The Weekend Zeitgeist (3.31 – 4.6.2019)

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. On the weekend, we leave finance to cover the last week or so in other shifting parts of the Zeitgeist – namely, politics and culture. It’s not a list of best articles or articles we think are most interesting … often far from it.

But these are articles that have struck a chord in narrative world. 


Narrative Map – All US Non-Markets Stories (3.31.2019 – 4.6.2019)


The Times Can’t Let Go [Patriot Post]

I suppose it shouldn’t be surprising that the most interconnected story to the narratives permeating all non-financial news is an opinion piece from a right-wing site about the Mueller Report. It could just as easily have been a left-wing opinion piece from, say, Mother Jones.

I hope you aren’t sick of them yet, because, unfortunately, these “the real story in the Mueller investigation” pieces aren’t going anywhere. They are the perfect fodder for the Widening Gyre because their contentions cannot be proved or disproved. The political right can and will contend that the entire affair was a media-fueled failure, and that the unwillingness of the media to own up to its role is the ‘real story’. The political left can and will contend that the investigation uncovered enough to make Trump unelectable, that there was collusion, even if the scope of the investigation couldn’t be definitive about it, that it’s really about the cover-ups and unwillingness to make all the materials public, etc. etc.

I’m not offering an opinion on the truth of either contention, just the observation that deeply-held, tribe-identifying, non-falsifiable claims are almost impossible to root out.


Echoes from under the stadium [BYU-Idaho Scroll]

Echoes from under the stadium

Why is this so interconnected? Well, if you can cram discussions of college football, religion, music and language (singing hymns in Spanish) into a short article, you’re going to find yourself connected to a lot of different topics.

I’ve told the story before of a man – Dr. Eph Ehly – who guest conducted a large choir I sang with in Texas. Dr. Ehly believed that the American folk song was fading from our cultural memory. He lamented it. His lament was for the loss of everyday musicality, the idea that singing was a thing people did when they worked, when they traveled, when they gathered socially. It was also a lament for the idea of a working cultural common knowledge, songs and poems and texts we all knew and expected that others would know (and know we knew).

Dr. Ehly made us learn and memorize about a dozen of those songs. As it happens, a number of years later I found myself in an inn in Austria where some local musicians and a bit too much wine all around ended with me trying to teach a group of marginal English speakers a couple verses of Oh, Shenandoah. It was only 15, 20 years ago that this happened – and yes, it really happened (hooray, cask wine!) – but it’s hard to imagine this kind of familiar/foreign experience happening today.

Hymns are a sacred thing, but they ARE the folk songs of a lot of American sub-cultures. I suspect that the knowledge of Amazing Grace, How Great Thou Art, and most spirituals are going the way of secular folk tunes. Would 25% of Americans know a verse by heart? Fewer? Still, this isn’t a “good old days” thing. I’d be positively thrilled with cultural common knowledge of something modern, something popular! But as it happens, I know only two examples of what I mean by a true Folk Song, a true Hymn, a holy, cultural, musical thing that has stuck around in spite of it all:

The first are Christmas carols.

The second? Pick a random little town in Texas, and go to the high school football stadium on a Friday night. Stand up in the bleachers whenever you feel like it, and shout out as loud as you can, “The stars at night are big and bright.”


How the Left Embraced Elitism [New York Times]

ALL populism leads to power vested in a political elite, David.

Let us not pretend that a sitting president pressuring the head of an ‘independent’ central bank to explicitly buttress asset prices is somehow exerting less concentrated power than a goofy environmental plan that will never get off the ground (and won’t even be the defining issue of 2020, which I increasingly expect will be health care / health insurance).

Number 9

The influence of the influencer [UMASS Daily Collegian]

Another college paper!

I don’t have much to say about the intent of the article itself, but the influencer is not a surprising interconnected topic. It touches the intersection of technology, media and business. As I’ve observed – and as part of our media and NLP research, researched – influential social media presences, I’ve discovered two things that were surprising, at least to me:

  1. The remarkable advertising revenue-generation potential of a successful social media-based influencer.
  2. The similarly remarkable difficulty (for those who have tried) faced by most social media-based influencers seeking to convert that marketing influence into more traditional forms of influence and power (e.g. corporate, political, etc.). Still very different signaling/credentialing worlds with different governing narratives.

The Evolution Continues: The Platformization of Marketing [CIO Review]

Sorry, that’s as far as I got before my Buzzword Bingo card was full. I’m gonna take my winnings and go play the nickel slots.


Seeking Tomorrow’s Masterpieces [Pittsburgh Post-Gazette]

Ben and I have written about and are fascinated by art curation, despite the horrors of our art knowledge relative to other topics. Below are our trivia scores by category on Learned League, which I provide utterly without any authorization from Ben. I’m on the left, and he’s on the right. At least in the trivia world, we are uncultured swine. Third column gives our correct answers percentage. Brutal.

But we are still fascinated by the topic because of its credentialing structures, its missionaries, and the fact that the value of a painting, the designation of something as a masterpiece is a complete narrative construction. This is an entire industry built upon foundations of common knowledge and narratives!

To me there is so much that investors can and should learn from those who assess the value and marketability of visual art. While there are still some aesthetically minded folks like me who look at that blue clay bowl up there and say, like the uncultured swine we are, that it looks like something we made in elementary school art class, by and large art is an industry brokered by people who are much more aware and less embarrassed that they are playing a common knowledge game and not just ‘evaluating the artistic value’ of each piece. Everyone knows that it’s about convincing the right people and creating the right buzz and the right story about why something ought to be valuable.

That means that the games played are one level deeper into the Keynsian Newspaper Beauty Contest than what most people are playing in markets. It also means that the visible games in the art world look much more like the games played in finance that we prefer to imagine we are keeping a secret. You mean you own that stock in part because you believe other investors will begin appreciating some trait about it and buying into its Story? You rebel!

In other words, if you want to see what investors are doing in secret, watch what art investors do in the open.


Marvin Gaye: You’re the Man [All About Jazz]

Marvin Gaye: You're the Man

Why is the review of a previously unreleased 1972 album from Marvin Gaye connected to everything else in media in the last week?

Give the thing a listen and find out for yourself. Most (all?) of the songs were familiar to me and have been released on anthologies, but as a single composition the album is very fine. You could do worse on a Saturday in spring than listen to one of the finest voices ever recorded.

The Zeitgeist – 4.5.2019

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 sort of chord that has been struck in Narrative-world.

We thought we’d post the underlying Narrative Maps for the Zeitgeist today. Let us know if you find this feature a) interesting or b) distracting !

April 5, 2019 Narrative Map – US Equities

Source: Quid, Epsilon Theory

April 5, 2019 Narrative Map – Selected Articles

Source: Quid, Epsilon Theory

Preferred Securities: Still Attractive Despite Modestly Higher Prices [Seeking Alpha]

Schwab pitching preferreds today. And every day. Just another example of an advertisement presented as “analysis” … the ubiquitous commercial version of Fiat News.

Two observations …

  1. When I was running a hedge fund, whenever I read a sell-side report that said a security was “still attractive for long-term investors”, I would immediately get a borrow and short the hell out of it.
  2. Fannie Mae preferreds. Never forget. Although everyone has.

Target Raises Its Minimum Wage to $13 an Hour [The Street]

March wage growth came in at 3.2% today, which is being described by everyone in financial media as “muted”.

Kinda like the Disney flacks telling us that Blue Will Smith is “fine”. A different genie, but still.

As the immortal line in The Outlaw Josey Wales would have it, “Don’t piss down my back and tell me it’s raining.”


Natixis US Trends Report: Bonds Make Comeback Acting as Portfolio Ballast in Turbulent 2018 [PR]

As volatility continues? What the hell are you talking about?

Oh, I see … it’s the Natixis report on 2018 “trends”, pushed on BusinessWire (A Berkshire Hathaway Company ™) in April 2019.

It’s a variation on The Prediction Polka, a great little note that Rusty wrote in December.


Value Versus Noise In Emerging Markets [Forbes]

As the legendary money manager Peter Lynch used to say, “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted ten minutes.” No one can predict the economy, the markets, or the direction of currencies. Only a charlatan would pretend to. Yet if you click on your financial news most days, that’s all anyone is trying to do. Pundits rarely invoke the wisdom of Socrates: “I know that I know nothing.”

Author then proceeds to compare the earnings yield of Emerging Markets ™ with the earnings yield of The Dow ™ and calls this Value ™.

You know, just like Peter Lynch used to do. Gag.


CalPERS not alone on private equity shift; A growing list of investors act to enhance returns, lower fees [P&I]

If you’ve been reading Epsilon Theory for more than a nano-second, you know what we think about this … greater allocations to private equity isn’t stupid, it’s NECESSARY as all capital markets (including private capital markets) become public utilities.


Global Stocks Edge Up as Trump Signals Trade Progress [Morningstar]

I just can’t write another blurb about the China Trade narrative. Just can’t do it.


The Zeitgeist – 4.4.2019

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 sort of chord that has been struck in Narrative-world.


They Had It Coming [The Atlantic]

Actor Felicity Huffman leaves the federal courthouse, April 3, 2019.

Sweet Christ, vindication!

How long has it been? Years? No, decades. If hope is the thing with feathers, I was a plucked bird. Long ago, I surrendered myself to the fact that the horrible, horrible private-school parents of Los Angeles would get away with their nastiness forever.

Schadenfreude is the second most powerful other-regarding emotion, just a tad less overwhelming than jealousy, and you’ve seen a lot of it in the aftermath of the celebrity college admissions scandal. But rarely in as pure a form as this Atlantic article. I’m not going to act holier-than-thou on this. But I will say that schadenfreude and jealousy are the primary tools of the Nudging Oligarchy and the Nudging State. You’re being played.

Here’s the ET note on other-regarding emotions, Sheep Logic:

And here’s the ET note on how I think we should try to think about the college admissions scandal, The Ministry of Rites and the Compassionate Man:

Clear Eyes and Full Hearts, my friends.


Jeffrey Skilling, Former Enron Chief, Released After 12 Years in Prison [New York Times]

True story. I graduated from Vanderbilt in 1986 and had an offer from McKinsey to join one of their practices. You know, the two-years-and-then-we’ll-pay-for-biz-school-gig. They gave me a list of practices and asked where I wanted to go. My brother was in college at Rice at the time, so I bizarrely said that Houston was my first choice, even though 1986 Houston was … well, let’s just say it was a far cry from 2016 Houston, which is actually a great city.

So I had an offer letter and a plane ticket to Hobby Field when I got a letter from the NSF that I had won a graduate school fellowship good for any school that would take me. Figuring that McKinsey could wait, I nixed the job offer and never took that flight to Houston.

For those of you who don’t know the Enron back story, Jeff Skilling was the lead partner in that Houston McKinsey practice in 1986. Skilling started consulting for Enron in 1987, developing one of the first forwards markets in nat gas, and he left McKinsey in 1990 to be the CEO of Enron Finance Corp. The rest, as they say, is history.

I’d like to think that I wouldn’t have become a Jeff Skilling acolyte. I’d like to think that even if I had become a Jeff Skilling acolyte and followed him to Enron, that I wouldn’t have followed him down the path of fraud and perdition.

I’d like to think that, but it’s not true. I know who I was when I was 22 years old, and there is no doubt in my mind that I would have burned myself on this stove. Burn? I mean incinerate.

Our lives are defined by the roads we avoid as much as by the roads we take. And more often than not, sheer blind luck is responsible for the difference.

I think about that a lot these days, especially as I watch my children grow into adulthood.


Lyft plunges below IPO price in second day [Washington Post]

I’m old enough to remember the Facebook IPO.


Netflix prices are going up [CNN]

The streaming service sent emails this week to US subscribers about a price increase that starts in their next billing cycle. It’s an increase some Netflix customers have already seen.

Netflix (NFLX) announced the price hikes in January, and said at the time that the increased revenue would help itadd more television shows and movies. The company has been rolling out the price increases over the last few months, based on billing cycles.

There’s a word for “price increases and higher wages”. But it’s a word that the Fed says doesn’t exist, so … you know … I guess it doesn’t.


How Rupert Murdochs Empire of Influence Remade the World [New York Times]

David Byrne called it.

Same as it ever was. Same as it ever was. Same as it ever was.


The Zeitgeist – 4.3.2019

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 sort of chord that has been struck in Narrative-world.


Data Sheet: Lessons From the Kardashians for All Kinds of Businesses [Forbes]

Kendall Jenner is NOT apologetic about promoting the Fyre Festival on Instagram for $250k, she’ll have you know.

And Fortune is NOT apologetic about promoting Kendall Jenner in DataSheet, “Fortune’s daily newsletter on the top tech news“, this article will have you know, because we can all learn valuable lessons from the Kardashians.

Agreed!

So naturally I headed over to Webfluential to see how much I could charge on Twitter for my social media promotes, “to make the dream of becoming a Social Influencer (and getting paid), a reality“.

The answer: $120-$145 per tweet. Not chump change!

But then I saw what @ReformedBroker could make. C’mon, Josh, get with the program!


U.S. disaster aid won’t cover crops drowned by Midwest floods [Reuters]

Just the latest blow from the other-worldly flooding in the Midwest, coupled with “trade wars are good, and easy to win” policy from the DC clown posse.

I must have missed the CNN and Fox anchors doing live shots to cover this horrific disaster.


50 Cent Or Two Cents? Rapper’s Mansion Sells At A Loss For $2.9 Million [Forbes]

Was the 52-room mansion’s sale jinxed by its infamous reputation? Maybe. Were stripper poles, gun-toting gangsta murals and the monumental cathedral atrium excessive? Yes. Was the  marbleized  mansion too customized to the rapper’s extravagant taste? Definitely.

Welcome to bucolic Farmington, Connecticut! There’s no jumping allowed from the old trestle bridges that dot this pastoral landscape, not even if your name is Curtis Jackson.

You know who gets the last laugh here? Mike Tyson’s ex, Monica Turner, who got the house in their divorce and sold it to Fiddy for $4.1 million in 2004. It’s a funny old world, innit?


Jerome Powell, John Legend to attend Dem retreat [Politico]

Wait … Chrissy Teigen is married to John Legend? How did I not know that? She’ll be addressing the caucus, too. Sadly, though, John Legend is not expected to perform.

Recode editor Kara Swisher will talk to members about the economy and its shift toward automation. John Yang of Asian Americans Advancing Justice and Fernando Garcia of the Border Network for Human Rights will speak during a session about immigration. And the leaders of major labor unions, including SEIU’s Mary Kay Henry, Lee Saunders of AFSCME and Sara Nelson from Flight Attendants – CWA, will also address members.

Oh … and Jay Powell will talk about something or another.


Closing the border with Mexico could bring the auto industry to a halt, say experts [NBC News]

Top men, Dr. Jones. Top men.


The Zeitgeist – 4.2.2019

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 sort of chord that has been struck in Narrative-world.


Veggie Grill Expanding Despite The Scarcity of People Who Are Vegetarians And Vegans [Forbes]

The snippy tone of this interview is exactly as implied by the article title: what kind of an idiot are you to launch a veggie-only casual dining chain when only x% of people are vegetarian?

The answer, of course, is exactly what the co-founder says here. They’re not selling to vegetarians or vegans, they’re selling to people who want to FEEL like vegetarians or vegans.

Love it.

In the immortal words of Maya Angelou … people will forget what you said, people will forget what you did, but people will never forget how you made them feel.

Or in our business, people will never forget what you did for their personal account.


German Factory Slump Leaves Euro Area as Global Economic Laggard [Bloomberg]

And this is why Draghi and the ECB will do MOAR. Gotta get the Euro to USD parity …

We are smack in the middle of the Silver Age of the Central Banker, with Bronze just around the corner.


Larry Kudlow has a point in calling for an immediate Fed rate cut, strategist says [CNBC]

Friends don’t let friends reify the yield curve.

Yeah, it’s a $10 word. It means that the yield curve is not a thing in itself. Seriously, it’s not. Stop treating it like it is. You look like an idiot.


Let’s Not Stress About the Next U.S. Recession [Bloomberg]

It’ll be about this big.

Honest to god, I was sure this was an April Fool’s prank. But no.


Bitcoin Surges as Cryptocurrency Market Suddenly Springs to Life [Bloomberg]

Meanwhile, the idea for his next script slowly forms for Jordan Peele.


The Zeitgeist – 4.1.2019

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 sort of chord that has been struck in Narrative-world.


Building Trust In The Trustless: Blockchain’s Best Asset Is Holding It Back [Forbes]

There are a few gags that are like candy to journalists. The “lack of trust in a trustless system” bit is one. It is like truffle oil to a gastropub restaurateur. Like 808 to a hip hop producer. Like saying “taking things one day at a time” to a professional coach. Like a purple cape to a LARPer.

Indispensable, irresistible and after a certain point, a little bit irritating.


More managers make move to mobile homes [P&I]

Private equity has been heavily targeted in financial media and public asset manager commentary lately, mostly in the form of shock at the continued success PE funds have had raising new money – and the asset owners who have continued to move capital there. Still, the glowingly positive industry narrative around private equity which we monitor has barely moved since Q4 2018.

To me, however, far more than even private equity (if obviously not in scale), there is only one bucket in most big institutional portfolios where hope always seems to spring eternal, regardless of outcomes, evidence or narrative: value-added real estate. I have no explanation for this, other than a belief that most institutional boards consist of people who – because of their own professional successes – much more intuitively understand making money by buying-and-improving than by temporarily owning a fractional listed share of an operating company.


Investors getting better ways to gauge risk-parity success [P&I]

In most cases, I would (obviously) caution skepticism about what fund managers and consultants are telling you about how to benchmark what they are selling you, and would usually take the side of asset owners. Not here. I’m with the fund managers.

The question behind benchmarking – or really any data-driven oversight process – has to boil down to this: What am I going to do with this data? It’s easy enough to answer for long-only equity or fixed income managers, even if most institutions aren’t very good at doing the right things with those answers. Likewise, I can think of all sorts of things you can do to oversee a risk parity portfolio with an index-based benchmark, but almost all of those things are bad.

Risk parity managers are not, for the most part, trying to produce alpha. The differences between them are structural. In general order of importance, they will differ by:

  • The quantity of risk they target;
  • The methodology whereby risk buckets subject to equalization or balancing are defined (e.g. regimes, categories, etc.)
  • The assets / premia they include in their universe;
  • The instruments they use to express those assets / premia
  • The risk estimation and rebalancing methodology (e.g. decay horizon, etc.)

If you want to be in the business of measuring performance deviations of risk parity strategies against a benchmark, know that you will be in the business of evaluating whether you should change your comfort level with one of the above structural decisions. And if that’s a business you want to be in, there are a hell of a lot better ways to perform ongoing diligence on those structural decisions than the weak-as-hell proxy of performance against the generic set of structuring assumptions built into an index.

Decide if you believe in risk parity or not, test the risk efficiency assertions over long periods, and measure managers internally to confirm they are doing what they say they do. Beyond that, if you think that benchmark-related performance monitoring is going to be part of your ongoing diligence, just sell them now and save yourself the trouble of firing them after a surprisingly bad year for their rates buckets.

By the by, I STILL think there is utility for RP indices (my old business used to run one of the first!), but mostly to help asset owners think about portfolio construction and the uses and traits of the strategy more generally.


Sports Direct Considers Bid for Debenhams [Reuters]

When we updated our internal narrative analysis of the private equity industry, as noted above, we didn’t see much shift. There were, however, three oddly negative clusters that stood out:

  • Private equity executives and bankers/lawyers from noteworthy financial sponsors practices caught up in #MeToo scandals;
  • The same, except college admission bribery scandals; and
  • UK Retailing.

The third issue was meaningfully connected to the rest of the network and seems worthy of ongoing notice. Then again, I’ve been burned by UK retail before (Hello, DRTY/Kesa/Comet), so it’s possible I’m projecting here.


Hacking firm NSO battles abuse claims with PR and Google ads [Fast Company]

I’m always somewhat fascinated when the whole MacGuffin of an article is a total fantasy. In this case, the conceit is the implication that the company in question purchased ads with specific bad-sounding search terms to soften its image in the face of the most negative claims about it. It paints a clear picture in your mind, doesn’t it? And without a single explicitly false statement.

There’s just one thing:

I’ve got nothing to say about the company or situation – I don’t know enough to do so, although I think we’ve been pretty consistent in our views about the panoptistate. But it’s when we agree most with what we’re reading that we need to be most careful about what appear to be selective facts chosen to promote a particular interpretation that the author prefers.


In This Tech I.P.O. Wave, Big Investors Grab More of the Gains [New York Times]

The article is fine (although of course it has a pretty transparent Fiat News angle), but the missing piece here is this: the utilitization of markets has hit private markets every bit as much as public markets. Guess what happens when plentiful, cheap capital remains available to you in those markets?


What Happens When Women Stop Leading Like Men [New York Times]

We have pointed it out in some of our prior analyses of sector-level narratives: the representation of women in leadership roles is a very cohesive, highly connected topic, especially in financial services. Ignore it at your peril.


What Are Fat Fingers and Why Don’t They Go Away? [Washington Post]

Simple answer? Because order management system software is, generally speaking, hot garbage water, and because the pressure desks get from clients to remove or loosen fat-finger limits is more profitable and interesting than the pressure they get from credit or compliance.

The Weekend Zeitgeist – 3.30.2019

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. On the weekend, we leave finance to cover the last week or so in other shifting parts of the Zeitgeist – namely, politics and culture. It’s not a list of best articles or articles we think are most interesting … often far from it.

But these are articles that have struck a chord in narrative world. 


Satine Phoenix’s Rise From The Ashes: 5 Storytelling Lessons From A Top Dungeon Master [Forbes]

I loved this bit from our surprising most connected non-finance article this week.

It is also an unintentional repudiation of a pretty lame axiom proposed by usually-less-insipid tech founder / entrepreneur and thinker Naval Ravikant earlier this week:

This comment spawned a slightly modified response of a sort from another (otherwise usually insightful) serial founder of tech companies:

There is a well-known tendency in Silicon Valley to believe that its solutions are the solutions to everything, and that its answers are the answers to everything – that it’s just a matter of time before the rest of us idiots just embrace it. I suppose it shouldn’t be surprising that this philosophy and belief would apply to art and performance, fields which have already yielded years of thought, writing and scholarship from philosophers, artists, historians and thinkers, too.

And I know what they’re saying: authentic creation can benefit from us being less beholden to the edge-smoothing, mushy consensus-driving influence of others’ opinions. Sure. There is art – both traditional and technological – for which that is true. AND there is great, authentic art and creative potential to be found in collaboration and connection, in what Ben calls reciprocity. Your collaborative production – you work, whatever it is – does not become non-art, it is not banished to the pejoratively created false world of ‘performance’ just because the audience is part of its creation. Far more often this choice causes it to become more powerful, more meta-stable.

I’ll put it another way: anyone who thinks that art which gives to and takes from an audience is less authentic or less art for that, is wrong. For those who care about protecting a functioning culture, too, the common knowledge we build together is far more likely to result in cooperative games than the Deadly Theatre of exquisitely designed set-pieces from the writer’s closet.

In the Russian tradition of Stanislavsky, the actor says, ‘I will tell you a story about me.’ In the German tradition of Brecht, the actor says, ‘I will tell you a story about them.’ In the Vietnamese tradition, the actor says, ‘You and I will tell each other a story about all of us.’

Le Hun

Douglas MacKinnon: Why Trump’s unconventional approach will help him win big in 2020 [FoxNews]

Look, I’m all for people expressing their opinions in support of their favored political candidate. But if the next year and a half is going to be dueling “Donald Trump will win because he has no ego or negative emotion” and “Joe Biden will win because he is not at all creepy” fan fiction, I think I’m going to need more whisky.


Media figures defend coverage of Trump and Russia [The Hill]

This is CNN’s depressing post hoc rationalization of its particular flavor of Fiat News, same as it ever was: “We didn’t run anything that was explicitly false. That means we did our jobs. It’s not our job to figure out if the facts are actually facts.”

I’m not sure if the Zuckers and Murdochs of the world truly think that we are all too stupid to see the spike in analysis journalism. Perhaps they think we don’t get how the quantity of coverage of different topics influences how people interpret the underlying issues, or that we don’t see how headlines, positioning of facts in a story, or the selection of quotes can influence the average person’s takeaway from the story.

Or maybe those gentlemen know as well as anyone that so long as we agree with the implicit conclusions a reasonable person would take from a selective presentation of facts, we just won’t care that it is Fiat News. When we write about Fiat News, you know what the most common email we get is? “Yes, but have you seen what this other publication is doing?”


Cory Booker says if elected president, he will bring fight against NRA like it ‘has never seen’ [Fox News]

And yes, like clockwork, we see the evidence that the right does Fiat News plenty too. It just controls fewer outlets, although the ones it does influence, like Fox, are enormously powerful. There is no false statement in this lede, but the intent is very plainly to diminish your view of the person whose quotes you are about to read.

Separately, both sides of this topic tend to be heavily cartoonified, not least because of broad knowledge gaps about guns AND current gun laws by all involved. Nearly every discussion is a discussion of ideas that are only vaguely related to current or hypothetical legislation, and even more loosely related to any reality of how any laws would influence the practical availability of weapons. This means that the best case scenario is usually to fuel either a mirroring or rage engagement. And in general, gun laws are rage engagement bait for the right more than they are mirroring opportunities for the left. To wit, plenty of left-leaning sites covered Booker’s remarks, but the most popular of them yielded just over 1% of the social engagement of this Fox article.

There is obviously no political harm to a Democratic candidate making gun control a plank in his or her platform. Making it a central identity issue, however, ignores that polls don’t always capture the intensity with which people are attached to ideas. Unlocking both the sources and evidence of that intensity is so much of why we are passionate about the potential of the narrative machine.


US Vessels Transit Through Taiwan Strait, Defying China [WSJ]

You’ll read a lot of takes telling you that sending a Coast Guard Cutter and a single Arleigh Burke-class destroyer through the Taiwan Strait is a shot across China’s bow and a show of support for Taiwan.

Meh. Maybe.

I think it’s fairer to say that the audience for this theater is you and me, folks. The White House wishes us to see Chinese trade and tariff disputes as national security issues. As initially unpopular as the tariffs were, I think this common knowledge is setting in. The fact that some of the trade issues are national security issues just serves to assist in the conflation of the broader association. That’s the power of abstraction. Once you demonstrate the risk of an unchecked Huawei, once you’ve got stories of the U.S. Navy steaming fleets through the Taiwan Strait, it’s much easier to use the gravity of those issues as a proxy for every other perfunctory element of a US-China trade deal.


The ending of ‘Us’: Jordan Peele on who the real villains are [LA Times]

I doubt if Jordan Peele and I would agree very much on politics, but he is a gifted filmmaker and someone who I think understands one of the root causes of the widening gyre in all of us.

I make it a point to watch everything he makes, even if it makes me mad or confused.


The Zeitgeist – 3.28.2019

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 sort of chord that has been struck in Narrative-world.


How Distributors Can Raise Margins Without Raising Prices [MDM]

Answer: squeeze your suppliers. See, saved you a click.

Or for the same idea in friendly Epsilon Theory fashion, you could read Pricing Power (Part 1).

In the beginning there is the great Black Knight, most fearsome of all warriors.

This is the asset manager, most cartoonishly represented in the popular narrative by the Hedge Fund, but it’s just as much the long-only actively managed mutual fund complex.

Thou shalt pay me my toll of a 2% expense ratio!

None shall pass!

And then the wirehouse takes off your arms and legs.

Pricing power in a services-based industry goes to whoever owns the end-client relationship. Suppliers beware.


Wells Fargo, Mastercard CEOs say blockchain has yet to live up to the hype [CNBC]

I thought about photoshopping Captain Obvious over Tim Sloan in the photo below, but figured I might get sued by Hotels.com. Not for copyright infringement, of course, but for slander. Is there a more despised brand in America today?


It’s Been 86 Days and Bolsonaro Is Already in Trouble in Brazil [Bloomberg]

And then I thought about photoshopping Captain Obvious into this picture, too.

There’s a pattern in today’s Zeitgeist!


Leaving the Enchanted Forest Is Scary [Bloomberg]

Matt Levine (who I enjoy reading) is talking about Unicorn IPOs in this note, so that’s the on-narrative connection here.

But we’ve spent so much time talking about the Unicorn narrative in the Zeitgeist of late that I decided to use this space to tout The Dark Forest, the second book in Cixin Liu’s epic trilogy The Three-Body Problem, as it’s the best use of game theory in a work of fiction that I’ve ever read. People are always asking me for a game theory reading list. Start here.


European Shares Rise On US-China Trade Deal Hopes [Business Insider]

Image result for gravity

Just a few weeks ago, Rusty wrote a note on our Narrative-world analysis of “China Tariffs” in financial media, titled Gravity Sucks. Here’s the skinny:

It’s an interesting mix of circumstances. No edge in trying to engage in fundamental prediction. Very little to make sense of in narrative space either. But the trade and tariffs issue still exerts significant gravity on all stories being told about markets. What’s the result?

Chaos and bullshit.


Mural of Trump milking Saudi king shows Yemenis’ disgust at war [CNN]

My new screensaver!

Actually, I bet The Donald would love this.


The Zeitgeist – 3.27.2019

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 sort of chord that has been struck in Narrative-world.


Treasury Swings Jump Like It’s 2016 [Bloomberg]

So … we write a lot here at Epsilon Theory. Maybe too much for people to keep up. But there are a few notes that are canon, and one of them is Things Fall Apart (part 3) – Markets. Here’s the conclusion from that note:

The transformation of capital markets into a political utility results in a structural dampening of equity volatility, not Treasury volatility. Why? Because the equity market is the political scorecard, not the Treasury market.

Trump said it out loud, because he can’t help himself. But it’s been true for a decade.


Uber Steers $3.1 Billion Careem Deal as Implied Value Gains Ahead of Planned IPO [The Street]

There’s been some debate within the ET commetariat as to how one represents the dueling banjos of Deliverance in text.

Whatever … all I know is that “squeal like a pig” comes in Act III.


Apple unveils streaming service, credit card and more [CBS News]

Everyone is focused on the streaming service and content creation. The real move is into financial services. Amazon won’t be far behind.


Cousins Properties, Tier REIT to Merge in $1.5 Billion Deal [The Street]

My god, this is going to be a record year for investment banking, isn’t it? If you know what I mean. And I think you do.

What? Can’t you believe in a comeback?


Opportunity Zones Hype Overshadows Potential Pitfalls and Risks [NREI]

As Neil Young said, rust never sleeps. Neither do raccoons.


Minimum wage would be $33 today if it grew like Wall Street bonuses have [CBS News]

LOL. Just watch … this will be a 2020 campaign factoid. MMT, here we come!


Executive Order on Coordinating National Resilience to Electromagnetic Pulses [White House]

TFW … you’re thinking about breaking up with Little Rocket Man.


Bed Bath & Beyond explodes by more than 25% after activist investors attack [Business Insider]

As a recovering short seller, I have the same reaction to news like this as I do to video of Lawrence Taylor breaking Joe Theisman’s leg … I just can’t watch. Gotta turn away.

It only takes one experience like this to recognize the Golden Rule of Short Selling: never short a stock with >10% of the float short.


The Zeitgeist – 3.26.2019

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 sort of chord that has been struck in Narrative-world.


“Flashing amber”: Stocks tumble, bonds rally on U.S. recession risk [Reuters]

It’s hard to create a wall of worry when the Fed is in full CREEP mode (yes, that’s a Nixon reference … you could look it up) and all the US PMIs are way over 50, but haters gonna hate and the Street gonna fake. Or at least that’s what Taylor Swift would say.

We have a BLARING SIREN that is FLASHING … … ummm, amber. I mean, AMBER!

I feel like JPM is increasingly becoming a parody account.


It’s Not Too Late to Buy LivePerson Stock [Fox Business]

Whew! And here I thought that it might be too late.

Small-cap and mid-cap TMT stocks like LivePerson ($1.8B mkt cap) are the mothers milk of sell-side coverage and Fiat financial media, with far more analyst coverage and media puff pieces than you’d think. Why? Because they’re pure story.

Two “‘feels” and one “sees” in this paragraph, plus two “earlys” and a “massive”. It’s all a steak-and-egg breakfast for narrative connoisseurs, with a “seek to evolve” as Hollandaise on top.


Bond market says not only is a recession coming, but the Fed will cut interest rates to stop it [CNBC]

Scary signals. It’s a technical term.

I love this idea that the market “fears” that the Fed will need to get even more dovish. Kinda like Br’er Rabbit was afraid of that briar patch.

And yes, I know that Joel Chandler Harris has been unpersoned. But anyone who tells a good Trickster God story will always have a place at Epsilon Theory.


Tradeweb Aims for $5.8 Billion Valuation in Upcoming Nasdaq IPO [Bloomberg]

Speaking of Trickster Gods …


How Medicare for All Could Eliminate the $600 Billion Private Insurance Industry [Fortune]

They’re coming to get you, Barbara!

Did I mention CREEP earlier? You really should look it up.


The Zeitgeist Weekend Edition – 3.24.2019

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. On the weekend, we leave finance to cover the last week or so in other shifting parts of the Zeitgeist – namely, politics and culture. It’s not a list of best articles or articles we think are most interesting … often far from it.

But these are articles that have struck a chord in narrative world. 


How AI Will Rewire Us [The Atlantic]

In a sea of insipid AI takes, I liked this one from Nicholas Christakis a lot. For obvious reasons, most AI takes focus on the machine-to-human nexus. It’s the angle that relates to selling products, for one, and is the one which guides how individual technologies will be developed. To some extent, we have waved our hands at the human-to-machine dimension with clunky ethical discussions, most of which take the inevitable detour into sex. But I think that it is true that the slow encroachment of AI (and even advanced software that falls rather short of AI) into more and more of our lives may have its richest and most perilous influence on our human-to-human interaction. A worthy angle for weekend contemplation.


Teacher pay raises, Hillary Clinton’s Dallas mayoral endorsement, Beto O’Rourke on the trail [Dallas Morning News]

Hard-hitting stuff!

Now, please consider why a Texas-based paper’s home-town puff piece on the Beto campaign was the most highly connected article discussing 2020 elections in the past week. It should be no surprise that sentiment of articles about both him and his campaign remain consistently higher than those of other candidates.


World Video Game Hall of Fame 2019 Finalists Announced [Variety]


I didn’t know this Hall of Fame existed until now, so of course I have very strong opinions about it. To fully form yours, visit the site itself to see what all has been inducted since the 2015 inauguration. What you will discover is that the “Video Game Hall of Fame” is really the “Video Game Console, Arcade and Mobile Hall of Fame.” PCs are sort of an afterthought in this alternate universe. Beyond that, I don’t have any issue with the inclusion of some nominees that are really more pop culture phenomena than quality games. Popular casual games still matter. Still for my money, there are a few pretty big omissions that are way ahead of most of this year’s nominees:

  • Command & Conquer – Yes, Dune 2 came first. Yes, Warcraft ended up having more legs and launched more E-Sports-friendly franchises, but it was really Warcraft II that established that franchise’s influence. And after its initial releases, a post-EA C&C repeatedly misfired with overproduced video cut-scene nonsense. For my money, though, it was C&C that made real-time strategy a thing. Plus it spawned a follow-on game with the best title music of any game ever and maybe the best cheesy cut-scene in video game history.
  • Sim City – Another genre-establishing game – and still completely playable. I agree with taking Civ first, but strategy is still woefully underrepresented in the existing list even after Civ glides past this vote.
  • NHL ’94 – It remains the best, most intuitive, most enjoyable sports game ever made. If you’re even considering NBA 2K before NHL ’94, you’re doing it wrong.
  • Quake – I get going with Doom and saying, “We’ve got to cover more genres and influences before we start going for also-rans.” Except Quake isn’t an also-ran. Doom didn’t really kick off the deathmatch format that has culminated in the weird modern Fortnite obsession. Quake did. I’m OK with getting Half-Life in first, just because its Counter-Strike mod was about as influential as you can get. To that end, any Hall of Fame that inducts Halo before Half-Life…well…
  • Ultima Online – WoW and all of its clones don’t exist without UO. RPGs don’t exist as we know them today without Lord British / Richard Garriott. Honestly, it doesn’t even have to be this one. But how about we get a damn Ultima game in before we start talking seriously about…Candy Crush.
  • Diablo – I’ve no problem with the RPGs they’ve included (although I would have taken Final Fantasy VI (III in the U.S.) over VII, which has a pretty special and iconic cut-scene itself, but there’s a whole genre of isometric, hack-and-slash style RPGs that were spawned by Diablo. It wasn’t the first of its kind, and it has been surpassed, but it was the catalyst for some of the greatest single-player experiences there are.

The secret to better cheese might be hip-hop, scientists say [CNET]

Abstractions everywhere!

Measuring the effects of bass reverberation and average volume on the development and maturation of cheese and calling it the effects of hip-hop vs. classical or rock music is good fun, and we’re all for good fun. We’re also all for getting super pedantic about people pretending that their preferred representation of their preferred abstraction is representative.

Next time don’t put Magic Flute up against the woody thump of A Tribe Called Quest’s iconic, pressing double-bass. Play your cheese some Stravinsky, cowards. Or better yet, play it some Prokofiev and sell it to your customers as Pagan Monster Cheese.


Northern Europe Dominates Happiness Rankings Once Again [Forbes]

Rusty’s First Law of Transmutation of Happiness: Every article about happiness is actually just an article someone wanted to write about how other countries should pursue Scandinavian social policies.

Here’s my proposal: Every time you write an article which seeks to draw conclusions about desirable fiscal or social policy from the experience in Norway, Denmark, Sweden, Iceland or Finland, you put a dollar in the jar, and we’ll use that to pay for your favorite Nordic social program. I love each of these countries. I have never met anyone I didn’t like from any! Not a single one. I also know that these countries produce rich data sets. I get it.

But come on.

The top ranking country in this study is Finland. Finland is the size of greater Boston. 90% of its people are of Finnish ancestry. Norway is the size of Greater Phoenix, 86% populated by people of Norwegian ancestry. Iceland is a country with the population of Rockford, Illinois, 2/3 of whom live in one city.

They are beautiful, their people are wonderful, you should definitely visit them, and you should stop using them as case studies unless you really think it’s a topic that isn’t likely to be unduly biased by the unique traits of these countries. If you must pretend that your social science benefits from pseudo-empiricism, at least find some new data sets that deal with the unavoidable complications of big, multi-regional countries diversified by religion, class, socioeconomic status, race and ethnicity.


Warren Calls for End of Electoral College and Removal of Confederate Statues [NPR]

I don’t have much more to say about Confederate statues that Ben and I haven’t covered in some depth already. Frankly, I don’t have much to say about Senator Warren’s remarks at all, which probably represent her heart-felt views, and which at any rate were pretty standard campaign trail fare. Anti-confederate monument and anti-electoral college rhetoric don’t bear much risk from a national electoral perspective – Warren would be lucky to pull 40% of Mississippi in a good election year.

But for the New York Times, the line between Analysis and News coverage continues to veer in a perilously gray direction. “Ms. Warren also sought to present new ideas” and “Ms. Warren also used the forum to present herself as a candidate who understands racial inequities” are brutal examples of Fiat News. Question begging, affected language – the whole article, brief as it is, reads like a press release. I am being honest when I tell you that I am not sure whether the Times intended this to be read as analysis of news or news.

As Ben has said about some other great US institutions, I worry that our greatest news publications are “not even pretending any more.”

The Zeitgeist – 3.22.2019

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 sort of chord that has been struck in Narrative-world.


Deutsche Bank ‘Merger of Weakquals’ Seems Least Bad Option, Report Says [Bloomberg]


So we got that goin’ for us, which is nice. Still, let’s take a look at the sentiment map of news media from the last quarter that has discussed the prospective merger to….oh, God, my eyes!

China Sees U.S. Ahead in AI [EE Times]

Very interesting. The contention is that both China and the US have active internal media narratives arguing that the other is ahead. A bit of a Space Race feel. The author provides some anecdotes, but is it true more broadly? I don’t think we can answer definitively, because we don’t have access to tools to perform similar NLP on Chinese language media.

Still, we do have Chinese English-language media, with all of its very interesting quirks and deviations from what you’d get inside the wall, so to speak. I thought it would be interesting to explore how even that differs from US-based English-language media. Below is a narrative graph of 2,215 articles published in the last year about AI, China and the US by China-based English-language publications. And by the way, I’m not going to continually caveat the bias embedded in the selection of English-language sources. Yes, it’s a big deal. At any rate, here is the graph:

Source: Quid, Epsilon Theory

First observation? For some reason which completely eludes me, these articles are insanely well-connected, which means that they are using very, very similar language. To have this kind of clustering over a full year of articles is…not something we see very often. I’m not saying it’s Communists, but…it’s Communists. Want another hint? The most connected, most central cluster in the graph is defined by articles making the argument that “China is not the AI-powered dystopia you think it is.” Well, okay, then. I’m glad we’ve settled that.

My second observation is the shockingly large focus linking the arts to AI. Again, I’m not sure how indicative that is of a truly different cultural Zeitgeist as opposed to explicit state influence, but the third largest cluster in this narrative graph’s leading distinguishing n-grams are: “cultural”, “artist”, “films” and “museum.” That’s not just a few articles about a robot that painted a picture.

The third and most important? I think the EE Times author is right on the narrower point. At least in English-language sources, the story that “we must do more to compete on AI” has tendrils in nearly every topical cluster. In clusters about VC, entrepreneurship and funding, articles lament the challenges attracting foreign capital. In clusters about every different product application, articles focus on the need to develop wholly domestic research platforms and industry to compete. What’s missing are any links to security, intellectual property, defense applications and cyberwarfare.

My take?

Chinese English-language news is actively cultivating the narrative that China is aggressively investing in AI technology because it is beautiful…and maybe a little bit because it must. Because American corporations and venture capital structures are admittedly so far ahead. Not for any nefarious national security reasons or internal political and social management reasons, of course. In fact, maybe we should all just band together to work on this.

I have no idea how TRUE any of that is. Sorry, not my beat. But it IS absolutely the narrative the missionaries are promoting.

So what about US-based sources using the same query over the same time period?

Source: Quid, Epsilon Theory

I’ll be the first one to say that Big Tech’s willingness to participate in Chinese censorship pisses me off. The “but they’ll have better access to free information than they did before” song-and-dance is nothing more than just cynical post hoc rationalization. I’ll also be the first one to say that state-run facial recognition and surveillance technologies scare the hell out of me. I’m an American and I’m not pretending my piece here is journalism. With some caveats for our tendency to see new technologies as new reasons to launch weapons, I think our values on this topic are generally the right ones, and I’d prefer that those values win.

But I can believe all that AND still recognize that so much of what’s in the above is ALSO a cultivated network graph of how people want me to think about this issue. Yes, a happy clappy graph of China-based English language news sources pretending that Chinese AI interests are about making wonderful new paintings, beating Korea at Go and not at all about surveillance and military aims (ha ha, where ever did you get that preposterous idea?) looks frustratingly like propaganda. The ratio of positive-to-negative sentiment in the “Facial Recognition” topical cluster from Chinese English-language sources is nearly 10-to-1. The ratio in US-based sources is about 2-to-1…in the other direction.

But the Chinese-AI-is-an-existential threat, this-is-all-about-national-security, and we-will-all-die-if-we-don’t-do-something-big that involves spending money, building weapons and electing the right person feeling that I get from the second graph gets my libertarian streak tingling too.


Brookfield-Oaktree tie-up creates alternatives giant; Acquisition seen as a good reset for Oaktree after AUM stagnates [P&I]

While it isn’t formally on our Fiat News list, vague attributions such as “seen as” in a headline are a pretty reliable tell that you’re being told how to think about something. I think that it’s probably pretty innocuous in this case – the common knowledge around Marks will predispose people to assume that Big Decisions are probably Good Decisions, journalist or not. Still, as always, read carefully when you see these tells.

Excuse me, stewardess. I speak post-merger asset management exec. That translates to, “Five years, tops.”


Yuan eases as investors refocus on trade, slowdown risks [Reuters]

After one full day of…uh…’euphoria’, financial media needed but a single Asia session to conclude that investors were taking a ‘longer look’ at something. If there’s one thing you should remember when reading these overnight / pre-market updates, it is this: The reporters principally source their ideas from trading desks and the sell-side more broadly. These reports are the journalistic equivalent of a waiter barking out the specials the chef wants to push to clear inventory.


Kilcullen Joining Diamond S Shipping as CFO [Press Release]

I’m sure all the people at Diamond S Shipping are lovely, but the real Diamond S is a Tex-Mex / Southern diner in my hometown of Brazoria, Texas. LPT: get the steak fingers.


See Keanu Reeves Shoot Countless People in New ‘John Wick 3’ Trailer [Rolling Stone] AND New Zealand Needed Six Days to Ban Military-Style Firearms for Good [GQ]

Sometimes the narrative machine is a little too meta for its own good.

The Zeitgeist – 3.21.2019

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 sort of chord that has been struck in Narrative-world.


How to Advise the Accumulator Investor Type [Morningstar]

Morningstar runs these articles for financial advisors, detailing the different “behavioral types” of typical clients and recommending “action plans” for each type. The action plans are filled with bromides like Listen – Seek to understand. Listen closely … which doesn’t sound too action-y to me, but whatever. Everyone’s got a shtick and everyone’s got to put food on the table.

This article is on the Accumulator Client, aka the Nightmare Client whose over-spending and warped view of markets “typically cannot be corrected with advice and information”. Morningstar’s action plan?

It is therefore your task to make a blended recommendation–one that takes into account his financial goals while at the same time accounts for his emotional (difficult to correct) biases. Therefore, you decide that a reasonable compromise allocation is 65% equity, 10% cash, and 25% bonds. You also plan to recommend that he reduce his spending.

LOL. I mean, it’s actually pretty good advice if you want to keep “Rossington” as a client (who btw in this scenario is 58 years old and had a heart attack last year), but don’t kid yourself that this is a “compromise” with the client.

It’s a compromise with yourself.


Central Banks Kill Volatility. Now Wall Street Fears a Trap [FA Magazine]

It’s a trap!

Sigh. Once more with feeling …

This is NOT a trap. This is NOT a drill. This is NOT a mean-reverting phenomenon.

As I wrote recently to ET Professional subscribers, “This Is Why Your Long-Vol Allocation Isn’t Working“. The skinny: It’s not impossible for market volatility to spike massively through some deflationary shock to the financial system like a global recession or a China-driven credit crisis or an Italy-driven euro crisis. What’s impossible is TO GET PAID for taking out an insurance policy against volatility spikes from these deflationary shocks.

This is a change in the investment Zeitgeist.

This is the transformation of capital markets into a political utility.


Why the Fed Solidified Its Policy U-Turn [Bloomberg Opinion]

The Fed Clears Bond Traders’ Lofty Dovish Hurdle [Bloomberg Opinion]

I guess if you’re a bond trader, yesterday’s charade was a delight. We’ll see how you feel as the inflation engine continues to rev. For equity markets, though, the issue isn’t delight/not delight.

The issue is that we no longer have a normal distribution in portfolio return variation. This isn’t a Fed put. This is what a political utility looks like.

Heads I Win, Tails You Lose


Deutsche Bank merger talks heighten uncertainty for U.S. staff [Reuters]

LOL. I love the sourcing of this hatchet job article — “three employees told Reuters”. You know who sourced this article? Morgan Stanley and Goldman Sachs and JP Morgan and Citi and BofA and UBS and Barclays, that’s who.


The Zeitgeist – 3.20.2019

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 sort of chord that has been struck in Narrative-world.


As Fed Meeting Starts, Investors Appear Confident That Dovishness Will Continue [Forbes]

Jay Powell is our generation’s Arthur Burns.

The only difference is that Nixon did all of his bullying in private, and Burns wouldn’t dream of saying out loud what Powell shouts at every press conference.

They’re not even pretending anymore.


Fight chaos with constrained discretion [Salon]

If only we could make Congress more like the Fed, with a professional mandarin class exercising “constrained discretion”, whatever the hell that means.

Originally posted at the Niskanen Center, which is … disappointing. Classic example of admiring the problem, which is what institutionalized libertarianism has been institutionalized around (and is why I have zero interest in associating with institutionalized libertarianism).


I’m Not Letting Fear Affect My Outlook On Boeing [Seeking Alpha]

So I’m not going to rip this Seeking Alpha guy like I would noted raccoon and Boeing fanboy Kevin O’Leary, who just epitomizes everything that is laughable about financial media today. But I will say this, and hopefully these words wind their way to this guy’s “Dividend Growth Club”:

The absence of short interest in a name you like is NOT a good sign. On the contrary, it is a giant red flag that you have bought into a constructed and highly managed Narrative.


Lyft IPO Oversubscribed Ahead of Listing Next Week [Bloomberg]

Dah-dah-dah-dah-dah-dah-dah-dah-dum … or however you’re supposed to represent the Deliverance dueling banjos in Act I. Squealing like a pig comes in Act II.


TD Ameritrade Increases Commitment and Grows Capabilities for Stock Plan Services Through Its New Relationship with Certent [Press Release]

I’m seeing more and more of these partner relationship stories with back-office service providers like Certent and Carta and the like. Client acquisition costs … the struggle is real.


The Art of the Buzzer Beater: Why March Madness Magic Takes More Than One Shining Moment [SI]

Nah.

The post-hoc rationalization of lottery winners is a staple of sports writing, of course, and SI and ESPN are good places to practice your critical reading skills. And practice you should. Because this sort of inanity is even more prevalent in market writing.


The Zeitgeist – 3.19.2019

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 sort of chord that has been struck in Narrative-world.


Major Equity Averages Recovered Last Week, But Challenges Remain [Forbes]

It’s Forbes contributor technical gobbledygook, so click at your own peril. But I admit, I was fascinated by the handy tool to choose-your-adventure on how to Tweet a link to the story. Little nudges everywhere. 


Profits Per Partner Hit $5 Million at Paul Weiss, Redefining Richest Tier [Law.com]

In case you don’t have a baseline for this kind of thing, $5M/Partner is…really good. But as headline-friendly as representing Tesla’s board would be, there’s gotta be more to the story to get to that kind of number for a firm with meaningful reliance on its fund formation practice…


CalPERS Moves Forward on Private Equity Revamp [Institutional Investor]


Ah. Well there you go.

Leave aside the windfalls for the Paul Weisses of the world for a moment. Yes, I rolled my eyes a bit at this whole PE episode, too. We (and many others) have been predicting this was the inevitable direction for many public pension plans for years. It’s frustrating that we’ve now reached this point – but nowhere near as irritating as the armchair CIOs on social media and traditional financial media ripping into the statement.

The right response for the staff of these funds isn’t derision, but empathy. It’s an almost intractable situation. They can’t force the state to take an axe to benefits. They can’t force the state to fund the plan with taxes. Most of them can’t even change their target rate, or the cost of living adjustment mechanics, without board and sometimes even legislative oversight. The consultants – risk transfer instruments for the board – are coming in hot and painting the staff into a corner with capital market projections that show both the magnitude of expected returns shortfalls and a light at the end of a tunnel that only passes through levered private markets investments and wishy-washy emerging markets overweights.

Like me, are you uncomfortable putting all the eggs of an increased risk-taking strategy in levered illiquid US small caps? Good. OK, let’s run through our alternatives:

Do you want to argue for layering on futures-based leverage in California? Cool. Yeah, we’re not going to let you take that kind of headline risk for us. You’re fired.

Do you want to argue for a public-only passive solution, trusting that returns will be enough? Cool. Yeah, our consultant’s telling us that would be imprudent. You’re fired.

Do you want to argue for a reduction in benefits? Whoa, stay in your lane. Also, you’re fired.

The railroading of public pensions into private equity is lamentable. It’s worth talking about. But let’s talk more about the things that are causing it – agency structures and a political unwillingness to talk about the inescapable interplay between return outcomes, benefits and tax outlays – and maybe a bit less about the staff forced into impossible situations.


Hemp, Inc. Subsidiary, The Hemp University, Announces its First West Coast, All Day Seminar in Ashland, Oregon [Business Insider]

LPT: Stick to sativa strains or else the afternoon is going to be a real drag.


Will 2019 Be the Year We All Start Renting Out Our Own Closets? [Vogue]

$250/Night, y’all, cash in advance.


Deutsche Bank and Commerzbank are finally merging – but critics worry about job cuts and patchy past deals [Business Insider]

“I really didn’t like his form on that Hail Mary pass, Tom. It’s almost like he just threw the ball up in the air and prayed that someone would catch it.”

The Zeitgeist – 3.18.2019

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 sort of chord that has been struck in Narrative-world.


Three Bullish ESG Stocks This Week [Forbes]

Epsilon Theory’s unpopular opinion: ESG is not a thing.

Whatever word you use to call ESG a thing … “sector” (like this author), “asset class”, “factor”, whatever … you’re reifying a narrative. You’re making a narrative reflection of a bull market into a thing. Doesn’t mean that thing doesn’t have investable legs. Doesn’t mean that you can’t build a niche advisory business around it. Hell, look at EM. But there’s no there there. Sorry.

Also, a note on investment process (because I can’t help myself). The only words with informational content in this note are “I believe”. Once that’s stated, it is impossible for Buy recommendations NOT to exist. Which means that this is an investment tautology, not an investment process.


At Hedge Fund That Owns Trump Secrets, Clashes and Odd Bond Math [Bloomberg]

The sizzle here is Chatham’s ownership of The National Enquirer, but otherwise it’s a story of an old-school hedge fund. And to think I still get grief from people when I say that the only source of alpha is private information. I suppose these are people who have never traded a bond.


Millennials are the Fastest Growing Cohort Filing Insolvency (In Canada) [Canada Newswire]

Unlike ESG, however, usury IS a thing. JFC.


Lyft Announces Launch of Initial Public Offering [Press Release]

It’s pure inside baseball stuff, but I’m always fascinated by the teams of strange bedfellows that emerge around competing IPOs. Cue the dueling banjos from Deliverance.

It was a fun vacation for Burt Reynolds and the boys at the start of that movie.


A happy retirement is more than just money [CNBC]

The caption to this article photo reads, and I swear to god I am not making this up:

If you enjoy gardening, consider working part-time at a nursery a few years before leaving your job.

What is this “retirement” thing that people keep talking about? Does it still exist? I don’t think it does.


The Zeitgeist Weekend Edition – 3.16.2019

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. On the weekend, we leave finance to cover the last week or so in other shifting parts of the Zeitgeist – namely, politics and culture. It’s not a list of best articles or articles we think are most interesting … often far from it.

But these are articles that have struck a chord in narrative world. 


Potential Excessive Testing at Scale: Biomarkers, Genomics, and Machine Learning [JAMA]

It’s closer to a journal article than news (no, not that journal), but clearly on-narrative with a lot of what we have been seeing on health care and pharmaceuticals pricing. The only difference is that in the case we’re talking about the aggregate influence of aggressive biomarker-driven testing.

The drumbeats around this topic are coming from every direction. There is no article published in the last week in any publication in our database that demonstrated as much connectivity among different topics and uses of language as this one. Some of that is subject-matter based – it covers scientific, economic, trade, health, social, behavioral and political matters – but that is the point. A high-attention narrative is often one which threads its way through a variety of topics.


FBI busts widespread college entrance exam cheating scheme that got athletes into elite schools [NBC]

Both Ben and I have rather a lot to say about this – because we think most observers are getting both the narrative effects and where we go from here wrong. Not just wrong, but 180 degrees wrong. Keep an eye out for new content on ET In Brief this weekend. 


Rahm Emanuel: Dems seem duped by Trump into reading ‘ready-made script’ for socialists [Washington Times]

Yep.

There is a lot of time until the election, but my sense – my opinion – is that a deepening of the widening gyre generally favors Trump.

Why? As that widening gyre drives the bi-modal peaks of our political distribution further apart, the appetite and demand for more extreme rhetoric and positioning will grow. I suspect the center-left candidates will poll well early, but discover quickly that sober ecumenism is not what primary voters are looking for after 3+ years of The Donald. You’d have to be deaf to miss the drumbeats of Inequality Narratives. They are the fuel that will accelerate the transition of democratic socialism into the mainstream of Democrat policy platforms. To some extent, they already have.

Redistributive policies, social program and schemes to reduce the power and influence of the wealthy will poll well individually. Strategists and advisers will convince themselves this means they can tell their candidates to boldly embrace them. But whatever people think about individual policies consistent with democratic socialism, a Socialism narrative is still poison in 2019.

Whatever you or I may think of it, a narrative of National Populism ain’t. 

Again, there is still a lot of time for all sorts of ridiculous things to take place that change the whole structure of this competition. But whatever you think about my opinions, recognize that Fiat News is already shaping yours (and mine). After Emanuel wrote these things in the Atlantic, here is the list of national publications who thought them newsworthy:

  • Fox News
  • Washington Times
  • USA Today

That’s it. When Fox and the Washington Times decide to cover this topic and a range of other publications don’t, you’re getting a message about how different media outlets want you to think – and what they want you to think about. Coverage biases are a huge part of Fiat News. More on this in the next installment of Road to Tannu Tuva. And in the next Zeitgeist story.


The Irish prime minister brought his boyfriend to meet Vice President Pence [Business Insider] / Lisa Page admitted Obama DOJ ordered stand-down on Clinton email prosecution, GOP rep says [FoxNews.com]

Alright, why the two-fer? What could these articles possibly have in common? Well, by a wide margin, they were the two articles from our dataset with the most social engagement over the last week. Dig in and you’ll find something even more interesting: ALL of the engagement is coming from news pieces – not opinion or analysis – deemed newsworthy by publications with one political persuasion.

Who published “Pence forced to meet gay Irish PM” pieces? Beyond BI, it was covered by the Washington Post, HuffPo, Daily Mail, The Guardian, Daily KOS, the BBC, the Hill, Daily Telegraph, most LGBT publications (e.g. Gay Times, Outmost) and just about every Irish publication.

Who published pieces referencing the Lisa Page testimony? Far more than Pence’s visit – after all, it was a formal hearing. But let’s look at the full list of articles published by four publications – all national, but two with a focus on Washington D.C. politics, and two with a more general political focus. Two with a progressive editorial perspective. Two with a conservative editorial perspective.

Fox News

Washington Examiner

Washington Post

CNN

If you’ve got a spare hour, read through this set of articles – it is a case study in all of the ways that Fiat News influences our understanding of the world. We are being told how to think more often than we are likely to recognize. We are influenced explicitly, through more subtle use of language, through the obfuscation of lines between news and analysis, and through editorial determinations of newsworthiness.

Worst of all, if it seems like the topics most sensitive to Fiat News are also the ones which make the social media rounds, you aren’t imagining things. They are.

There is very little that is more powerful to the individual interested in retaining their sovereignty than a willingness to listen to, tolerate and consider views that they may find distasteful. Full hearts means demanding our inherent right to freedom of speech, but putting our weight behind freedom of expression.


The Zeitgeist – 3.15.2019

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 sort of chord that has been struck in Narrative-world.


A buzzy $3.2 billion startup that helps you get braces without seeing a dentist is planning to go public [Business Insider]

I thought we were finished with the “it’s like Warby Parker for X” business models, but I guess I was wrong.

So today I’m pleased to announce the launch of a kickstarter campaign for VaxDirectClub.

Why pay for an expensive healthcare professional and subject your children to god only knows what sort of germs in that waiting room when you can administer all of the standard immunizations from the convenience and safety of your own home? You owe it to your children to subscribe to VaxDirectClub today!

Also … this is the official SmileDirectClub founders photo. A great deal of effort and expense was put into this photo. There is nothing accidental or casual about it. It is a signifier of exactly how Alex and Jordan want to represent themselves to the world, all the way down to Alex’s careful coif and Jordan’s wan smile.


In Low Yield World, Global Investors Turn To Big Dividend Foreign Stocks [Forbes]

Because, you know, all of those crazy penny stocks and “new, speculative industries” are well known for their dividend yield.

You see this at the end of every cycle … value investors convince themselves that “value large-cap tech” is a thing, and yield investors convince themselves that “safe dividend EM financials” is a thing. Both are desperate measures for desperate times, and neither ends well.


House Dems to test Wilbur Ross’s ‘Survivor’ status [Politico]

In the same way that Rick Perry had no idea that the Dept. of Energy was in charge of nuclear weapon development until somebody told him, I would bet a large sum that Wilbur Ross had no idea that the Commerce Dept. was in charge of the census until somebody told him.

Trade your personal account on MNPI while Commerce Secretary? No problem. But allow a flunky to slip a bogus Trumpkin question into the census? Well now you’re in trouble, bub!

Whatever. Uncle Wilbur is this administration’s Albert Fall. You can look it up.


The ECB Has Reached The End Of Its Rope, Leaving The Eurozone With Few Options [Seeking Alpha]

Yeah, I know I posted this same photo yesterday. It’s evergreen. As are these earnest SeekingAlpha posts.


EMERGING MARKETS-Emerging market stocks, currencies jump on trade optimism [Reuters]

Emerging Markets are not a thing. You think they are, but they’re not.

EM as an asset class is a reflection of DM monetary policy, nothing more and nothing less.


The Zeitgeist – 3.14.2019

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 sort of chord that has been struck in Narrative-world.


The Good and the Bad of Stanford’s Massively Successful Startup Scene [Bloomberg]

The self-dealing and shadow economy of prestige academia will all be Common Knowledge before this is all over, and it will rock our society more than any revelation of the self-dealing and shadow economy of Wall Street.


Cboe to Launch Suite of Derivatives-Based Strategy Benchmark and Volatility Indexes Based on MSCI Emerging Markets and EAFE Indexes [Press Release]

Welcome to the Hollow Market. JFC.


Democrats go to war with big everything [CNN]

If you think this is just a Sanders/Warren thing, or if you think it’s just a Google/Facebook thing, you’re wrong. This is a Zeitgeist thing.


No One Is Afraid of Slowing Growth at Momo [Fox Business]

It’s the triple play of raccoon financial media!

Fox Business “places content” from Motley Fool.

Motley Fool writes a puff piece on a Chinese “social video and online dating specialist” company called Momo (you can’t make this shit up).

But since a Chinese social video and online dating specialist called Momo just isn’t momentum-y enough, “investing geniuses” David and Tom Gardner want to sell you the 10 stocks that are – hard as this may be to believe – even better buys than Momo.


Welcome back, carried interest [Politico]

I’m just surprised capital gains treatment of carried interest has lasted this long.


China Puts Margin Financing Under Scrutiny As Stock Market Froth Evokes Memories Of 2015 Rout [The Street]

My new favorite euphemism! Now if you’ll excuse me, I must go deeply reflect on my Juicero investment.


Will The ‘Fed Put’ Work On The Next Go-Around? [Seeking Alpha]

Yes.


The Zeitgeist – 3.13.2019

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 sort of chord that has been struck in Narrative-world.


What is fentanyl? [Washington Post]

An opioid crisis piece? Why did this rise to the top of a query of financial media articles? What’s the connection? This:

Yet municipalities still have trouble accessing the drug, partly because of the cost. Narcan, the commercial name for naloxone as a nasal spray, can cost between $70 to $150. But the injectable version, known as Evzio, can cost around $4,000.

If you haven’t heard it from someone else already, then hear it here: drug prices will be a platform pillar for every single candidate in the 2020 elections. In the same way that it even finds its way into discussions of the opioid crisis, it is attached in some way to all three of the components of the changing Zeitgeist we have written about – deflation to inflation, cooperative games to competitive games, and capital markets transformed into political utilities.

“Drug prices are too high in the U.S. and that has to change” is now common knowledge.

It will be interesting to observe whether the “We are subsidizing the world’s drug costs” narrative that Trump will promote will carry the day over the “We need to expand and reform drug insurance” narrative that Democrat candidates will offer.

And yes, this is a high-attention topic for pharma.


Some CRE Investors Switch Up Strategies as They Weigh Risk [National Real Estate Investor]

Oh, well that clears things up.

It reminds me of the old Mitch Hedberg bit: “People either love me or hate me…or they think I’m okay.”


What if All the World’s Economic Woes Are Part of the Same Problem? [New York Times]

Our first two-time Daily Zeitgeist article appearance.

This isn’t news coverage, so I wouldn’t apply the Fiat News label here, but it takes about 10 paragraphs before the author figures out that the story all the research is telling about productivity and corporate investment, etc. is about interest rates, a story that Ben has been telling for quite some time. It IS the New York Times, however, so before we get to that, we have to properly frame everything in terms of the very powerful narrative of inequality as the root cause of all society’s ills.

Ben and I don’t disagree on whether the economy would be more productive with more hundred thousandaires and millionaires and fewer billionaires. We do disagree a bit on whether allowing the state to participate in steering a society toward that outcome is a desirable or morally defensible way to achieve that. Where we do agree is that inequality can be both symptom and cause, but in practice is more symptom than cause. And the cause is fiat everythingFiat World.


Forget No Fees. ETF Breaks Ground by Offering to Pay Investors [Bloomberg]

OK, let’s leave aside the meta-game observation about saying the quiet part out loud.

  • Yes, the scheme is manipulative and kind of dumb.
  • Despite all that, yes, the scheme will probably work…at first.
  • No, it’s not vastly dumber than the amount of articles written about ETFs going from 5 to 2 bp, or from 2bp to free.

We have firmly established our enthusiasm for low-cost product. But that’s a preference in the real world. In narrative-world, we think the financial media obsession with complete, utter irrelevancies like a couple basis points does investors a disservice. It also leads to ink being spilled on nonsense like this.


Why We Like Rallies Led By Semiconductors: Jim Cramer [The Street]

As The Cramer likes to say, there’s always a bull market somewhere. The most persistent bull markets I know are advice markets based on unbridled optimism OR on unbridled pessimism … perma-bulls and perma-bears are always in demand. But the job security is better for unbridled optimism. Plus you avoid the Grumpy Grandpa audience, which can be a real drag.

The biggest advantage for the optimist advice market is that there’s a clear mechanism for getting paid. If you’re up, you’re up … there’s more money in the pot than there was before, and some of that can easily go to the cheering squad. If you’re down, though, even if you’re down less than you would have been otherwise … you’re still down. Investors are thankful for less bad losses. But they don’t pay for them. This is as true for the largest institutional investor as it is for the smallest personal account.

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