jeffrey Epsteins.  … Continue reading

I haven’t been this angry since the last time the United States government dealt with a global plague …

Calvin the Super Genius

Am I personally worried about an Ebola outbreak in the US? On balance … no, not at all. But don’t tell me that I’m an idiot if I have questions about the sufficiency of the social policies being implemented to prevent that outbreak. And make no mistake, that’s EXACTLY what I have been told by CDC Directors and Dr. Gupta and the White House and all the rest of the super genius, supercilious, remain-calm crew.  … Continue reading

What made me so angry? This.

U.S. Sets Evacuation Plan From Coronavirus-Infected Wuhan  [Wall Street Journal]

The U.S. State Department said Sunday that it is organizing a single flight out of the central Chinese city of Wuhan, confirming efforts to extricate diplomats and a limited number of private U.S. citizens from the virus-hit city.

Private citizens are expected to later repay the travel costs, the notice said.

U.S. authorities believe that roughly 1,000 American citizens live in and around Wuhan, a sprawl of 11 million people with a manufacturing-based economy that includes a number of major American companies. 

The U.S. evacuation flight from Wuhan’s Tianhe International Airport was initially planned for Sunday, but issues related to chartering the plane from the U.S. caused a delay. 

The jetliner is expected to be a Boeing 767 with about 230 seats.

The flight is expected to carry mostly Americans and possibly a small number of other foreign nationals but no Chinese citizens.

Japanese Prime Minister Shinzo Abe said Sunday that Japan would evacuate from Wuhan any of its citizens who want to leave, using charter flights and other means to get them back to Japan as quickly as possible. Public broadcaster NHK said about 700 Japanese citizens were thought to be in Wuhan as of Friday.

According to an evacuee manifest and promissory note posted to its website, the State Department asks any participants in a government-arranged evacuation to provide basic identification information and to sign an agreement promising to repay the State Department for all expenses included in the evacuation within 30 days.

That includes the cost of an air ticket, whose price shouldn’t exceed the cost of a full-fare economy ticket.

Japan is getting ALL of its people out of Wuhan. Why aren’t we?

Why the hell are we evacuating “a small number of other foreign nationals” and leaving Americans behind?

Why does this article feel compelled to tell us TWICE about the payback terms on the price of evacuation?

We spend TRILLIONS of dollars fighting god-forsaken wars in god-forsaken countries, and we have “issues” chartering ONE Boeing plane?


Rhode Island residents Patrick Randy Stockstill, his wife and two children had traveled to Yichang, a city of about four million near the Three Gorges Dam in Hubei province and 200 miles west of Wuhan, to celebrate Lunar New Year with the extended family of Mr. Stockstill’s wife.

Mr. Stockstill, who had arrived in Yichang on Jan. 20 and was set to leave this coming Friday, said his family was very worried about his youngest son, who is 3 months old. Public transportation in Yichang has been shut down since Friday.

“We’re not looking for special treatment,” said the 38-year-old loan officer, who hasn’t stepped outside for four days for fear of getting infected by the virus. “We are just looking for a way to get my boy home.”

Forget about impeachment and its partisan Kabuki theater. It’s a joke.

If there’s some rich dude who bought his way onto that Wuhan evacuation flight, and you know there is … if there’s a pecking order that leaves people like the Stockstills behind, and you know there is … if this Administration is forsaking its ONE JOB to protect American citizens, and you know they are

THAT’S what brings down this government.