ET Live! – 9.18.2019

We have been experiencing technical difficulties with our network connection that were adversely impacting audio output. In order to be respectful of your time, for this session we will record the video in a non-live format this afternoon and upload it as soon as we are able. We truly apologize for the inconvenience and look forward to our next live session with all of you.


Rust and Blight


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Suddenly, over the slope, as if tethered to a cord of air drawing quickly upward, came a Northern Harrier, motionless but for its rising. So still was the bird – wings, tail, head – it might have been a museum specimen. Then, as if atop the wind, it slid down the ridge, tilted a few times, veered, tacked up the hill, its wings hardly shifting. I thought, if I could be that hawk for one hour I’d never again be just a man.

PrairyErth: A Deep Map, by William Least Heat-Moon

This is cedar rust.

It is the effect of the fungus gymnosporangium juniperi-virginianae on an apple tree leaf in my orchard. This fungus has infected a particularly lovely Yarlington Mill tree that would otherwise make a rich English-style single-varietal cider.

I can slow cedar rust down.

I can spray the tree with copper or sulfur, and it’ll kill some spores. I can spray the tree with something ‘organic’, and it’ll make the spores smell like whatever ‘organic’ goop I sprayed them with. Neither strategy will stop them. They’re in the air, on the bark and on the ground. Any leaf on this tree that has been infected with cedar rust this season will eventually curl, yellow and die. Any new leaf on the same branch will still almost certainly become infected. Even on new growth on a different branch, the prognosis isn’t very good. I’ll lose every leaf on this tree this season before its time.

The tree will live. But as long as the eponymous hosts for the fungus exist in the vicinity, it will be my orchard’s constant companion.

I have a few choices.

I can find, uproot and burn every cedar, juniper, cypress, sugi, sequoia and redwood tree within a half-mile radius. Having seen what juniper did to turn the Central Texas plains into a desert over the last 100 years or so, I am inclined toward this idea. Regretfully, my neighbors disagree, even though the destruction of all cedar and juniper trees is both a righteous and holy crusade – and the only permanent solution to my little problem with cedar rust.

Alternatively, I can religiously apply sulfur to each and every apple tree before and following bud-break, and then follow up with copper in the late season.

But tearing up the tree and replanting a new one? Wouldn’t do a thing. Cedar rust isn’t a problem with the tree. It’s a problem with the tree’s environment.


This is fire blight.

Fire blight is, well, a blight. It isn’t caused by a fungus, but by a little bacterium called Erwinia amylovora. Thankfully, this picture isn’t from my orchard.

Fire blight is different from cedar rust. It can be controlled and prevented at some stages with many of the same chemical applications, but once you’ve got a canker in your wood, that wood must be removed and burned. If it emerges during the Goldilocks temperature and humidity environment of a North American summer, you’ll have to cut it a foot or more inside the canker to be sure.

And if the canker is in the main leader?

Pull the trees up, root and stem. Burn them in the hottest fire you can find and use the ashes to curse your enemies. Nuke ’em from orbit. And with whatever you plant the next time, be sure to pay your weregild to Cornell University, which curiously owns the patents on nearly every fire blight-resistant rootstock and makes a few bucks on just about every apple tree you’re likely to find at a modern orchard.

When it comes to blight, the problem is with the tree and with its roots.

How does the orchard hobbyist discern between rust and blight?

It is never easy. Sometimes a canker or growth gives you a strong hint, but the effects can otherwise be pretty similar. Browning, curling, drying of leaves. Yellow spots. These same symptoms may describe a dozen different maladies, some of which warrant patience and pruning shears, and some of which demand nothing short of fire and blood.

How does the investor and citizen discern between rust and blight?

It is never easy.


I remember the exact moment I decided to make orcharding part of my life’s work.

When my wife and I were first planning to be the only poor saps moving to Connecticut from Texas, we found a few houses we liked. We liked this one a little more than most. We thought the yard and woodlands were nice – a great place to free range our kids. But when we took a look inside the old red barn, we found two things: a gnarled old apple tree stump, four 19th century cider barrels and this old apple mill.

That was it. That was when we fell in love.

That was also when we decided we would plant apple trees.

It isn’t that I have some long-standing thing for apples. I mean, Jesus, I know I’m odd, but I’m not “apples are my passion” odd. My favorite fruit is the blackberry. I think most American cider is insipid. But I don’t understand how you can see and touch the value that generations saw in a piece of earth and come away unmoved. Unchanged.

If I could be that hawk for one hour I’d never again be just a man.

There is a contradiction here; surely you see it. It is the wellspring of American exceptionalism – an idea manufactured into a meme by the right and an ironic joke by the left. We are an exception, but not because we are uniquely free or uniquely smart or uniquely strong. We are an exception because for most of our history we have been a frontier. We are ever torn between a cultural and personal predisposition for adventure and a yearning for deeper connection. I moved my family half-way across the country, away from every root we’d ever sunk into that deep red clay, only to find a 150-year old barrel with a painted-on family name I felt obliged to honor. And for Americans, that story is decidedly unexceptional. It is the kind of story a hundred million families could tell.

What is the thread which ties those stories together? The escape to and civilization of a frontier.

If you, like my 7th or 8th (or whatever) great-grandfather, arrived in the early-to-mid 18th Century from an Irish port, you probably landed in Philadelphia or Wilmington. You were probably poor and probably indentured for some period to pay for the voyage. Once you were able, you found the lands around Philadelphia full and far too expensive. And so you took to the road west toward what is now Harrisburg or Lancaster, where Swiss Anabaptists fleeing an unfriendly religious environment and Palatines fleeing nearly constant French incursions into the Rheinland had already settled. And so, by wagon or horse, you followed the curve of the Shenandoah Valley into the James River Valley and all down the spine of the Appalachians.

No matter when you came, you kept going until you found the frontier.

It was always moving. Before 1750, the frontier was the backwoods of Virginia. In the 1760s or 1770s it was probably in North Carolina (my dear wife thinks I should make an Outlander reference here, but I have informed her that would be very off-brand). In the 1780s and 1790s, that frontier shifted to what is now Northeast Tennessee, where the Tennessee River and the lands lying before the Cumberland Gap opened entirely new worlds to most European settlers. Alabama, Mississippi. Kentucky. Indiana. Missouri. In the coming decades, the breach of the Appalachians meant that the frontier’s race westward would accelerate.

The most popular and enduring myth about these early pioneers – especially among my fellow Tocqueville-loving conservatives – is that they were an especially pious people, bringing civilization, godliness and order to the untamed country. What a laugh. As Lyman Stone correctly points out, they were drunks and heathens all, by which I hope you understand that I mean no criticism. These were my kind of people. The settling of the frontier was a demonstrable rejection of established cultural norms, established social structures and entrenched power. Of course it was. Y’all, that was sort of the point of the whole affair.

Image
Source: Lyman Stone

And yet.

Despite the fundamental small-l liberalism of frontier expansion, in each of these new communities, duty to fellow-laborers quickly became sacred and indispensable. Naturally, this took different forms in different places and with different people. But the pattern is recognizable in nearly every frontier town. Citizens realize that they needed someone who could marry them. Someone to share the burden of teaching children. Someone to shoe a horse. Someone to judge a dispute between two neighbors. Someone who could be trusted to lock up citizens who’d been hitting the cider too hard. They also needed to know that the people around them could be roused to selfless, communal action if their community was under threat.

Civilization emerges. Conservatism follows when people conclude that they’d like to keep the things they’ve found.

Of course, not every American had the luxury of simply working off an indenture to make whatever they could of the world. Nearly 4 million Americans whose mothers and fathers lived for centuries under the vile institution of chattel slavery were forced to wait until its abolition. And yet theirs is perhaps the most powerful frontier story of all – navigating at once a new, unfriendly and unfamiliar country, and in conquering it discovering and creating one of the most culturally cohesive – and yes, in its own way, conservative – communities in the world.

And that’s a good thing. No, that’s an exceptional thing – and essentially human.

Every great achievement, every great leap, every great advance we have made as a species is the result of small-l forces of liberalism and heterodoxy braving new ideas and new shores. AND it is the result of small-c conservatism and the successful institutionalization of orthodoxy around those new ideas alongside those that came before that worked.

The Long Now, well, it usurps and perverts them both. In the Long Now, we are helicopter parents and helicopter policymakers. In the Long Now, we create memes of liberalism! out of whole cloth in place of real frontiers, and memes of values! and conservatism! to defend not Lindy-proven ideas, but sources of existing power and influence. Want to know why we have a world that looks fair but feels foul? A world where present valuations of the future look great, but true expectations of the future feel lousy?

Tell me, where today is small-l liberalism and heterodoxy permitted from within? Do you think that you will find it in financial markets, where the very act of positing that maybe – just maybe – the job of a professional investor might involve judging the value of an asset being purchased in comparison to another has become a kind of heresy? Do you think you will find small-l liberalism among American progressives, where wholesale embrace of deplatforming and cancel culture will damn you and your ideas for all time because you were an ignorant dumbass when you were 16? Do you think you’ll find small-l liberalism among American conservatives, where opposition to Dear Leader will lead to your banishment and excommunication, regardless of the consistency of your political views?

Tell me, where today is good-faith orthodoxy not under assault from without? Is there a view about the public sphere it is possible to hold which has not made the transition in some group’s common knowledge from disagreement to dangerous? As utterly unacceptable, worthy of our derision, our strongest rhetoric and treatment as an existential threat to everything we love? Within these tribes of little meaning we have allowed to consume us, we handle every disease like rust, something to be pruned and treated, but gently. Kindly. Outside these tribes of little meaning we treat every disease like blight, burning and ripping indiscriminately.

There is but one end-game: a sparse field of dying trees, lovingly tended and violently defended.


Thankfully, in our own lives, careers and communities, we get to choose what we labor to heal and prune, and what we throw on the bonfire so that we may plant anew.

I’m with Ben. Even though we disagree on health care and health insurance. On abortion. On tax policy and the justifiable role and interest of the state in managing wealth inequality. On a great many things. We are not ‘political allies’ in any recognizable American sense. But national politics and national parties are a blight, and they will be a blight so long as they perpetuate their control through manipulation of existential narratives. I’ve ripped them from my orchard. Will I vote? Probably. Do I care who wins? Probably. I like Gorsuch. I’d like more Gorsuches. But my energy, my time, my wealth – such as they are – cannot belong to this painstakingly designed foreverwar of Flight 93 Elections.

News media is a blight, too. That doesn’t mean that there aren’t earnest, good people working to inform us. There are thousands – tens of thousands! A free press is, properly arranged, among the single most important institutions to the defense of liberty! However, the decision of the major outlets and their owners to fuse and gray the lines between news, analysis, feature and opinion journalism has made them vessels for fiat news and agents of the widening gyre. So yes, I think we should demand that legitimate news organizations, both left and right, exit the opinion and analysis business. Full stop. They won’t. Fostering the widening gyre via social media was the discovery that finally made this terrible business model modestly profitable for some outlets. And so it falls to us to determine the role they will play in how we inform ourselves, in our orchard. My vote, again, is for the bonfire.

What about other institutions, like our universities, our churches, temples, mosques and synagogues? Our system of laws, our intangible institutions and collective social values like home ownership, families, volunteerism, charity, patriotism and social mobility? There’s some pruning that needs to be done. Some branches in need of culling. But as marvelous as the really thoughtful Derek Thompson’s piece in The Atlantic was, I’m among those not yet willing to consign any of these things to flames of woe in hopes of some new stabilizing cultural institution taking their place.

Yet in all these things, what matters most is what we lose if we embrace the Long Now and the widening gyre.

What we lose is the ability and appetite to take risk.

Adrianus (Hadrian) was passing on his way to Tiberias when he saw a very old man digging holes preparatory to planting trees. Addressing the old man, he said: ‘I can understand you having worked in your younger days to provide food for yourself, but you seem to labour in vain at this work. You can surely not expect to eat of the fruits which the trees, that you intend planting, will bring forth?’

‘I’ said the old man, ‘must nevertheless do my duty as long as I am able to do it.’

‘How old are you?’ asked Adrianus.

‘I am a hundred years old,’ replied the planter, ‘and the God who granted me these long years may even vouchsafe me to eat of the fruit of these trees. But in any case I do not grudge the labour on them, and as it pleases the Lord so He may do with me.’

Leviticus Rabbah (5th to 7th Century)

Common knowledge will tell you that the real question is which national party and candidate you will support with your whole heart to stave off the coming existential threat, whatever that might be. I tell you that the real question is this: Who are you willing to take risk for, and who are you willing to protect – emotionally, morally and financially – when they take risk?

Maybe it’s just your immediate family.

Maybe it’s three or four neighbors. Or a couple very close friends.

Maybe it’s fellow laborers in local union.

Maybe it’s a small group from your place of worship.

Maybe it’s a small group of business partners, people with whom you’ve shared both wins and losses, successes and failures.

Maybe it’s a community separated by distance and united by technology, a collection of like-minded people willing to call themselves something.

Whatever that thing is for you, that’s your pack. Or at least it can be. We can Make. Every ounce of effort we would otherwise devote to defending blight can be devoted to taking new risks on new ideas, new investments and new creations. We can Protect. Every ounce of energy and time we muster to defend memes of our beliefs against all comers can be devoted to supporting our fellow-laborers when they fail. We can Teach. Every ounce of exhaustion that is poured into trying to signal our adherence to the Right Ideas can instead be poured into growing together intellectually, physically, emotionally, technologically, socially and culturally with our pack.

We may not succeed. But we will not grudge the labor.


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The Long Now, Pt. 2 – Make, Protect, Teach


PDF Download (Paid Subscription Required): The Long Now, Pt. 2 – Make, Protect, Teach


Peter Paul Rubens, Saturn Devouring His Son (1636)

Every three or four generations, humanity consumes itself with the fang and claw of fascism and collectivism. Every three or four generations, we eat our own.

This is that time. This is the Long Now.

In politics it takes the form of a widening gyre, where the center cannot hold against the onslaught of polarizing political entrepreneurs who eliminate the political promise of the future, replacing it with the Long Now of constant political fear. In economics it takes the form of a market utility, where those same illiberal political entrepreneurs eliminate the economic risk of the future, replacing it with the Long Now of constant economic stimulus.

The first note in this series was about my personal response to the Long Now. Tick-tock.

Today’s note is about my political response to the Long Now. Make – Protect – Teach.

My question is not how we prevent or avoid the Long Now. Sorry, but that ship has sailed.

No, my question is how we keep the flame of small-l liberal thought and small-c conservative thought alive through the Long Now, so that it can light the world again when this, too, shall pass.

My question is … must we ALL become rhinoceroses?

Eugène Ionesco’s masterpiece, Rhinoceros, is about a central European town where the citizens turn, one by one, into rhinoceroses. Once changed, they do what rhinoceroses do, which is rampage through the town, destroying everything in their path. People are a little puzzled at first, what with their fellow citizens just turning into rampaging rhinos out of the blue, but even that slight puzzlement fades quickly enough. Soon it’s just the New Normal. Soon it’s just the way things are … a good thing, even. Only one man resists the siren call of rhinocerosness, and that choice brings nothing but pain and existential doubt, as he is utterly … profoundly … alone.

Yay, rhinoceroses!

Ionesco was born in Romania in 1909, spent most of childhood in France, and returned to Romania when he was 16. He got married and had a kid, pursued a career as a poet and playwright, but ended up fleeing Romania in 1942 for Marseilles. He wrote Rhinoceros in 1959 to describe the rise of the fascists in his homeland, a particularly nasty crew of Eastern Orthodox ultranationalists who went by names like the Iron Guard, the Legion of the Archangel Michael, the Greenshirts, and the National Legionary State.

The Iron Guard didn’t seize power in some bloody putsch, and they didn’t rise to ascendancy overnight. No, it took 13 years for them to come to power, contesting parliamentary elections all the way along. They got 0.4% of the vote in 1927, 1.1% of the vote in 1931, 2.4% of the vote in 1932, got themselves banned in 1933, returned with a new name in 1936, and won 15.8% of the vote in 1937. They were banned again in 1939 following the dissolution of parliament, but struck a deal with strongman-general-turned-politician Ion Antonescu and became the only legal political party in 1940.

And then the pogroms began.

Like the Bucharest pogrom of 1941, where – per the US attaché report to Washington after visiting one of the many massacre sites – “sixty Jewish corpses were discovered [in the meat-packing plant] on the hooks used for carcasses. They were all skinned … and the quantity of blood about was evidence that they had been skinned alive.” Their guts were hung around their necks and they were labeled “kosher meat”. Yes, some were children. A five-year-old girl is mentioned, flayed alive.

You know, I almost didn’t keep that last paragraph. Too harsh, I thought. Takes away from the flow of the larger argument I’m trying to make here, I thought. Some readers will get distracted, I thought, and some will get angry. Some will not recover or read beyond that paragraph, I thought.

I mean … there are no massacres in Ionesco’s play. There’s a lot of property damage. A few people trampled to death by the rampaging rhinoceroses. But there are no ritualistic mass murders. No butchery of five-year-old girls. Ionesco’s play is kinda cool, by which I mean it is not hot. Not emotional. It’s one long allegory. And yet he lived within 50 miles of Bucharest. He saw the 1941 pogroms with his own eyes!

Ionesco wrote about the PROCESS of the widening gyre and the Long Now, not the OUTCOME.

Why? Because he didn’t have to write about the outcome. Hell, his audience had LIVED the outcome.

I don’t have that luxury. All we know of mass murder is what we see on Criminal Minds.

So I’m keeping that paragraph. Because Central Europe. Because Biafra. Because Cambodia. Because Rwanda. Because (I suspect) Xinjiang. This is what it looks like when Things Fall Apart. I need you to be aware of the stakes.

I need you to be aware of what can happen – of what ALWAYS happens – when we become rhinoceroses.

But now I need to pull you back from the emotion and horror of the OUTCOME of the widening gyre that was Romania in the 1930s, just like I need to pull you back from the OUTCOME of the widening gyre that was Nigeria in the 1960s or Cambodia in the 1970s or Rwanda in the 1990s. Because otherwise I can’t bring home the Big Point that Ionesco was making about the PROCESS of the widening gyre and the Long Now. Which is this:

It wasn’t just the bad guys who became rhinoceroses.

Sure, the local brutes and rightwing martinets are some of the first to become rhinoceroses. But soon enough it’s the scientists and the academics and the logicians who turn. They are the worst of the lot. Not because they’re the biggest and baddest rhinos. But because they know better. Because they make a conscious and deliberate choice IN THEIR HEADS to lie to themselves and embrace a real and palpable evil IN THEIR HEARTS.

“All cats die. Socrates is dead. Therefore, Socrates is a cat.”

THIS is the syllogism of the logician turned rhinoceros. It’s nonsense. It’s logically wrong. But THIS is the lie that a rhinoceros scientist can convince himself is truth. THIS is how an intelligent, educated academic who loves his family and his dog can witness a pogrom. And look away. Ehh … gotta break a few eggs.

Romanian politics in the 1930s was a classic widening gyre, spread out over a decade, and policy followed the classic Long Now formula – more and more economic stimulus, more and more political fear-mongering. This was true of the fascists, for sure. IT WAS ALSO TRUE OF THE LIBERALS.

By February 1938, when King Carol II dissolved the parliament, nothing mattered anymore in Romanian politics. There was no “truth”. There was only narrative. There was only spectacle. There was only the naked exercise of power and the celebration of that naked exercise of power. You didn’t just seize control. You seized control, and then you threw yourself a big parade for doing it. This was true of the fascists, for sure. IT WAS ALSO TRUE OF THE LIBERALS.

That’s the kicker of Rhinoceros. It wasn’t just the bad guys who turned. It was everyone.

Just like it’s not just the bad guys who are becoming rhinoceroses in America today. It’s everyone.

How does THAT happen?

Through the embrace by ALL political actors of the idea that NOTHING MATTERS beyond that which accretes power, that power is to be sought for power’s sake and that once attained, power must be USED. Used for draining the swamp. Used for unmasking the corruption of the Trumps or the Clintons or (and here’s where I make a clever connection with 1930s Romania) the Hohenzollerns or the Bratianus. Used for undoing the obscene legislative influence of the Democrats under Nancy Pelosi or the Republicans under Mitch McConnell or (and here I go again) the National Peasant Party under Armand Calinescu or the Everything for the Country Party under Corneliu Codreanu.

It has all happened before. Many times. It is all happening again.  

You will hear that the danger at hand is so great, so existential, that NOTHING MATTERS other than combating that danger, that you must sacrifice your most precious possession – your autonomy of mind – to believe in the necessity of these political actions. You must not only think that it is possible for 2 + 2 = 5 if the political exigency is urgent enough, you must believe that it is necessary for 2 + 2 = 5. Orwell called this “collective solipsism”. I call it political nihilism. Either way, THIS is the politics of the Long Now.  

And once you believe that NOTHING MATTERS … poof! you have chosen to become a rhinoceros.

So you vote for Bob Menendez. You vote for Roy Moore. You excuse your party’s lies and your politician’s thuggery and moral corruption as necessary to prevent some greater evil.

Here’s the kicker.

There’s not a damn thing that you or I can do to stop this.

There’s only one thing that you or I can do. Luckily, it’s the most important thing.

We can refuse to become rhinoceroses ourselves.

Am I saying that we don’t fight against iniquity and evil? Am I saying that we just cede the field to the rhinos who are already running amuck?

So here’s where I’m going to lose a lot of you …

Yes, there will be a time to step boldly into the public political arena and help write a new set of rules, help re-establish political institutions that allow for cooperative gameplay and shared notions of the good life, and help instantiate small-l liberal and small-c conservative principles in a top-down manner.

But that time is not now.

Now is the time when the political institutions that allow for cooperative gameplay and shared notions of the good life are being shattered, and now is the time when they will continue to be shattered. Now is the time of the widening gyre, and you can no more command it to stop from the top-down than King Canute could command the tides. No, it’s precisely the opposite, where everything from the top-down will be devoted to rewriting the history and the narrative of the tides, intentionally moving us farther and farther into the Sea of Nudge.

Once you start looking for sharpies, you will see them everywhere.

That’s true for Trump today, and it will be true for whoever is in the White House in 2020. That’s political nihilism. That’s the way this ALWAYS plays out.

The Long Now is going to get worse before it gets better. A lot worse. Yes, that means more and more economic “stimulus”, more and more financialization and propping up of financial asset prices. You think there is a snowball’s chance in hell of a recession before the November 2020 election? LOL.

It also means more and more political fear-mongering and gyre-widening and nihilism-embracing. You think there’s a snowball’s chance in hell that either the Democrat or Republican party will ever again represent anything other than the accretion of power for power’s sake? Also, LOL. The Republican party is already all MAGA all the time. It is already 100% rhinoceros. By the time the primary season is over, the Democrats will be the same. Look at our Election Index analysis … the narrative center of this election is almost entirely race and gender identity memes. It’s like a pure SJW rhinoceros-inducing potion.

Should you vote in 2020? Sure. But as a statement of your personal identity, not out of some misplaced notion of efficacy or consequentialism.

Should you engage in national politics with more than your vote at this stage in the widening gyre? I mean … if you must. But when you give your heart to the rhinos, you become one yourself. Or you get trampled.

My advice? Abandon the party as your vehicle for political participation.

My alternative? The Epsilon Theory Pack.

My platform? Make – Protect – Teach.

We had our first “Pack Meet-up” last Saturday at Rusty’s house … about 30 Premium and Professional subscribers from all over the East Coast.

The barbeque was Rusty’s labor of love. Four beef briskets, three pork collars, three slabs of pork ribs. There was no vegan option. Sorry, not sorry. Enough food to feed an army, but somehow it was inhaled. Everyone brought a bottle of something to share with the group. That – and a commitment to an evening of full-hearted conversation – was the only admittance fee. Age range was 23 years-old to 75 years-young. Was there a lot of money around that table? I guess. You’d never know it from the utter lack of conversational alpha-dog-sniffing … unique for any Fairfield County dinner I’ve ever been to.

Know what we talked about? The political.

Know what we didn’t talk about? NOT AT ALL? Politics.

What is the political if not politics? It’s how we lead our lives as social animals. It’s how we understand small-l liberal and small-c conservative virtues as they play out in our lives. It’s what we want to SAY to the world through our efforts to Make, Protect and Teach.

THIS is where we stand our ground. Not on some national political scale where we are either turned into rhinos ourselves or trampled into the mud. But on the personal scale. On the scale of our families and our communities. A scale where we can recognize ourselves once again, not as a means to some grand Statist end, but as members of a clear-eyed and full-hearted Pack.

The way through the Long Now is a social movement, not a political party.

A social movement based on resistance and refusal. A refusal to vote for ridiculous candidates. A refusal to buy ridiculous securities. A refusal to take on ridiculous debts. A refusal to abdicate our identity and autonomy of mind.

And it’s more than refusal. It’s more than just saying “Homey don’t play that”, more than just turning the other cheek. There is also action. But it is action in service to our Pack, not action in self-aggrandizement and the celebration of power itself.

I believe that a decentralized and service-oriented social movement at scale can thrive in the age of social media technology. I believe that a decentralized and service-oriented social movement can both inoculate our hearts from the top-down Nudges that push us into rhinocerosness, as well as fill us with a positive energy that reverses the pervasive alienation that creates the Neb Tnuhs of the world.

It’s a social movement for a revitalized foundation of citizenship. It’s Make – Protect – Teach.

There’s no primacy to these three rightful objects of political power and the citizenship which drives them. Put Teach at the top of the triangle. Spin everything 90 degrees. Marry two of them. Take them independently. Change the colors and the font size. I’m not trying to be symbolic here.

I’m trying to be Real.

I’m trying to provide an alternative to the abstracted world of narrative and cartoon that rules our mindfulness from the top down, in favor of a concreted world of actual human beings making things and protecting each other and teaching each other, where we act as Stewards of our children’s future rather than as Managers of our personal now.

What does it mean to Make?

It means you are an inventor. A manufacturer. An artist. A craftsman. A kid at a Maker Fair. A farmer. An engineer. A home builder. A coder. It’s the creation of some THING through the application of some creative IDEA.

What does it mean to Protect?

It means you are a soldier. A policeman. A fireman. An EMT. A nurse. A doctor. It’s a Neighborhood Watch. It’s a mechanic fixing a car. It’s also a unionization drive. It’s also a fiduciary managing a portfolio.

What does it mean to Teach?

It means you are a teacher, of course. Or a writer. Or a researcher. Or a priest. Or a home-schooling mom. It means you’ve got something to say to your Pack, and you’ve got the guts to say it.

What is NOT some form of Make – Protect – Teach?

Basically, if you are in the business of money (and that includes you, Crypto Bro) or in the business of business, then you are neither a Maker nor a Protector nor a Teacher. The sole exception to this – and it’s why this job is my universal suggestion to people who say they want to work in finance but in an authentic, socially-supportive way – is the fiduciary financial advisor. A fiduciary is a Steward. A fiduciary is a Protector. It is unlike any other role in financial services, and it’s the only role I’d want to have.

Management, both in the private and public sphere, is out. Banking is out, both investment and commercial. Corporate lawyering. Consulting. Trading. Sales and Marketing. Out. Out. Out. Out.

If you are using your time and brains to make more money for a profit-seeking organization, or if you are using your time and brains to manage the time and money of a non-making, non-protecting, non-teaching government organization … then you’re outside the Make – Protect – Teach framework. There are no hard and fast rules here, and I mean to be more inclusive than not. But I think you understand the distinction.

Let’s just say that zero of the Forbes 100 Innovative Leaders list (LOL!) would make my list of Make – Protect – Teach. Neither would our professional political “leaders”, including 99% of current Senators and Representatives. As for current and recent residents of the White House … don’t make me laugh.

And yes, I realize that the vast majority of people reading this note would not be practitioners of Make – Protect – Teach, at least not in their day job.

But it doesn’t have to be your day job. It just has to be your Identity.

This is a social movement for people who are IN the world-as-it-is but not OF the world-as-it-is. I’m not saying that your success IN the world, financial or otherwise, is either laudable or damning. I’m just recognizing that it is. I’m saying that your success IN the world, financial or otherwise, does not DEFINE you. Unless you let it.

Everyone can Make – Protect – Teach.

Even Jeff Bezos. I guess.

Today our system of social rewards and political power is based entirely on MONEY, not just in our laws and in our practices – which is bad enough – but even more so IN OUR HEARTS.

Yes, there’s a town full of rhinoceroses there, too.

It was not always so. It is not ordained that it must always be.

What’s at stake with the Make – Protect – Teach movement? Well, in some distant day, when we do in fact remake the rules and institutions of society, you’ll need to be a Maker, Protector or Teacher to be a full citizen. You’ll need to be a Maker, Protector or Teacher to vote. It will never be the route to making the most money, but that’s a feature, not a bug. I think the answer to teachers’ pay scales isn’t to pay them like a corporate lawyer or an investment banker, but to reward their superior social participation through superior political representation.

The American revolution was founded on the slogan “No taxation without representation”. That direct link between taxation and representation was severed long ago, and NOT to the advantage of the people who deserve it the most – the middle class and the working poor. I mean, if you think the middle class and the working poor are represented AT ALL in Washington … once again, LOL. It’s time for a new American revolution, and my slogan is “No representation without making, protecting or teaching.” Okay, maybe that doesn’t sing. How’s this: “No representation without real participation.” Yeah, I like that.

It used to be commonplace to think of military service as a prerequisite for citizenship, and by commonplace I mean universal in the societies where the small-l liberal virtues of democracy and the small-c conservative virtues of citizenship were actually invented. Today we get an occasional watered-down version of this floated in a half-hearted way by Grumpy Grandpas who want those darn kids to spend two years in some national service program. Well, it’s not two years, it’s a lifetime. And it’s not those darn kids, it’s all of us. And it’s not public service to the national government, for god’s sake, but private service of Making and Protecting and Teaching to whatever level of community sustains us … and we them. That’s how a pack works.

It will start small. It will start with your family. And over time it will grow to include your community, especially your physical community. Over time it will spread fractal-like everywhere.

As Below, So Above.

One day.

In the meantime, we evaluate our current crop of gyre-widening political candidates and policies on the basis of how little damage they do to a society based on Make – Protect – Teach. I’m not expecting any of them to get this. And I’m keeping my emotional distance from all of them. But I’ll talk with anyone.

Also in the meantime, this is how we change the structure of OUR social conversation, from “politics” to the political. Here’s my offer:

Put together a group of 20+ people who want to have a full-hearted conversation about Make – Protect – Teach, who want to think and act differently in their political lives. Let me know when you’re getting together with some advance notice, and I’ll be there.

I can help publicize and organize. We are 100,000 strong, all over the world. If you can find a sponsor to pay direct expenses of the meet-up, great. If you can’t, we’ll make it work anyway.

Dinner by dinner. Handshake by handshake. Conversation by conversation. That’s how we do it.

To paraphrase Margaret Mead, never doubt that a small group of thoughtful, committed Makers, Protectors and Teachers can change the world. Indeed, it is the only thing that ever has!


PDF Download (Paid Subscription Required): The Long Now, Pt. 2 – Make, Protect, Teach


Notes from the Diamond #8: Room For Doubt

David A. Salem
Email: david.salem@epsilontheory.com
Twitter: @dsaleminvestor

Log of notes in series available here
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Trivia Question #8 of 108. By how many pounds does the American League (AL) MVP for 2014 and 2016 outweigh the same award’s winner in 2017? Hint: both players remain active — at the top of their games, in fact — with the larger man weighing 42% more than his more diminutive counterpart.  Answer below.

Narrowing Gyre.  Let’s be honest.  While the topics on which these Notes focus — baseball and investing — are endlessly interesting to some of us, they’re inconsequential relative to some topics on which Ben and Rusty comment frequently and incisively, including the “widening gyre” in American politics and culture.  Depressingly, that gyre has grown wider since the prior note in this series was published, with multiple mass shootings, the jailhouse death of a monstrous criminal, and heated controversies spawned by such events having unfolded in the meantime.  Happily, there’s at least one aspect of life in these increasingly Dis-United States in which an angst-inducing gyre has been narrowing of late: the baseball’s world unending debate over an all-purpose test of on-field excellence.  This note examines the whys and wherefores of that narrowing — and explores an old but by no means outdated standard for gauging investment excellence that independent-minded stewards of long-term portfolios might find useful in an era of generally inflated asset prices and correspondingly low yields.

The author’s daughter (right foreground) overseeing Mike Trout’s BP at Fenway Pahk 8/9/19. Trout is in red and gray, mid-cage, bat in hand. Daughter and father enjoyed the game; Trout surely did not, his Angels losing 16-4 with Trout going 1 for 3 in four plate appearances (double, walk, strikeout, groundout).

Myriad Duties.  As was true of the factors animating baseball analysts’ angrily divergent views of optimal performance metrics earlier this decade, the more recent convergence of such views is rooted in large measure in the impressively mounting achievements of a player also featured in my last note: 28 year-old Angels outfielder and “WAR machine” Mike Trout.  Despite his uncharacteristically pedestrian performance for my baseball-loving 10 year-old at Fenway earlier this month, Trout is on track to become this year’s AL if not MLB champ in at least two widely followed statistical categories: home runs and runs batted in (RBIs). 

Why does this matter, and how has Trout’s evolving performance de-escalated the war among baseball cognoscenti respecting WAR?  Both questions are answered with characteristic elan by baseball pundit par excellence Ben Lindbergh in a recent Ringer post available here.  As noted therein, Trout’s uniformly solid discharging of the myriad duties shouldered by a position player has kept him at or close to the top of most baseball experts’ subjective rankings of the sport’s most valuable players since his MLB debut in 2011.  Including 2019-to-date, Trout has also ranked #1 five times, #2 twice, and #6 in annual rankings of the American League’s roughly 400 players sorted by the least-worst objective metric for assessing on-field excellence: Wins Above Replacement or WAR, more on which follows. 

Importantly, one of Trout’s five #1 WAR seasons came in 2012, when he notched the 31st highest single season WAR in baseball history (of more than 40,000 observations) while finishing #2 to the Tigers’ Miguel “Miggy” Cabrera in the essentially subjective process by which the Baseball Writers’ Association of America (BBWAA) picks a Most Valuable Player for each of MLB’s two leagues (American and National) each year. 

How could an impartial judge of on-field output possibly have deemed Cabrera’s more valuable than Trout’s in 2012 when Trout produced 41% more WAR that season (10.5 vs. 7.1)?  Beats me — but, much as I wish things were otherwise, I don’t make a living following baseball, as do the beat writers comprising BBWAA’s MVP juries.  In 2012, 22 of 28 such writers comprising that year’s jury voted for Cabrera, causing the six dissenters (all of whom voted for Trout) plus a large and vocal phalanx of “statheads” to complain that the 22 ascribed undue weight to Cabrera’s #1 rank in the trio of “traditional” batting stats comprising baseball’s hallowed Triple Crown (see box).[1]


Impressive as the stats for Cabrera just cited were — absolute and relative to Trout’s — when combined with other objective measures of offensive output to produce a broader metric of same known as Offensive War (OW), Cabrera contributed 13% less value-added to his Tigers on offense (measured by estimated team wins) than Trout did to his Angels in 2012: 7.7 OW for Miggy vs. 8.7 OW for Mike.

Value Added.  If you’re following along as carefully as my daughter did when reading this note (approvingly) in draft form, you’ve already caught a curious twist in our tale of baseball’s decreasingly fierce war over WAR: Miggy’s overall WAR in 2012 (combining Offensive War or OW with its defensive analogue) was 8% lower than his OW alone — 7.1 vs. 7.7.  In contrast, in finance-speak terms, Trout “added value” on defense as well as offense, performing certain deeds as an outfielder (i.e., improbable catches and the like) while avoiding others (i.e., errors) and in the process boosting his overall WAR to the aforementioned 10.5 from his offense-only WAR (OW) of 8.7. 


These WAR differentials may seem trivial to some readers, and inconsequential to most given weightier money and other matters confronting them, but bear with me, please: I’m using WAR to frame a consequential and conspicuously current concern respecting capital deployment — one entailing far bigger stakes for some readers than the estimated $8 million that a single WAR is worth in MLB these days.  Don’t find that $8 million estimate credible? Check out the nifty blog post from which it plus the nearby graph was lifted.  FWIW, the ten retired players to whom Trout’s evolving output is compared in the graph include eight Hall of Famers; the graph was prepared in March 2019, and thus excludes the roughly 8 WAR Trout has racked up during the MLB season now underway.

Something Big.  Crucially for our purposes here, Trout’s play this year makes him the odds-on favorite to achieve the AL’s #1 rank in the only “traditional” baseball stat (as defined in footnote 1) in which he’s not already achieved a league-leading single season rank at least once: home runs.  In short, the large and loud cadre of baseball analysts who deemed Trout’s stellar all-around play in 2012 sufficient grounds for an AL MVP crown despite Trout’s sub-#1 rank in all traditional batting stats except Runs Scored (129 vs. Cabrera’s 109) were on to something.

Something big, it turned out, with 2012 and Trout’s near-but-not-top rank in a host of statistical categories that year presaging truly extraordinary performance in the 6+ seasons Trout has played since his official rookie year.  (Trout played in some big league games in 2011 but not enough to disqualify him for the AL Rookie of the Year award he ultimately notched in 2012.)  At this writing, Trout’s career WAR (per BP) of 72.3 puts him 87th on the all-time list of big leaguers ranked by that stat — a mounting tally exceeding that of roughly 70% of the 267 players enshrined in Cooperstown.

The Fog of WAR.  What exactly is WAR?  Truth be told, my youngest daughter’s baseball precocity notwithstanding, neither she nor her dad nor indeed the “God of WAR” himself could furnish more than a Trump-like simpleton’s answer to the foregoing query without consulting cheat sheets like those furnished herein.  In fact, when asked near the start of what’s become the largest accumulation of WAR by a 20-something in MLB history what he knew about WAR, the young deity just referenced (Trout) replied, “That’s a good question.  Not a lot.”

A Brief Primer on Wins Above Replacement (WAR)

•  WAR is a stat that seeks to capture in a single number a player’s total contributions to his team.  For reasons discussed in the main text, WAR is an imperfect metric that’s best viewed as an approximation of player value rather than a precise measure of it.

•    Despite or perhaps due to WAR’s growing importance to allocators of human and financial capital in baseball, multiple methods for computing WAR have been devised, spawning endless discussion over the pros and cons of each.  Among publicly available WAR tallies, the three most widely followed are arguably those of Baseball Prospectus (WARP), Baseball Reference (bWAR) and Fangraphs (fWAR). 

•    Over any given season, WARs for the 1,000 or so men snagging more than trivial playing time in MLB typically shape up very roughly as follows:

•    Over any given MLB career, a player’s WAR will reflect longevity as well as effectiveness, as suggested by these career bWAR tallies for selected superstars:

•  For position players, WAR typically comprises a weighted average of stats for batting, baserunning and fielding, with adjustments for a player’s position and playing venues (stadia) plus multiple other factors of lesser import.  For the benefit of readers combatting insomnia, here’s how Fangraphs computes a position player’s WAR:

Position Player WAR = (Batting Runs + Base Running Runs + Fielding Runs + Positional Adjustment + League Adjustments + Replacement Runs) / Runs Per Win

•  For pitchers, WAR typically reflects runs allowed, with material adjustments to actual runs allowed to pinpoint a pitcher’s effectiveness independent of his teammates’ performance on defense.  As a further aid to readers seeking to nod off — or to ponder formulas even more complex than those needed to compute internal rates of returns (IRR) in a finance context — here’s how Fangraphs computes a pitcher’s WAR:

Pitcher WAR = [[(League Fielding Independent Pitching (FIP) – Player’s FIP) / Pitcher Specific Runs Per Win] + Replacement Level Wins) * Innings Pitched/9)] * Leverage Multiplier for Relievers] + League Correction

•  Over any given interval, a player can mess up enough to produce negative WAR, as has Albert Pujols of late (#31 in all-time career WAR despite -1.1 cumulative WAR over the last three seasons).  Pete Rose backslid similarly toward the end of his 24-year career, producing -2.5 cumulative WAR in his last five seasons.

End of Brief Primer on WAR

Here’s another good question — one that’s central to this note’s exploration of optimal metrics for gauging excellence in baseball or investing: must such metrics be as simple and straightforward as the Triple Crown stats that enabled Cabrera to trump Trout in AL MVP balloting in 2012?  To be sure, the ease with which anyone who’s crossed the threshold of baseball consciousness can not merely grasp but compute a player’s Triple Crown stats suggests that my kids’ kids will cite such metrics in assessing batters’ prowess — assuming such progeny emerge and their DNA causes them to ape their granddad’s avocational interests.

But the simplicity of MLB’s hallowed Triple Crown stats, like the simplicity of total return as one’s chief metric for gauging investment success, is not an unqualified virtue. In fact, such simplicity in gauging professionals’ performance can be hazardous to a ballclub’s health, or an investor’s wealth, for reasons described memorably by two of my favorite thinkers in my favorite fields of human endeavor.

Not Obvious.  “It is dangerous to spring to obvious conclusions about baseball,” sportswriter Roger Kahn has observed, “or, for that matter, ball players.  Baseball is not an obvious game.”  Nor is investing, defined for purposes of these notes as the deployment of capital over long time horizons with the aim of preserving and ideally enhancing its inflation-adjusted value net of planned withdrawals.  As investment pro Jim Garland has argued in musings that merit much closer attention than they’ve received by institutional investors as a group, “[I]nvestment risk isn’t a function of betas or Sharpe ratios or Value at Risk.  Instead, the primary risk facing [long-term investors] is …  the risk of a decline in the earnings and dividends from the corporations in which they’re invested.” 

Borrowing a term from farming, Garland refers to the hazard just described as “fecundity risk” — the risk that a portfolio will produce insufficient cash for its owner “to buy something important”.

A Brief Primer on Fecundity

Fecundity [writes Garland] is a “portfolio’s long-term ability to generate spendable cash for its owner”.

• Since most portfolios’ owners are legally empowered to withdraw principal as well income, the near-universal practice is to set withdrawals at levels commensurate with long-term expected real returns, with the latter typically guesstimated as follows:

Long-Term Expected Real Return = Income Per Se (Dividends, Interest and Rent) + Anticipated Capital Gains – Investment-Related Expenses – Applicable Taxes on Net Nominal Total Returns – Projected Inflation.

• Most investors excluding Softbank devotees recognize the perils of extrapolating capital gains (especially unrealized ones) into the indefinite future. But too few investors heed a corollary principle: that market values and the total returns they underpin often constitute “false positives” respecting a portfolio’s evolving soundness.

• Quoting Garland, “Jane Austen … and her character Mr. Darcy knew that long-term wealth should be measured by sustainable cash flows rather than by ephemeral market values. But what Jane Austen knew has been lost in the thundering dissonance of modern finance.”

• Computing with even approximate accuracy a portfolio’s sustainable cash flows is difficult at best, requiring as do most mission-critical tasks in money management — or baseball — a combo of art, science and craftsmanship. 

End of Brief Primer on Fecundity

I gave Garland’s seminal work on investment metrics a shout-out by featuring him in a TIFF workshop conducted shortly after the 2004 publication of a note Jim guest-authored for Peter Bernstein’s strategy service.  By happy coincidence, 2004 was also the year my beloved Red Sox used seminal analytics devised by baseball sage Bill James to win their first World Series in 86 years — a feat they’d repeat thrice more (so far) this century, including 2013, the year Jim delivered one of the best talks on investing I’ve yet encountered.

That talk — Memo to the Darcy Family: To Thine Own Self Be True — does a better job than I ever could propounding fecundity as the soundest metricfor gauging the evolving performance of so-called permanent portfolios: pots of money created and managed to enable their ultimate owners, taxable or tax-exempt, to buy important things — including but not limited to necessities — on an essentially indefinite basis.

Self-Awareness.  Given fecundity’s intuitive appeal as a metric for gauging permanent portfolios’ evolving health, one wonders when if ever during the century now unfolding a critical mass of such portfolios’ ultimate owners will become true to their own selves in the manner Garland commends.  How might such enhanced self-awareness cause principal-agent relations to change in the money management biz, and what events might catalyze such change?


Mr. Fitzwilliam Darcy (played by Colin Firth) and Miss Elizabeth Bennet (played by Jennifer Ehle).  This scene from a BBC adaptation of Jane Austen’s 1813 novel Pride and Prejudice ranked #1 in a 1995 UK-wide poll of the most memorable scenes in British TV drama.  Famously, Austen’s omniscient narrator describes Darcy’s prodigious wealth in income rather than net worth or market value terms, citing a “report which was in general circulation within five minutes [of Darcy’s entrance into the initial gathering of the novel’s protagonists] of his having ten thousand [pounds] a year”.

Answering the second question first (if not also stating the obvious), sustainable cash flow yields as distinct from recent returns and the market values underpinning them will reassume Darcy-like importance in wealth management when but perhaps ONLY when investors in WeWorks paying scant heed to such yields start losing far more than they win. 

As a true believer in Ben’s gospel that no one can foretell accurately when global capital markets will morph from the political utilities they’ve become back into “Two-Body Markets” (to quote Rusty) susceptible of effective analysis by thoughtful allocators, I won’t hazard a guess respecting when the losses just prophesied will materialize.   What I can foretell with confidence is that the forward-looking and hence unavoidably pliable character of Garland’s preferred method of gauging long-term portfolios’ evolving health will remain offputting to many fiduciaries, even after the tide turns and market values that such folks currently deem sound become fishy at best. 

I’m confident making this prediction because I’ve encountered such obstinacy multiple times in my career, most memorably when trustee groups for whom TIFF was managing money nixed portfolio moves animated by my team’s carefully considered judgment that technology stocks as a group couldn’t possibly generate sustainable cash flows commensurate with their fin de siècle valuations. 

Of course, I’ve also witnessed such obstinacy in an avocational as distinct from vocational setting, as noted in the above account of supposed experts making the silly but unsurprising choice to pick Miggy Cabrera over Mike Trout as AL MVP for 2012 despite Trout’s superior overall play as measured by WAR.  To be sure, Cabrera’s votaries rejected WAR-based arguments in Trout’s favor not because WAR is unduly speculative or forward-looking in a way that Cabrera’s Triple Crown-winning stats self-evidently were not; rather, Cabrera got the nod because three backward-looking stats he compiled more robustly than anyone else in his league including Trout (BA, HRs and RBIs) were more hallowed by MVP balloteers than the broader and better but equally retrospective valuation metric that Trout conquered in 2012 (plus five of the seven full or partial seasons since then!): WAR. 

Ardor for Ambiguity.  Its enhanced clout in player appraisals since Trout entered The Show notwithstanding, WAR continues to challenge even the brainiest baseball aficionados.  As anyone who’s consumed his analyses for ESPN or Fangraphs can attest, Sam Miller is among the brainiest (and wittiest) of such folks.  In an essay I enjoyed lots upon its initial publication in 2013 and re-read when assembling this note on the pursuit of excellence when gauging excellence in baseball or investing, Miller writes:

WAR is a crisscrossed mess of routes leading toward something that, basically, I have to take on faith.  And faith is irrational and anti-intellectual, right?  Faith is for rain dances and sun gods, for spirituality but not science.  Actually, no.  Faith is how we organize a complicated modern world … The complicated nature of WAR … isn’t an argument against it.  That’s just what human advancement looks like in the 21st century … I trust the recipes of FanGraphs, Baseball-Reference and Baseball Prospectus [BP] because these sites incorporate decades of research, the scope of which I could never match on my own.  These recipes will get even better because they get smarter with more data.  [BP] will soon incorporate into its WAR catchers’ ability to frame pitches.  The numbers next to each player’s name on that site will change.  Does that mean the numbers we have now are wrong?  Of course they’re wrong.  Everybody is wrong about everything all the time, and WAR leaves room for this doubt.  Doubt has driven us toward better answers for millenia, from Socrates’ “I only know that I know nothing” to the guys who made billions betting against a seemingly invicible housing market.  Don’t accept any number that doesn’t leave you room for doubt.” [Emphasis added]

“WAR Is the Answer” by Sam Miller (2013)

Dunno ‘bout you, but if I chaired an investment committee (IC) and were tasked with finding a new member for it, Miller might plausibly get my nod.  He’d get it because the tolerance and indeed ardor for ambiguity he displays is a vitally important  condition for investment success. 

Cognitive Errors.  More to the point, having a kindred soul like Miller at hand could boost the odds of getting the IC as a whole to practice what Garland preaches so persuasively in his Memo to the Darcy Family — teachings evocative of those Jane Austen illumines so artfully in her majestic novel about the Darcys’ evolving fortunes, Pride and Prejudice.  That novel’s central teaching  — that one should weigh all relevant info before acting or choosing consciously not to act — has obvious relevance to investing, even if its practical utility to conscientious investment pros is diminished episodically by tidal waves of cheap money that temporarily lift all boats, including those with skippers named Musk spiffy topsides but irreparably leaky hulls. 

The Austenian precept just flagged is germane to baseball too, of course, though typically tougher for ballplayers than investors to follow due to the high speeds at which baseballs and baseballers often move.  That said, clear eyes and a concomitant commitment to weighing all relevant facts before acting are undeniably vital for people who make their livings in baseball, including especially those who get paid not to play the game but to evaluate those who do. 

As we’ve seen, some of these folks messed up big time in 2012, weighing Miggy Cabrera’s dominance of three hallowed but batting-specific metrics against Mike Trout’s overall body of work and somehow judging Cabrera’s play in 2012 to have been more valuable than Trout’s.  It’d be unfair to Cabrera, and overstating my chief argument here, to label Miggy’s Triple Crown-winning stats in 2012 the baseball equivalent of Garland’s “ephemeral market values” — “noise” meriting scant attention as opposed to “signals” meriting the converse.  But, c’mon: given Trout’s extraordinary overall play since and including 2012, both absolute and relative to Cabrera’s, how can any competent judge of such matters deem Cabrera’s MVP award for Trout’s first full season as a big leaguer in 2012 to have been anything other than a cognitive error by those who conferred or applauded it?

Open Questions.  Which big money allocators (if any) are committing comparable cognitive errors at present?  As argued repeatedly in these notes, fielding such a blatantly censorious question presupposes a clear articulation of the metrics used to gauge investment success and the time horizon over which such metrics are optimally applied.  By my lights, the longer one extends the horizon over which investment success is judged, the more relevant Garland’s preferred metric of fecundity becomes — less as a precise gauge of the evolving utility of a portfolio than as a test of what the persons managing a portfolio truly know and think about each of its parts.

I know what you’re thinking as you ponder the words just written:

• Wouldn’t the ongoing fulfillment of these Garlandian expectations require the hired guns involved to know MUCH more about each holding they’ve selected than they typically do at present — to know each holding well enough to fashion the credible bottom-up assessment of its fecundity needed to compile top-down or fund-level estimates of what funds’ owners can withdraw and spend on a sustainable basis? 

• Wouldn’t principal- or owner-imposed requirements that money managers furnish such assessments trigger big changes in managers’ methods (i.e., asset selection, sizing, timing and reporting)?         

• Wouldn’t the widespread adoption of Garlandian metrics for assessing long-term funds’ evolving performance catalyze changes in institutional funds management as material as those MLB has undergone through the widespread adoption of advanced statistics like WAR and the complex array of task-specific stats that the WAR formula requires?

• Wouldn’t changes like those just conjectured enhance some investment pros’ value-added and in turn incomes, reduce others’ incomes, and likely force some if not many raccoons players out of the game of managing OPM for a living?       

You know how I’d answer the bulleted questions above — with enthusiastic yesses to all of them, mindful that the sabermetric revolution in baseball from which big money asset owners might usefully borrow certain tricks has spawned harmful as well as healthy changes in how MLB gets played, who gets to play it, and how much they get paid to do so. 

Certainly the enhanced stature and incomes of multi-talented stars like Trout or Jose Altuve — a player whose stellar advanced stats negate timeworn arguments that big leaguers must be big to be great — are welcome by-products of the cardinal importance ascribed to sabermetrics in modern baseball.  Certainly, too, the silver linings just flagged adorn menacingly large clouds: changes in MLB games’ length and character that have made them less fun for many fans and prevented countless others from becoming baseball fans in the first place. 

Two of MLB’s biggest stars: 6’2”, 235 pound Mike Trout (AL MVP in 2014 and 2016) and 5’6”, 165 pound Jose Altuve (AL MVP in 2017

On Deck.  I owe it to my youngest daughter if not also others with budding addictions to baseball to weigh in on MLB’s sagging “production values” (TV-speak for fan appeal) and will do so in a future NftD, though not the next one. That Note (#9) will focus on the inevitable and laudable extension of rigorous analytics to a hitherto unquantified and perhaps unquantifiable aspect of big league baseball (and big money investing): the impact of players’ character and temperaments on their and their teammates’ performance.  Consistent with the age-old principle that “you get what you measure”, MLB front offices are paying both closer attention to and more money for players’ invisible as distinct from visible gifts, with the former dowry defined broadly to include mindsets conducive to continuous improvement (“player development” in MLB-speak) plus interpersonal skills conducive to healthy team karmas and the winning records often spawned by same. 

Tellingly but perhaps unsurprisingly, the best player in MLB now and perhaps ever proved recently that he possesses interpersonal skills worthy of pro sports’ largest pay package ($432 million over 12 years), displaying acute empathy and grace in response to the sudden death of his Angels teammate Tyler Skaggs. 

Would exhaustive analysis of Mike Trout’s potential as a pro baseballer just before he became one as an 18-year old have foretold with actionable certainty the bounties he’d produce as a pro — analysis as thorough as the fecundity-focused probes that Garland commends to folks putting long-term capital to work?  Given the unavoidable uncertainties surrounding the future paths of young baseballers — or companies of any age or size — I doubt it.  But just because there’s room for doubt with any such analysis doesn’t mean it shouldn’t be undertaken.  It should — especially by allocators seeking to gain an edge under market conditions inimical to the profitable use of methods that served disciplined investors well in the past but have produced as many whiffs as homers since capital markets became political utilities Mike Trout signed his first pro contract in 2009. 

End

Mike Trout consoling Tyler Skaggs’s mother Debbie before the team’s first home game following Tyler’s death.  A longtime softball coach, Mrs. Skaggs delivered what the AP labeled a “heartbreakingly perfect strike” on the game’s ceremonial first pitch. Trout drove in six runs in the Angels’ 13-0 win, including a towering 454-foot two run homer off the first pitch he saw from Seattle starter Mike Leake.
Summer “school” for the author’s youngest daughter (2019). 
Nail colors are no accident.

Up next: the importance of character and temperament in “weak link” endeavors like pro baseball and institutional investing


PDF Download (Paid Subscription Required): Notes from the Diamond #8 – Room For Doubt


[1] I’ve put traditional in quotes because there’s no universally accepted rule for distinguishing baseball’s so-called advanced stats from all others, excepting perhaps a calendar-based rule rooted in the 1985 publication of stathead Bill James’s Historical Baseball Abstract, i.e., stats devised before 1985 can’t be “advanced” so they’re “traditional” by defaultThat transparently suspect point having been made, we’ll note that with the possible exceptions of On Base Percentage (OBP, which became an official MLB stat in 1984) and OPS (OBP plus Slugging Average), most statheads would agree that “traditional” batting stats comprise the two just mentioned (OBP and OPS) plus Batting Average, Hits, Homes Runs, Runs Batted In, Runs Scored and Slugging.  As my 10-year old daughter would be pleased to tell you if asked, Slugging = Total Bases/At Bats.  

License to Kill Gophers

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License to kill gophers by the government of the United Nations. Man, free to kill gophers at will. To kill, you must know your enemy, and in this case my enemy is a varmint. And a varmint will never quit – ever. They’re like the Viet Cong – Varmint Cong. So you have to fall back on superior intelligence and superior firepower. And that’s all she wrote.

-Bill Murray as Carl Spackler in Caddyshack

The Gopher.

Recessions. Policy makers loathe them. The human costs are real and obvious, but they also lose elections. The desire of central banks to forestall recession at all costs reminds us a bit of the war that groundskeeper Carl Spackler had with the gopher in the 1980 movie Caddyshack. [1]For those of us old enough to remember that classic movie, Spackler won a final pyrrhic victory against the gopher by planting explosives throughout the golf course – eventually destroying the very course he’d sworn to protect.

Today, it seems to us that the allegory for the golf course applies to central bank policy as it relates to financial markets. Initially, Spackler tried to use less dramatic methods to find and kill the gopher, but none of them worked. Those methods are akin to traditional rates policy. It is our view that the concept of a natural or neutral rate is anachronistic in a world where QE is global and in which capital can flow relatively freely based on national comparative advantages. Moreover, monetary policy is reflexive in that lower rates (whether through temporary or permanent open market operations) beget lower rates. The neutral rate is dynamically impacted not just by the real economy but also by policy itself.

Indeed, prolonged application of policy will result in an eventual neutral rate of zero in the United States, just as it has in much of the rest of the developed world. Extraordinary measures in monetary policy, like buying equities (à la the BoJ) are akin to the dynamite that Murray’s Spackler eventually deployed. After all, he had “a license to kill gophers by the government of the United Nations.” Indeed, it a united front of central banks that possess the license, as negatively yielding debt globally has topped $15.6 trillion (up from below $6 trillion in the third quarter of 2018). It’s only a matter of time before the course is left unplayable.

The Groundskeeper.

The Fed’s 25 bps ‘insurance cut’ will do little to prevent the eventual necessity of QE – that is, if the Fed’s goal is to prevent a recession at all costs, it will require dynamite.[2]In my view, a 25 bps ‘insurance cut’ now and another 25 bps in September will do little to prevent the U.S. from succumbing to the global economic malaise (all developed market PMIs we track are now in contraction or neutral with the U.S. stagnant at a reading of 50.4). [3] We’re not alone in our assessment that, short of renewed QE, the Fed has little policy room.  MNI reported just prior to the most recent cut that former Fed director of the division of research, David Wilcox, said: “We’re currently at or near a cyclical peak, and yet the policy rate is still only 2.25% to 2.5%. That’s uncomfortably limited. I hope they will take steps to create more policy space for themselves.” In that same interview, Wilcox estimated the Fed was roughly 250 basis points short of policy space to fight the next recession. He noted that the central bank cut its policy rate by at least 500 bps in each of the past three downturns. Cantor’s global market Outlook expressed this very view in January of 2019. Again, it will be difficult for the Fed to forestall a recession without the use of dynamite.

We’ve already written in Epsilon Theory that ‘late cycle’ cuts are usually followed by recessions in the United States. We debunked analogies to 1995 and 1998 in our previous note Cake. It’s no coincidence that Chairman Powell introduced the concept of mid-cycle cut in his latest statement to avoid the perception that the Fed felt an economic downturn was imminent. Market participants cared little about his characterization. They simply wanted more. Just because Chairman Powell called it a mid-cycle cut doesn’t mean it is one. We now face a policy lull in August through September when many things can happen with the U.S. data. Services ISM recently missed expectations and appears to be following its historical course – tracking manufacturing ISM lower but with a lag. The rates markets have most recently been screaming loudly that the slowdown is about to occur here in the U.S., and they have been doing so globally (in Europe and Japan) for much longer.

We expect the PMI data over the next several days to continue to weaken, and we don’t think Chairman Powell will deliver what the markets want to hear at Jackson Hole. Last week, the spread from 3-month to 10-year treasuries inverted to over -40 bps and the 2-10 spread inverted, as I’ve been suggesting it would since January. As they always do, equity markets in the U.S. will eventually ‘get the joke.’ For those waiting for the real economic data to hit them over the head, it will already be too late. The sole bright spot is the U.S. consumer… but it always plays out this way. The consumer spends until s/he hits the credit wall. Lending standards are already beginning to tighten and labor markets are as good as they will get. That means they will only get worse. While lower rates are cushioning the blow from worsening fundamentals, they have never alone forestalled recession. [4] We believe the recent selloff is the beginning of a deeper correction as there is little to prevent the slide that has already begun


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[1] We’d also characterized central banks inability to spur inflation in the same way. We often written that the inability to catalyze inflation is a function of two principal factors: 1) globalization and 2) supply side effects. Globalization allows for the importation of deflation as capital and labor migrate to lower cost geographies, as the theory of comparative advantage suggests.  Monetary policy, which sets the cost of capital, sets the stage for a world in perpetual productive asset overcapacity – mostly in the developing world.

[2] Of course, the other groundskeeper ahead of the presidential election might be fiscal policy makers. However, with a divided House there is little that the president can do from a policy perspective (like a payroll tax deduction) that would forestall the slowdown. Even a ‘resolution’ of the trade war won’t do the trick as the root causes of the global slowdown are structural issues in places like Europe, Japan and China.

[3] Don’t be fooled; the U.S. economy is reliant on the global economy through a more complex global supply chain than ever before. About 39% of S&P revenues come from outside the United States and the global financial markets are inextricably intertwined.

[4] My one caveat to this assessment would be an immediate renewal of QE in the United States that drove long rates to close to zero. A renewal of QE in Europe is important, but until it includes high yield bonds and equity, it won’t have an efficacy. In the meantime, U.S. high yield has been a massive beneficiary of low global rates.

The World ‘Twixt Ought To and Is


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I don’t like the word ‘abstractions’ very much because most people don’t think in abstractions. That is too difficult for them. They think in stories. And the best stories are not abstract; they are concrete.

– Sapiens, by Yuval Noah Harari

I remember that there was always a street preacher on the college green at Penn. Like all prophets in his own town, he was never well-received.

Now, this was back in the days before veganism and keto were really things, and I think Crossfit had only just been invented. So the only means available to students to scream into the void “I am myself!” and “I am very intellectual!” and “Somebody please notice me!” all at once without expending any real effort were smoking and militant atheism.

My God, did this man take some abuse. And by God did he earn it.

Not because he was the giant-offensive-placards kind of street preacher (he wasn’t). Not because he was the hell-and-damnation kind, either (he wasn’t). Because he had a knack for getting himself into debates with college students. Not only that – because he allowed the students to badger him into taking ridiculous and strident positions on irrelevant topics that irrevocably damaged whatever true purpose he sought to achieve.

I was there on the periphery of a small crowd of eager, dickish young minds one day when our preacher passionately described how dinosaur bones were put into the earth by God to confound the wisdom of man and test his faith. Some mustachioed tankie was really feeling his oats (again, avocado toast being some years away at this point) and engaged him on the specific mechanics of God’s intervention. How, exactly, do you think that God worked this miracle, minister? Does he intervene in real time with the instruments which measure the quantity of carbon-14? If so, are you specifically making the argument that God adjusts how both beta radiation measurement tools and spectrometers counting carbon-14 atoms function? Or is the composition of the bone itself changed?

Within any religious community, there are legalistic subcultures which find positively nonsensical hills like this to die on. Around those hills, all sorts of uncomfortably specific explanations to tie everything together are built as hedges, take root and flourish. Want a nonsensical pseudo-scientific analysis of ancient Greek vernacular to argue that the wine Jesus miraculously created was just non-alcoholic grape juice (lamest miracle ever, by the way) to justify prohibition-as-doctrine? Somebody will be your huckleberry. Want a church-run webpage which takes serious intellectual issue with a famous musical’s farcical contention that God would punish a five-year old for stealing a maple-glazed donut since God would clearly only punish the child if he were eight? Huckleberry.

For most people of faith, these behaviors are powerfully cringeworthy. For all the secular protestations of their acolytes, the communities built around financial markets and economics are no less religious. They are no less prone to building edifices of oddly confident and hyper-specific speculation around their pre-existing models for predicting behaviors. And for most professional investors, they ought to be no less cringeworthy.


Please be seated. Let us begin our sermon today with some soggy, religious garbage from Nobel Laureate Paul Krugman.

There’s been a lot of speculation about why the stock market reacts so strongly to trade policy news — way out of proportion to the direct economic impacts of Trump tariffs. Today’s surge after Trump’s decision to delay some tariffs deepens the mystery. The best going explanation of the tariffs/market link was that markets took tariff announcements as indications of broader decision process; to be blunt, how crazy Trump is. Hard-line announcements suggested more radicalism to come, softer announcements more rationality. But this was obviously a defensive move to avoid price hikes before Christmas, not a change in Trump’s world view or improvement in his decision-making. So why respond so strongly?

– Nobel Laureate Paul “Nobel Laureate” Krugman – who has a Nobel Prize btw – via Twitter (8.13.2019)

Now, this is extremely stupid.

I don’t mean to be mean to Dr. K, who is not stupid. The unfortunate reality, however, is that most very smart people tend to have deeply stupid opinions and ideas about a great many things. Sadly, many of those same opinions and ideas often become articles of faith over which that person drapes his reputation, intellect and mental models which successfully supported earlier ideas and opinions.

It is pretty easy to unpack the three articles of faith at play here. Krugman has in his head a model for which each of the following is true:

  • Daily marginal price-setting behaviors are predictable as the output of mostly-rational optimizers;
  • Trump is objectively crazy; and
  • Trump’s craziness is so profound (and market participants are so ill-disposed to care about anything else) that changes in Paul’s perception of that craziness can explain functionally all of the daily variance in asset prices.

Let no one tell you that living in 2019 is not a joy.

Consider: you, dear reader, can watch in real-time as a Nobel Laureate publicly grapples with confusion that a multi-trillion dollar market might deviate for a single day from his single variable, Perception-Of-Trump’s-Craziness-based model. Consider further that you may watch him work out – again, in full view of the public – that the market must clearly have overestimated the extent to which a simple Christmas reprieve on tariffs ought to have reduced the value of their Perception-Of-Trump’s-Craziness variable.

This is God-burying-dinosaur-bones-to-piss-off-Neil-deGrasse-Tyson level crazy. This is Jesus-becoming-the-hero-of-the-party with-grape-juice level nuts. This is God-punishes-eight-year-old-donut-thieves-but-not-five-year-olds level insane.

And yet this kind of bizarre model-clutching lunacy is not just a possibility. It is an inevitability when you live in a world of prediction, in which your aim is to find The Answer to questions for which even a shred of epistemic humility would tell you that your model is shit.

It doesn’t really help that we’ve created academic and professional environments in which we respond to models that don’t produce The Answer by making adjustments to reflect what they missed most recently, calling it Bayesian Updating, finding a time horizon, data set and parameters for which we can get an acceptable p-value, and publishing a new paper.

Or y’know, launching a new fund.


The prelates of the preposterous aren’t the only characters in our world, however. We also have to contend with the agnostic – the person whose response to the difficulty of knowing everything is to believe that we cannot possibly know anything. Epsilon Theory was founded to ceaselessly harass and make fun of the religious pole (which we hope you understand we mean in an entirely secular sense) but to offer hope to those drawn to the desperation of the agnostic pole.

We respect the difficulty of active management. In our own portfolios, we happily use index instruments in many markets. But we don’t believe that it is possible to be a passive investor any more than it is possible to be a passive citizen or a passive friend or a passive partner or passive father. We will make decisions, and those decisions will explicitly or implicitly express views about the world and the way that it works and is working.

We reject the learned helplessness of the Long Now.

By rejecting that learned helplessness and embracing that we are all active investors, however, we will inevitably discover that there is an embedded layer of belief at work in nearly every investment strategy – a phantom model which exists between the ought to of our investment philosophy and the is of its results. That layer is, very simply, what we believe will cause an actual person (or computer programmed by a person) participating in the price-setting process for a security to change what price they are willing to pay or accept for that security.

The fundamental investor has in their head a model of the world in which they may predict how prices will change based on some assessment of the business today and in the future. Even beyond any fallibility in their own assessments and predictions, the phantom model between ought to and is – for them – is a set of assumptions about what other investors care about, what kind of information they will respond to, and over what time horizon.

Many of those strategies systematic and discretionary alike can be shown to work over many markets and many horizons. And yet, every investor with a shred of intellectual honesty will admit their concerns when going live with some new approach:

I am worried that the conditions under which I built the case for my strategy, whether the mental models and discretionary heuristics built over a long, successful career, or the systematic backtests I similarly produced, are a reflection of some state of the world that will not be the future state of the world.

Our skepticism about backtests, simulations and historical results is our acknowledgment of the phantom model in an emotional sense, to be sure. But it must also be an intellectual acceptance of the massive mathematical erosion in true explanatory power when our partially correlated models pass through an additional layer of partial correlation. We can’t always explain it away with “over a long enough time horizon” hand-waving in defense of our management fee annuity stream.

(Apologies if you did not know before now that the people who run money for you refer to you as an annuity stream. They do. Not figuratively. They literally say that in meetings.)

The problem for active investors (i.e. all investors), the problem I grappled with for so much of my career, and the problem I still grapple with at times in my own mind, is how to demonstrate epistemic humility about this loss in explanatory power without descending into agnostic nihilism. I have come to believe that there are three – and only three – ways:

  1. Parsimony – Adopting extraordinarily high standards and requirements for the addition of a model or framework for making predictions. This is the contribution of the AQRs and Bridgewaters of the world.
  2. Ensembles – Incorporating ensembles of models to composite concepts without excessive reliance on any one framework. This is the contribution of Two Sigma, our friends at Newfound and the discretionary work products of a small number of especially process-oriented minds.
  3. Concretion – Reducing the number of layers of abstraction between process and models on the one hand, and the Thing for which they are a representation, on the other.

Why do we study common knowledge – narratives? Because we think that studying, identifying and measuring the existence and effects of narratives can be a force for concretion of our investment theses. Can broader adoption of narrative analysis techniques, in fact, deliver on the promise of concretion? Can we better understand how, when and why different facts and events will matter to the marginal market participant in the price-setting process?

I don’t know. I think so. Our historical examinations of the question have produced promising results, but I fear that I am still an agnostic nihilist at heart.


Now, if you are thinking that narrative-as-force-for-concretion is a contradiction, then very well, it is a contradiction. Narrative is an abstraction from the real world, from cash flows, and from the long-term value creation potential of assets and intellectual property. But Narrative is also a concretion of the observable evidence of what the crowd believes that the crowd believes, what they care about and what they are paying attention to.

We are large, we contain multitudes, et cetera et cetera.

Soros’s quip about observing instead of predicting – that is concretion. It is a kind of process which permits decision-making based on observation, with fewer phantom models ‘twixt ought to and is. Taleb’s famous observation “don’t tell me what you think – show me your portfolio” is concretion, too, albeit a concretion of the phantom model of the language we use to describe why we own something. It is an indictment of manager surveys and the like, which are reflections of first level thinking rather than the thinking that drives actual asset price-determining decisions at the margin.

But while the Taleb heuristic is effective as a thought experiment into the importance of skin in the game, it is less useful (and was never intended) as a specific model for understanding the spread-crossing tendencies and response profiles of various investors to new information. For one, as anyone who has examined the positions of fund managers very often will tell you, someone’s positioning will often tell you a great deal about their constraints, their obligations and their boss’s predispositions, and often very little about why their view of price would change in the presence of new information. For another, because a portfolio is a complex thing, two sensible investors may be equally long or short a position for different reasons that would precipitate massively different responses to new information. Knowing what someone’s portfolio looks like is concretive in terms of language, but not at all in terms of a model for predicting future asset prices.

So why the focus on defining narratives through financial media, which we all know to be riddled with Fiat News, often conflicted and frequently produced in service to its purported subject matter? Because it is the only world in which we learn what everyone wishes everyone else to believe. Because it is the only world in which we know what everyone else knows, because we know that they have seen the top-fold of the WSJ and the Dear Sirs of the Financial Times.

Because it is our best chance to map the world ‘twixt ought to and is.


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ET Election Index: July 31, 2019

This is the fourth installment of Epsilon Theory’s Election Index. Our aim with the feature is to lay as bare as possible the popular narratives governing the US elections in 2020. That includes narratives concerning policy proposals and candidates found in the news, opinion and feature content produced by national, local and smaller outlets.

Our goal is to make you a better, more informed consumer of political news by showing you indicators that the news you are reading may be affected by (1) adherence to narratives and other abstractions, (2) the association/conflation of topics and (3) the presence of opinions. Our goal is to help you – as much as it is possible to do – to cut through the intentional or unintentional ways in which media outlets guide you how to think about various issues, an activity we call Fiat News.

Our goal is to help you make up your own damn mind.

Our first edition covered April 2019, and included detailed explanations of each of the metrics we highlight below. If this is your first exposure to our narrative maps, analysis or metrics, we recommend that you start with that primer.


Election Narrative Structure as of July 31, 2019

Source: Quid, Epsilon Theory

Commentary on Election Narrative Structure

  • We officially think there is a 2020 election narrative.
  • The common knowledge is that the 2020 election is a referendum on race, gender and identity.
    • This doesn’t mean we agree or disagree with this characterization.
    • This means that this is what everyone thinks everyone thinks the election is about, at least as promulgated by US political media.
  • Every highly connected cluster in the narrative structure from the month of July is charged with and defined by this language.
  • Asylum seekers and immigrants, the black vote, the narrative of electability surrounding women and gay candidates, and ‘the white vote from the rust belt’ loom large in the center of and in connections between nearly all 2020 election coverage.
  • Sentiment in coverage has also started to crystallize in a more dramatic way:
    • Sen. Harris and Biden have taken the raw end of this exchange, and in a more coherent, higher attention way than before.
    • In contrast, Sanders and Warren have received glowingly positive language in their media coverage.
  • We also note that Trump himself has begun to insert his presence into the narrative structure, despite being less present on the formal campaign trail.

Candidate Cohesion Summary

Commentary on Candidate Cohesion

  • Post-debate Sen. Harris has a much more coherent narrative structure than in prior months. Unfortunately – as noted shortly – it is one loaded with negative language, especially relating to Harris’s law enforcement background and spars with former VP Biden.
  • Biden’s coverage has been similar to Harris’s: more coherent, but coherent in its skepticism that he is a candidate that can win, skepticism that his record is sufficiently progressive to energize the Democrat base, and skepticism that he will address the race, gender and other identity issues lying at the center of the 2020 election zeitgeist.
  • Sen. Warren is a bit of an enigma. In many ways, her narrative strikes us as a “poor man’s Sanders” – less internally cohesive, less in tune with the zeitgeist, and positive…but not quite as positive as Sanders. But qualitatively, she is increasingly entangled with the same anti-corporate power, anti-inequality base and narratives that are most strongly associated with Sen. Sanders.
  • As per usual, media accounts of Gabbard and Yang are indifferent, varied and largely presented in context of other candidates. After the shock of a surprisingly positive performance in initial debates, Buttigieg content has reverted back to prior incoherent mixtures of general “round-up” content and narrow issue pieces.
  • The media seems to regard O’Rourke with a collective “meh”. They know who he is, and they’ll cover him, but the days of magazine covers and strong common knowledge about what “Beto means” appear to be gone for the time being.

Candidate Sentiment Summary

Commentary on Candidate Sentiment

  • Sens. Warren and Sanders – perhaps unsurprisingly, given July’s emphasis on health care – were head and shoulders above the rest of the candidates in terms of coverage sentiment.
  • This is standard fare for Sanders at this point, but only a June/July development for Warren, who appears to have attracted meaningfully more positive language from political media accounts.
  • Yang and Buttigieg were the only other candidates whose language we would regard as positive.
  • Gabbard, Biden and Booker have cemented their place in the cellar. Media accounts of their candidacies are routinely negative, emphasize electability concerns, highlight conflicts/spats with other candidates, and bring out claims of hypocrisy.
  • For this reason, we would be very cautious in our consumption of Gabbard, Biden, Sanders and Warren news, where we think that emerging narratives have made it more likely that ‘news’ content will be infected with affect and affected framing, whether intentionally or unintentionally.

Candidate Attention Summary

Commentary on Candidate Attention

  • As noted before, Harris is very much in line with the July election Zeitgeist, but we regard this as a function of negative coverage. We think that undecided voters should tread carefully when consuming and reading ‘news’ about Sen. Harris, whose jabs at Biden were quickly transformed into claims of hypocrisy, assertions of a weak position to argue on issues of inequality (i.e. “Kamala was a cop!” narratives), and unelectability concerns.
  • Buttigieg has faded from connection to the language used about the election as quickly as he rose, which is not uncommon for strong debate performers who were previously minor candidates.
  • It is Beto whose disconnection to the zeitgeist has been more striking.
  • We note that Warren’s attention scores remain low, despite positive sentiment and cohesion. We think (this is our judgment / opinion, not something present in the data) that this is a function of two things:
    • Many of the positions Warren is associated with, Sanders is more associated with. In coverage, this means that Sanders tends to get the lion’s share of relationship to these key electoral issues.
    • Warren’s status as a policy wonk has meant that she has focused less on the race, gender and identity issues that we argue represent the 2020 election zeitgeist.
  • For better or worse, if Warren were to refocus efforts on participating more actively in the identity-related narratives that we believe represent the common knowledge about what the 2020 Election “is about”, we think she would emerge further as a leading candidate.
  • In the meantime and absent that change, based on our views about the influence of media-driven common knowledge effects, we think that among major candidates, Sanders will outperform most expectations, and that Biden will continue to converge to his more negative narrative.
  • This also means these are the candidates where we would be most cautious that media sources might be influencing how they want us to think about the news pertaining to them.

Does It Make a Sound?

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This is Hong Kong right now. The image is powerful. The audio is more powerful.

The people in this image and this video are singing “Do you hear the people sing,” from Les Mis. It is a common protest song, but not the kind of thing that is allowed in 2019 China. If you know the curtain-dropping line from the play, you’ll know why:

Do you hear the people sing?
Singing a song of angry men?
It is the music of a people
Who will not be slaves again

– Les Miserables (1980)

Here is a video of police firing rubber bullets at well-prepared protesters.

Here is an article from the South China Morning Post discussing the aggressive use of tear gas to break up the protests.

Hong Kong protests: police under fire as viral video shows elderly residents of Yuen Long care home suffering from effects of tear gas [South China Morning Post]

The article is, of course, pure fiat news, an opinion piece that presents itself as a news update. The headline is selective and emotionally charged. The images are selected to evoke a particular response. Even when we agree with the narrative it is promoting – especially when we agree – fiat news should always give us pause.

But they aren’t the only ones creating narratives here. The protesters are, too. Singing “it is the music of a people who will not be slaves again” is beautiful narrative creation. Standing peacefully, armed against tear gas and bullets with spray guns, umbrellas and plywood shields? Brilliantly disarming tear gas canisters with cones and water guns? This is Holy, Rough and Immediate theater, all at once.

And it is amazing.

If you’re reading this, you probably know more about what’s going on in Hong Kong than just an airport shutdown. Like us, you’re probably Very Online, a ravenous consumer of global news. But for most of the country it is a different story.

Here, for example, is the front page of CNN.com as of 7:00 AM CT this morning. Dig a little bit and you’ll find something about the Hong Kong protests. Only don’t look for a story about self-determination, disenfranchisement or extradition. You’ve got to look for a story about how this might affect you, fellow American. Found it yet?

MSNBC’s front page has nothing. Zilch. Lots to say about Russia, though.

If you’re willing to scroll down past fiat news send-ups of Comey and Cuomo, Fox will give you a similar angle to CNN. At least they acknowledge the protests. Unfortunately, in doing so their headline writer unwittingly reveals a bit too much about US missionaries’ awareness of the protests: in short, they have not been paying attention to them for the months, not days, that they have been going on.

The Wall Street Journal puts it figuratively above-the-fold – they’ve got a good Hong Kong bureau – but again, the headliner news story is how this will affect your travel plans and the next two weeks of volatility in your portfolio. It IS a financial paper, so some grace is warranted here. Many of their reporters are doing good work. If you’re looking for someone to follow, @birdyword is a good choice.

The New York Times gives the “airport thing” top billing, too, but the nature of their coverage (presented cheerfully next to “What Would Sartre Think about Trump-Era Republicans”) would easily pass CCP censors. Every piece and every blurb being promoted is about the disruption being caused by the protests, and about the damage being done by them.

ET followers and subscribers – especially on social media – have been openly predicting over the last few days how quickly the Epstein case or the Hong Kong protest situation will fade from the zeitgeist, from the narratives about what’s going on in our world.

They won’t fade.

No, not because they’re powerful or timeless. They won’t fade because they don’t exist.

There is no narrative, no common knowledge in the US about these protests. American media have largely stopped covering them, and they aren’t written about as a “connected issue” for other topics. They have rarely, if ever, been connected to language used to discuss trade disputes with China. They aren’t related to the three or four articles grudgingly discussing the Uighur muslim reeducation villages they’ve set up (shh!). But this isn’t just US media. It’s politicians, too, who seem loath to tie anything of everyday significance to what’s happening over there.

The only reason at all the protests are getting coverage is in context of reports about Asian stocks and reports about flights in and out of Hong Kong. That’s it. From Quid, below we present a network graph of the last two days worth of all global news. In bold at the extremity of the northeast quadrant are the entirely peripheral, unconnected, paltry collection of articles about these protests.

Source: Quid, Epsilon Theory

I’m sure we will get a lot of “isn’t a clear-eyed view of the protests that they are unlikely to be successful” or “this will all be counterproductive” takes, which are very on-narrative responses. They also might not be wrong.

But wherever self-determination and resistance to the encroaching power of the state and oligarchical institutions find expression, there should our full hearts be also.

And our full voices.


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I’m a Superstitious Man


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I’m a superstitious man, and if some unlucky accident should befall him — if he should get shot in the head by a police officer, or if he should hang himself in his jail cell, or if he’s struck by a bolt of lightning — then I’m going to blame some of the people in this room.

Vito Corleone, “The Godfather” (1972)

Same.

Vito Corleone was speaking of his son, Michael, and these were some of the people he intended to blame for an “unlucky accident”.

I’m speaking of a monster, Jeffrey Epstein, and these are some of the people I intend to blame for this “unlucky accident”.

So … I want to be careful with what I am saying and what I am not saying.

I am NOT saying that Epstein was murdered, and I am certainly not saying that he was murdered on the orders of anyone in this picture.

Well, certainly not by Melania or whatever Playboy model Bill was boffing at the time.

JK! JK! I really and truly am not accusing Trump or Clinton of having anything to do with Epstein’s untimely demise, not even in a “who will rid me of this troublesome priest” sort of way.

What I am saying is that sociopathic oligarchs – of which club I consider Donald Trump, Bill Clinton and Prince Andrew to be charter members – are the necessary and sufficient conditions of the specific evil that was Jeffrey Epstein as well as the more general evil of sexual predation of children.

What I am saying is that Epstein’s direct testimony – AND ONLY EPSTEIN’S DIRECT TESTIMONY – had the potential to create a Common Knowledge moment like the one that destroyed Harvey Weinstein through the direct testimony of Rose McGowan.

What I am saying is that Epstein’s direct testimony – AND ONLY EPSTEIN’S DIRECT TESTIMONY – had the potential to create a Common Knowledge moment that could bring down – not just specific sociopathic oligarchs like Mob Boss Donald or Mob Boss Bill or Mob Boss Andrew if they were the specific targets of that testimony – but the entire Mob system of sociopathic oligarchy.

Jeffrey Epstein was the Missionary to bring down the monsters behind the monster, to bring down the SYSTEM of monsters.

Jeffrey Epstein’s books and records are not.

The individual voices of Jeffrey Epstein’s victims are not.

And that’s what makes me angriest of all.

That while the individual victims of Jeffrey Epstein’s crimes will maybe (maybe!) get some smattering of “justice” and recompense from the show trial of a monster’s estate, there will be no Justice served against the monsters behind the monster, that the Mob system of sociopathic oligarchy that CREATED this Jeffrey Epstein and the next Jeffrey Epstein and the next and the next will continue unabated. Untouched. Golden.

“Yay, justice!”

What I am saying is that there are enormous vested interests spread across multiple avenues of violence and power that will not allow that Mob system of sociopathic oligarchy to collapse on a single point of failure like Epstein’s direct testimony.

And so it didn’t.

And so Jeffrey Epstein is dead, victim of an “unlucky accident”.

Was it murder? Was it suicide?

I’m a superstitious man. I don’t care.

Is a murder committed more heinous than a suicide allowed? In its act, sure. In this context? NO.

An “unlucky accident” like this is the ONE THING that a non-corrupt State must prevent. It’s the non-corrupt State’s ONE JOB to keep Epstein alive for trial, and everyone knows that everyone knows this is their ONE JOB.

It is impossible to violate this common knowledge without premeditation and malice, without conspiracy and criminality aforethought. It is impossible to have an “unlucky accident” like this in a non-corrupt State.

I’m a superstitious man. I’m blaming the people in the room.

What room?

The room of violence and power and wealth.

The room of the corrupt State.

The room that is swarmed by the Nudging Oligarchy. The room that is supported and propped up by the apparatchiks and hangers-on and wannabes and “journalists” of District One.

I DON’T CARE how deeply Mob Boss Donald or Mob Boss Bill or Mob Boss Andrew was part of this specific criminal conspiracy, either in its operation or its cover-up.

They are mob bosses all the same, and I blame them all the same, and they are guilty all the same, regardless of their specific interest in this specific crime and regardless of whether this was murder or suicide.

Many readers will think I’m naive when I tell you that I was genuinely shocked that Jeffrey Epstein suffered this “unlucky accident.” As the kids would say, I was shook.

I haven’t felt this way since October 2008 when the US Treasury put the full faith and credit of the United States behind the unsecured debt of Goldman Sachs and Morgan Stanley and JP Morgan and Bank of America.

Then as now, the pleasant skin of “Yay, democracy!” has been sloughed off to reveal the naked sinews of power and wealth and violence beneath. There’s no crisis like there was in 2008. The world isn’t ending like it was in 2008. But I’m telling you that it feels the same to me.

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

The Nudging State and the Nudging Oligarchy cannot be defeated on a single point of failure like Jeffrey Epstein’s testimony at trial. Or like the bankruptcy of AIG.

The sociopathic oligarchs will win every direct confrontation. That’s what sociopathic oligarchs DO.

But a million effin’ points of failure? A rejection of the ATTENTION that sociopathic oligarchs require, in both markets and politics? A refusal to vote for ridiculous candidates and buy ridiculous securities? A refusal AT SCALE? A modern movement of disengagement from a market casino and an election sideshow in favor of what is REAL?

Yeah.

Yeah, that can work.

What does a movement of refusal and disengagement look like? Start here

And then go here …

The Second Foundation hides in plain sight.


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The Country HOA and other Control Stories

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Ahchoo: You don’t have to do this. Look, this ain’t exactly the Mississippi. I’m on one side, see? I’m on the other side. I’m on the east bank. I’m on the west bank. It is NOT that critical.

Robin of Locksley: Not the point! It’s the principle of the thing.

Robin Hood: Men in Tights (1993)

I visited my parents in Texas last week.

They live on the periphery of Houston exurbs and East Texas country, although – and this is not unusual for Texas – their home is in a development. What’s more, it is a development with an HOA. The kicker is that it is a gated HOA. My parents couldn’t care less about whether the community is gated or not. This just happened to be where they found the home where they knew they wanted to retire.  

But still, there’s a gate.

The nearest business – other than a gas station at the highway exit to get there – is a web-based thing some guy runs out of his house selling pretty rocks and healing crystals. The next closest are a lumber yard and two feed stores. Town doesn’t really have any crime to speak of. Doesn’t really have many people to speak of, for that matter.

And of course they change the code every couple of months. Just to be safe. So when I pulled up in the rental Hyundai with my wife and boys at, oh, around 9 PM, well, I had the wrong code. I sat there texting my dad for the new one, but my dad’s about as good at checking his phone as yours. No joy. Luckily, after a few minutes, some good ol’ boy in a white pickup pulled up. So I looped around the little island in the median where the gate control machine was positioned and got behind him.

He pulled through and did something I never thought I’d see. He stopped. Right past the opened gate. I mean that literally. He inched his truck forward so that there was a hair’s breadth between his tailgate and the now-closing community gate. He wasn’t going to let me in. Not only that. He waited, not for the gate to close completely, but for some new development in this high stakes drama of a family with two kids in car seats clearly visible to him as we looped around, parked in a purple SUV trying to get into a residential neighborhood in a crimeless community. Did he call the police? Did he summon the rent-a-cop working the HOA circuit checking on the length of everyone’s front lawns to make his way post-haste to enforce the community’s important security precautions?

I didn’t end up finding out, because I got the code from my parents and was able to open the gate. As soon as it opened, our knight on his shining white steed proceeded to his house. I hope his family was all present to hear this first rendition of his stirring tale of heroism.

Now, maybe you’re saying to yourself, “Rusty, this doesn’t sound that strange. Maybe there have been break-ins, and he’s just being conscientious of his neighbors.” I would be open to both of those arguments (I probably wouldn’t, actually – gated communities are uniformly ridiculous) if I didn’t have more information:

  1. There is no continuous wall extending from the gate around any portion of the development. The gate is completely ornamental and isolated.
  2. There are two other roads – one through a junk yard and another through a neighboring RV community, which connect to the community and are open at nearly all times to all comers willing to subject themselves to 1-2 minutes of inconvenience.
  3. The gates are wide open and unmonitored every day between 8 AM and 5 PM.

I understand the intent of the gate. It’s an inward-facing narrative, a story to tell people living there that their community is a refuge, a place they can come home to without fear. There is (yes, still) some prestige attached to living in a gated community, and some people derive some pleasure from that. I’m not saying I agree with any of this, or that all of the people living there care about these things, but it isn’t hard to grok the intent.

What was so shocking to me was that someone actually believed in the gate.

The driver of that pickup truck would have blithely entered his community behind a smash-and-grab robber entering when most smash-and-grab robbers do (i.e. during daylight hours when people aren’t there to make it inconvenient) without a second thought. He would never dream of monitoring ingress past this high security feature to the south (pictured below). Probably hasn’t spared a single thought for the two neighboring and connecting properties.

But boy, when someone was trying to get in under a certain of circumstances over which he had some direct control, his hackles were up. He knew his duty.

It shouldn’t have been shocking to me. This good ol’ boy isn’t strange. He’s all of us, as investors and citizens alike.  

Even when we know something is a story written for us, that we are being told how to think or feel about something to serve someone else’s purposes, there is a visceral, emotional part of us that wants to believe it. Needs to believe it. We yearn to see it as an echo of some truth rather than a construction, and when some paltry data emerges to confirm it, it becomes almost irresistible. And when it is something where part of the narrative is control?

There’s a reason why investors loved high-net long/short equity for so many years. Even after they had experienced bad results. Even after they figured out that the incentive fee-on-beta thing was too high a hurdle for even the most gifted stock picker. We wanted to believe the story, and the idea that doing so gave us the ability to be both long or short, to vary our net exposures to respond to market opportunities. Nevermind that we’d never found anyone who was good at those things. It was a story we wanted to believe. More importantly, it was a Control Story.

It was the same thing back when every big asset allocator rotated from the usual awful MSCI macroregional classifications to ACWI and “Global Equities” about ten years ago, and then started rotating back to the old schemes after a couple more years of dominant US equity returns. Gotta be able to more easily overweight the asset classes that did really well in recent years, after all. The story was that managers would have all these levers to pull – Sectors! Countries! Currencies! Cash! Stocks! Even when we know in our heart of hearts that everyone is terrible at making each of these decisions (yes, the exception you’re thinking of in your head is terrible at it, too), it is still a story we want to believe. It is a Control Story.

I leave you to muse about how this could be applied to the stories behind growth PE and buyout funds in 2019.

You and I – and the cowboy in the white pickup – we’re vulnerable to Control Stories because we believe that we and our advisors will make decisions that matter. We will make better use of flexibility, options and control than others. And no matter how much we know in our heads and show in our actions that this is just an ornamental gate built to tell us a story, we will actively seek out ‘evidence’ to prove what we want to believe. If you seek out evidence in that way, you will always, always find it.

So how do we spot gates to a Country HOA in our portfolios, our frameworks and our daily conversations? Here’s a few that spring to mind:

  1. “Multiple Ways to Win” is always and everywhere a Control Story.
  2. Decisions that are designed to allow you to take more risk elsewhere are always Control Stories.
  3. Arguments for transparency and what we will do with it are Control Stories.

You’ve probably got a dozen more. Pop them into the comments below!

No, not every Control Story is wrong. Still, Clear Eyes means dialing up our skepticism when we hear them.

Especially when it’s a story we are telling ourselves.


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What You Call Love

Don Draper: What you call love was invented by guys like me. To sell Nylons.


In certain circles, it’s fashionable to assert that “words are violence.” That is to say, certain language is used to perpetuate and reinforce existing (typically oppressive) social power structures, and this is a form of coercion on par with physical violence. For brevity, I’m going to lump everyone who espouses these beliefs together under the broad umbrella of postmodernism.

In other circles, it’s fashionable to ridicule postmodern ideas and the oft-ridiculous policies they inspire.

However, to the extent postmodern thought keys in on narrative, and particularly the role of symbolic abstraction in shaping individual and group identities, I’d argue there’s plenty of analytical utility to it.

Where people run into trouble is when they attempt to turn a methodology for analyzing signs and symbols into a belief system. Because this type of deconstruction is an inherently nihilistic activity. Ultimately, there’s no there there [Incidentally, this also applies to science. Science is a methodology, not a belief system. And belief systems are what separate the Jonas Salks of the world from the Josef Mengeles]. Or, as Venkatesh Rao put it (much more eloquently):

“Losing [all sense of objective meaning] is a total-perspective-vortex moment for the Sociopath: he comes face-to-face with the oldest and most fearsome god of all: the absent God. In that moment, the Sociopath viscerally experiences the vast inner emptiness that results from the sudden dissolution of all social realities. There’s just a pile of masks with no face beneath. Just quarks and stuff.

But that’s a subject for another note. A full hearts note. This is a clear eyes note.

And in case you’re wondering, no, words are not equivalent to physical violence. That is nonsense.

What is not nonsense is the notion that if you can deftly manipulate the symbols people use to assign and create meaning in their lives, you can manipulate their thoughts and behavior. We have a name for this outside academia and the culture wars.

It’s called advertising.

Let’s unpack that Mad Men quote that led off this note. Don Draper is describing what academic types would call the “signified” and the “signifier.” The signified is the abstract concept, love. The signifier is the ad selling Nylons. The ad signals what love means—how love manifests itself in the world. How you should express it. How it should make you feel.

This relationship is the basis for language (human or otherwise). Heck, it’s the basis for conscious thought. It’s therefore the building block for both fiat news and fiat thought—the raw material our missionaries use to build their wolf traps.

Every missionary has his own version of the Don Draper quote.

Politician: What you call values were invented by guys like me. To win power.

Fancy Asset Manager: What you call ESG was invented by guys like me. To gather assets.

The Sell-Side: What you call a rotation trade was invented by guys like me. To earn commissions.

An important thing to remember here is that awareness of how missionaries manipulate signs and signifiers is NOT the same as saying there are no such things as facts. It is NOT the same as saying there is no point to believing in anything. It is NOT an invitation to nihilism.

It IS, however, the foundation for a clear-eyed view of your world.


The Long Now, Pt. 1 – Tick-Tock


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Last year I wrote a series of notes called Things Fall Apart, focused on the transformation of our most important social institutions – small-l liberal institutions like free markets and free elections – from cooperation-allowing games to competition-requiring games. That sounds bloodless and small, but it’s not. It’s literally how society self-destructs in a widening gyre of mistrust and defection.

Today I’m starting a new series of notes called The Long Now, focused on the further transformation of our social institutions into political utilities … into smiley-face Panopticons of self-censorship where our marrow of autonomy and free will is sucked dry by the Nudging State and the Nudging Oligarchy.

Our money, too. Yes, this will be “actionable”, just maybe not in the way you’re used to.

The Long Now is everything we pull into the present from our future selves and our children.

The Long Now is the constant stimulus that Management applies to our economy and the constant fear that Management applies to our politics.

The Long Now is the Fiat World of reality by declaration, where we are TOLD that inflation does not exist, where we are TOLD that wealth inequality and meager productivity and negative savings rates just “happen”, where we are TOLD we must vote for ridiculous candidates to be a good Republican or a good Democrat, where we are TOLD that we must buy ridiculous securities to be a good investor, where we are TOLD we must borrow ridiculous sums to be a good parent or a good spouse or a good child.

It’s all happened before.

Here’s a SJW journalist who saw it clearly in the 1930s and 1940s.

History has stopped.

Nothing exists except an endless present in which the Party is always right.

George Orwell, “1984” (1949)

What Orwell called the Party, I call the Nudging State and the Nudging Oligarchy. I call it Management. Why? Because the future is not – as Orwell had it – a boot stomping on the face of humanity forever. Please. So messy. So … inefficient.

No, the future is a smiley-face authoritarianism, an authoritarianism that is not imposed on us, but an authoritarianism that we embrace.

 It’s not “Yay, Big Brother!”.

It’s “Yay, Capitalism!”, “Yay, Military!”, “Yay, Diversity!”, “Yay, College!” and “Yay, Stock Market!”.

You’re not, ummm, against any of those things, are you? Because that would be … unfortunate. I mean, you helping the terrorists and all.

Things Fall Apart started with the political and ended with the personal. Let’s flip that on its head with The Long Now. Let’s flip it ALL on its head. Because I know a few things about Time.


Tick-tock.

Tyler Durden, meet Neb Tnuh.


When did the future switch from being a promise to being a threat?

Chuck Palahniuk, “Invisible Monsters” (1999)

I remember exactly when MY future switched from being a promise to being a threat.

It was when my father died suddenly of heart failure in the summer of 1996. He was 62 and I was 32.

There’s something about the dynamic of your father dying suddenly that changes your relationship with the future and with time. Or at least it did for me. Now I was on a trapeze without a net. Now it was All. On. Me. With a baby on the way. Now, to use Palahniuk’s words, the future seemed like a threat, not a promise, where MY death was next in line. For the first time in my life, I felt the pressure of time and mortality, not as some philosophical musing, but for what it IS – an omnipresent pang, a constant bzzt-bzzt-bzzt of that feeling where you wake up with a start and you’re sure that the alarm clock is about to ring but it’s only 3am so you go back to sleep but you wake up again with a start and it’s 3:45 am.

Death inspires me like a dog inspires a rabbit.

Twenty One Pilots, “Heavydirtysoul” (2015)

So right.

See, the threat of the future isn’t a bad thing.

The threat of the future INSPIRES me. The threat of the future DRIVES me.

I’m not moping around waiting to die. I’m not lazing around eating bonbons. The present is for DOING. The present is FLEETING. I’ve got something to SAY before I go. I’ve got a future to SECURE for my children, because in them I can still see future’s promise and not just future’s threat.

This is your life and it’s ending one moment at a time.

Warning: If you are reading this then this warning is for you. Every word you read of this useless fine print is another second off your life. Don’t you have other things to do? Is your life so empty that you honestly can’t think of a better way to spend these moments? Or are you so impressed with authority that you give respect and credence to all that claim it? Do you read everything you’re supposed to read? Do you think everything you’re supposed to think? Buy what you’re told to want? Get out of your apartment. Meet a member of the opposite sex. Stop the excessive shopping and masturbation. Quit your job. Start a fight. Prove you’re alive. If you don’t claim your humanity you will become a statistic. You have been warned.

Chuck Palahniuk, “Fight Club” (1996)

The threat of the future revealed itself to me in 1996 with the death of my father and the birth of my child. One day the threat of the future will reveal itself to you, if it hasn’t already. When it does, you will be CONSUMED by thoughts of the future. You will FEEL the pressure of time more keenly than the younger you could ever imagine.

Tick-tock.

Time is the fire in which we burn.

Delmore Schwartz, “Calmly We Walk through This April’s Day” (1938)

You’ve never heard of Delmore Schwartz. In 1938 he set the New York literary scene on fire at the ripe old age of 25 with the publication of In Dreams Begin Responsibilities, a brilliant collection of short stories and poems about his parents’ marriage and divorce, and Delmore’s estrangement from them. From their “death”, so to speak. His work is imbued with the failure of the American dream for his generation, with the way in which the Team Elite of prior generations sucked the economic marrow out of the Gilded Age and dominated politics with false narratives. Sound familiar?

Delmore Schwartz wrestled with the threat of the future alone and unloved, and he succumbed to alcoholism and madness. He died in 1966 at the Chelsea Hotel – penniless, childless, friendless – dead for two days before a cleaning lady found his body. He was 52. Time is the fire in which we burn. Or rot.

The threat of the future washed over Delmore Schwartz in 1938 as surely as it washed over me in 1996. As surely as one day it will wash over you. But he never found his Pack.

If you would wrestle with future’s threat … if you would stare back at the abyss, as Nietzsche would have it, or if you would yell at the clouds, as The Simpsons would have it … find your Pack.

But see, that’s only one of the things I know about Time.

Tick-tock.

As Paul Harvey used to say, here’s the rest of the story.

It was the summer of 1996, early June, and I was teaching a course at Simmons College in Boston to make some extra dough. Jennifer was clerking for a lawfirm down in Dallas, pregnant with our first child. My dad called. He and my mom were in London, where they had rented a small flat for a month. Did I want to come over and stay for a few days? As it happened, I had five days free, perfect for a long weekend trip. I walked down to a cheapo travel agency on Boylston (yes, a physical travel agency), and found a ticket for $600 or thereabouts. Seemed like a lot. I could have afforded it, by which I mean there was room on my credit card to buy it, not that I could really afford it. $600 was a lot of money to me. That said, I hadn’t seen my parents since Christmas, and my dad sounded so … happy. This was a special trip for them, a chance to LIVE in a city that my father LOVED, and this was my chance to share it with them. But $600. I dunno. I called my father and told him that I just couldn’t swing it. He understood. He was a very practical guy. The call lasted all of 20 seconds. You know, international long distance being so expensive and all.

I never saw my father again. He died a few weeks after he and my mother got home.

Tick-tock.

Yeah, I know a few things about Time.

I know that the moving finger writes, and having writ, moves on.

I know that I would give anything to go back to that week in June 1996 and buy that stupid ticket that I couldn’t “afford” but really I could afford and spend five more days with my father and not do anything special but just BE with him and share a beer at that pub that he mentioned on the phone but that I just can’t remember the name of no matter how hard I try and it’s weird but that’s what bugs me most of all.

Tick-tock.

What do I know about Time?

I know that there is no Long Now.

The Now is short. That is exactly what makes it precious beyond price.

The Now is for LIVING.

I know that there is no Safe Future.

The Future is risky. That is exactly what makes it precious beyond price.

The Future is for INVESTING.

Yet instead of living in the Now and investing for the Future, we are nudged into “investing” for the Now and “living” in the Future.

HOW DOES THIS HAPPEN?

Economic stimulus

The threat of the economic future is removed by fiat and narrative, replaced by the Long Now of constant economic stimulus.

Political fear

The promise of the political future is removed by fiat and narrative, replaced by the Long Now of constant political fear.

We are told that the economic stimulus and the political fear of the Long Now are costless, when in fact they cost us … everything.

The Nudging State and Nudging Oligarchy will tell you “TINA!”. They will tell you that There Is No Alternative.

I tell you this is a Lie.

I tell you this is Sheep Logic, the intentional training of human intelligences to pursue myopic, other-regarding behaviors even unto death, through the vehicle of the Long Now.

What is the alternative to the Long Now?

Personal courage

Leaders who act as stewards of the future, not managers of the Now.

Professional courage

Investors who take more risk with what’s Real, and less with what’s not.

Social courage

Citizens who take back their vote, and who refuse to play the Fool.

Tick-tock.


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The Patsy, Revisited

Image result for warren buffett

As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Berkshire Hathaway Chairman’s Letter (1987)

This is the ur-quote. The True Source from which all hedge fund investor letter quotes spring.

I’m not criticizing. It’s a great quote. I’m also not pointing fingers. We’ve used the true-to-Buffett ‘patsy’ version of the quote at least once in past Epsilon Theory notes. We have used the ‘sucker’ version at least six times, by my count.

Funny thing about this quote, though. It means something different depending on who’s saying it.

It is used most often by Very Smart People to wave indistinctly at a crude straw man in the distance they call Most Investors. This straw man is clothed with all sorts of really lamentable traits, you see. He buys when everyone else is greedy. He sells when everyone is fearful. He hates value stocks and he always pays high active management fees. If you ever happen to play poker with Most Investors, just remember that he is always, always the Patsy.

Slightly less often, it is used by equity investors and fund managers in reference to reasons they have incorporated some acknowledgment of behavioral finance, sentiment, consensus views or momentum into their thinking or their process. It’s the calling card of the Wise-Sounding Skeptic, who can always get some street cred for telling you that there’s no free lunch, or that anything that seems too good to be true probably is. Again, before you hit the search window up there, remember: I’m not pointing fingers.

Ironically, in both of these cases, the focus of the aphorism is about you or about them. The other people at the table, who are sort of the whole point of the thing, are rarely more than an abstraction of individual actors into some archetypal idea of “the market”, if not another layer of abstraction into that loosely related piece of conceptual art called Most Investors. Hell, even Uncle Warren’s original bit was about Mr. Market.

You know who gets it, though? Debt guys.

No, not universally. Contrary to popular opinion (see, I built my own Most Investors, too), there’s no ‘smart’ part of the market. There are plenty of lousy credit long-short PMs, and even more dummies who’ve made a nice living getting pensions locked up in sidepockets or second extensions on way too much of NAV because of poorly executed loan-to-own strategies. But the guys who are actually in the business of worrying about where the rights that matter sit in the cap structure are the guys who are also in the business of understanding who is sitting at the table with them.

Not in some abstracted Mr. Market sense, but in the real-world sense of “Hey, who else actually owns this shit?”

In practice, most modestly shrewd equity investors can get away with abstracting the poker analogy to Mr. Market without worrying too much about who else actually owns what they own and why. There are generalizable archetypes of behavior and preferences. We kind of know how the academic factor quants are going to respond to this or that. We kind of know that there are knowable quantities of price-indifferent passive money. We suspect there’s a certain amount of contrarian capital ready to BTFD, and a certain amount of CTA money ready to take one on the chin when they do. We let that one guy at JPMorgan throw a dart to be breathtakingly wrong again about how much risk-targeted AUM is ‘in motion.’ Whatever mental model we have isn’t going to be anywhere close to perfect, but it’s usually going to be good enough for Bayesian work.

But if anyone is willing to tell you that they have a view on how a speculative asset (see here for the particular definition of this term I mean) will perform in a period of stress for risky assets, or that it should have a weak or negative correlation to, say, equity markets, and if their analysis is based on some trait or analysis of the asset itself and not the behaviors of the specific people who own the thing, they are probably raccoons.

And yeah, there are a lot of suspects for this particular crime. Folks selling you crisis risk portfolios holding selling something other than long USTs? Crypto “hedge funds” with correlation matrices in the deck? They deserve your skepticism.

No, not all of them are guilty.

But if a fund manager, salesperson or consultant tells you they know of an asset class that will buck the trend if and when risky assets deflate, here’s a tip: ask them who the other people sitting at the table in that asset are. Ask them to be explicit. Ask them to tell you why they believe those people will respond that way and not in the price-sensitive way Most Investors respond to broad-based risk aversion.

When you do, if they can’t answer, or if they start talking ‘fundamentals’ of the asset, please call your local animal control.

So I got that goin’ for me

Dry a subject as you’d imagine they would be, buybacks have become a topic every bit as polarizing as some of our political discussions. No matter how nuanced your view, it will be auto-tuned to some extreme by the obedience collar-wielding ideologues on one end of the spectrum or the dog whistle-wielding ideologues on the other.

Even now, someone is preparing a “stop with the bothsideism – it’s just math” response without reading any further.

Sigh.

It’s not about the math.

Sure, in nearly all cases where companies buy back stock, in the narrowest interpretation of that specific action of buying back stock, is management acting ethically and in the interest of shareholders”? Almost universally yes, because math. In a nearly universal range of circumstances, stock buybacks evaluated independent of other considerations are a really good, really efficient way to return capital to shareholders to deploy as they desire. In a very real sense, it can represent a company delivering on its most fundamental duty to the people who trusted it with capital: returning it to them with greater value.

So why isn’t it about the math?

Because the questions being asked about buybacks go beyond “in the narrowest interpretation, is management acting ethically and in the interest of shareholders.”

Because what buybacks (and any form of return of capital) tell us in general about corporate opportunities and American willingness to take business risk to produce returns at a macro scale matters.

Because what that tells us about how central banks and other policymakers are artificially influencing the relative attractiveness of those investment opportunities matters.

Because the way in which stock-based compensation structures may be exploiting the general (and appropriate) approbation of stock buy-backs among investors in order to mask the appearance of higher tax-advantaged compensation matters.

Because the way in which financialization in general is squeezing margins higher and making markets as measured on a P/E basis less expensive-looking matters.

Because even if you don’t think these things are nearly as bad as buybacks are good (and they are good), if you don’t realize that Wall Street is losing this meta-game, you aren’t paying attention.


So when you read this article in the Atlantic today, I suspect you will probably respond (or already responded) like I did:

You will cringe at the predictable framing of the issue around Michael Milken for some damned reason.

You’ll have ammunition ready to dispute the conclusions, robustness and analytical quality of the Fortuna study.

You’ll wince at the loaded word choices. “Draining capital.” “Corrupts the underpinnings of capitalism itself.” Really?

You will be ready to highlight how comparison of buybacks to corporate salaries without applying the same logic to dividends, debt reduction or any other effective return of capital is cherry-picking bias meant to inflame a certain kind of reader.

You will read the closing paragraph, chuckle at its sheer cheek, and find your brethren in the break room, colleagues at other shops and followers on social media to laugh about its bias and absurdity.

And you’d be in the right to do so. It is. It’s biased. It’s absurd.


And yet, it is also worth remembering our oft-told tale of coyotes and raccoons.

You see, you and me? We’re the coyotes. We’re wise enough to understand that those jars of pennies the Wilton retiree is shaking at us won’t actually hurt us. We know we’re right about the math of this efficient return of capital that is buybacks, and we’re going to shout down all this terrible analysis until everyone realizes we’re right. We are too clever by half.

Those guys in boardrooms figuring out ways to take advantage of our charitable passion for this issue to immunize their non-cash comp? They’re the raccoons. And they will continue to succeed in skimming the cream off their artificial EPS beats as long as we’re so focused on arguing with the Gell-Mann Amnesia-ridden readership of the Atlantic about the obvious damn math of buybacks.

It’s. Not. About. The. Math.

If we care about maintaining the flexibility of corporate management teams to deploy and return capital flexibly and with the least interference by regulators and politicians – and we should – every moment that we spend as an industry debating and analyzing the math of buybacks instead of actively seeking out and rooting out raccoonish boards and management teams is an utter waste of time. The right to return capital in a very sensible way will be legislated out of existence (again) while we thump our chests about whether the data-set used in some dumb article properly accounted for survivorship bias.

This topic is firmly in narrative land now, folks, and if you’re playing this as a single debate to be won instead of the metagame it now is, you’ll lose. But at least you’ll be right. So you got that going for you, which is nice.

The Problem with Brussels Sprouts

I think it started in 2010.

Within six months of patient zero, they were everywhere. Every gastropub. Every upscale comfort food concept. Every ‘American Brasserie’ in a gentrifying neighborhood. Every farm-to-table that became an OK-maybe-a-little-Sysco-to-table after six months of food cost realities.

Brussels sprouts.

No, not the actual vegetable. That would be gross. No, I mean Brussels sprouts! These things that we quartered, soaked in olive oil and butter, bathed in salt and pepper and scorched until the memory of green was all that was left. These were things that, seemingly out of nowhere, an entire industry sold aggressively to a generation whose smell memory could still produce on command that acrid, metallic scent of unseasoned frozen sprouts being microwaved in water in a shallow Corningware dish – you know, the one with flowers or a cornucopia-style collection of earthy vegetables on the side?

Y’all, the only reason anyone orders this vomitous cabbage is because it is transformed into a cartoon of itself.

But hold that thought for a moment.


I had a colleague – now, sadly, passed away – who had a favorite expression: blue light, blue suit.

The idea behind the idiom was that the job of a fiduciary was not to blindly deliver what a client wanted, but what they needed. Still, one couldn’t get around the fact that clients want to be sold on what they want. If they want a blue suit, then give them a blue suit, dammit. But not an actual blue suit that would be wrong for them. Give them the gray suit they need – and shine a blue light on it if you have to.

I had a boss whose oft-used variant was the red convertible. Do your analysis, add whatever conclusions, bells and whistles you want, even take it up a notch. But the thing I get at the end of the day better at least look like a red convertible.

I met another wealth advisor once who favored a food-related analogy for the same concept. Investors need to eat their broccoli, he said, so figure out a way to make it taste good. It was, as you might imagine, a story offered in defense of investment policy statements which emphasized asset classes and strategies which (nominally, anyway) diversified home country equity risk. Heavy on foreign equities, alternatives, real assets, that kind of thing. After 10 years of S&P dominance, nobody really wanted them, but they needed them. The trick, he figured, was making the clients OK with getting the things they needed but didn’t really care about.

It occurs to me now, I suppose, that the food-related examples of this idea are overwhelmingly common. I know a CIO, for example, who characterized some of his firm’s strategies as hiding the pill in the cheese, a tactic immediately recognizable to any dog owner. It’s your job to give him what he needs, and it doesn’t matter how he gets it.

This is the heart of the meta-game of money management.

It is easy to see for those inside the industry why this meta-game playing is necessary. I hope that it is also easy for those same people to see how it might go very wrong. In practice, however, our own self-deception about why we sell investment advice in certain ways makes it far more difficult to detect. In the interest of circumventing that self-deception, let me offer another axiom:

There is no wealth management firm in the world for which investment expertise is a sustainable competitive advantage.

This is the Brussels sprouts are objectively gross statement of the story I am telling here. The only difference is that whereas some of you may have sufficiently bad food opinions to reasonably disagree with that statement, if you disagree with the above statement about investment expertise, I think you are probably just wrong.

If you think that the edge in your advice service is performance, you are probably wrong. If you think that the edge in your advice service is investment selection, you are probably wrong. If you think that the edge in your advice service is investment insight, you are probably wrong. If you think that the edge in your advice service is uncovering new investment ideas, you are probably wrong. And yet, if prospective clients don’t believe that we can do each of these things, we will almost certainly fail to build a business. What’s worse, those prospective clients will do business instead with someone less scrupulous.

It is an uncomfortable truth, but the only reason we are usually hired is because we have been transformed into a cartoon of ourselves. A cartoon of relative expertise. A plate of Brussels sprouts, charred and covered with so much fat and salt as to be almost unrecognizable.

The inevitable path of the meta-game conscious financial adviser, then, is the creation of that cartoon of expertise. What does that cartoon look like? Well, we either celebrate some expertisey-sounding thing about our firm that really has nothing to do with expertise or the odds of any investment outcome, or we hold out the notion that something we are doing may be related to producing better investment results without exactly saying it.

We tout the home office’s resources.

We talk about the depth of our teams and resources.

We talk about team credentials.

We talk about our access to unique investments.

We talk about our ESG framework.

We talk about our research, our data, our analyst team.

We talk about our process.

We turn ourselves into a talking head. An expert.

In each of these cases, we may not say that these traits are definitely or explicitly related to better investment outcomes, but the reason we cultivate them and talk about them is absolutely to satisfy the client’s desire to hire a financial adviser with the most investment expertise. It is how we create a cartoon about our expertise, knowing full well that the client will associate that with their expected investment outcomes.

So if you’re a financial adviser, here’s the question you’ve probably asked yourself more than once: is this honest? Is it fair and good and right to heavily emphasize things in marketing that aren’t false, but which don’t really matter that much to the client’s outcomes, simply because we know the prospect or client cares about them? Does the fact that we really are delivering a very credible, high quality advice product at a really competitive fee that is far better than what the charlatans and churn artists out there are pitching mean that we can feel less bad about mentioning our amazing stock guy who’s had a great run the last few years ? Or the fact that our US-tilted portfolios outperformed our peer RIA across town, even though our positioning reflected bad diversification hygiene and our results reflected simple good fortune?

There’s a lot of salt and butter on those Brussels sprouts, y’all. These are hard questions. I don’t have an answer. But I do have a process: Clear Eyes, Full Hearts.  

Clear eyes: There’s no way around it. We have got to talk about these things. Our clients are grown-ups, and don’t deserve our condescension. Yes, we’ve gotta have a page in our deck with the team’s years of experience and degrees. Yes, it’s OK to talk about our process and why we think it works. Yes, it’s OK to talk about historical client outcomes, provided we’re doing it in a seriously, honestly, humbly non-promissory (and compliant) way.

Full hearts: No, we don’t have to build our entire proposition on a cartoon of relative expertise. We don’t have to treat clients like children, but we also don’t have to treat them like marks. I think that means emphasizing, not just in marketing but in practice, the elements of financial and investment expertise that are real, important and rare. I can think of six:  

  1. Identifying and consistently reevaluating and delivering the right level of risk.
  2. Delivering a nuanced, real understanding of diversification.
  3. Really influencing household expense management.
  4. Financial, estate, tax and philanthropy management.
  5. Business consulting for entrepreneurs and business owners.
  6. Structuring investments to properly complement existing illiquid holdings.

The more important truth, of course, is that the single most important thing an adviser can deliver isn’t any of these things. It isn’t a question of investment expertise at all. It’s…well…advice. When risk appetites are high, restraining exuberant behaviors. When risk appetites are low, restraining fearful behaviors. And in all cases, working constantly to ensure that when these times arise, we have the kind of relationship and trust with our clients that will make them listen. The relationship is the thing. And while I’m not saying that you, individual FA, don’t have a couple relationships that are strong enough to withstand a pretty rough go of it, I think we all need to be pretty clear-eyed about how much of these relationships will boil down over time to the perception of the results we produce.

I am also not saying that you should not earnestly try to outperform peers. I believe that there are behaviorally-driven strategies that will (nearly) always work over sufficiently long periods, even if those periods do seem to be getting, ahem, a bit longer. I believe that there are inefficiencies driven by non-economic actors in a variety of financial markets that can create opportunities with uncorrelated sources of return. I believe that there are changes in the structure of markets that occur from time to time that can create periodic sources of return. Ben and I spend half our time on these things, for God’s sake.

But they can’t be the fundamental value proposition. Not for someone who wants to do this the right way. Control your cartoon, but don’t let it turn you into a raccoon.

Mailbag: A Modern Vocational Curriculum

Few topics seem to arouse the kind of interest, creativity and occasional rancor as our diversions into higher education. When we wrote about a vocational curriculum that we thought would do a far better job achieving the true professional preparation aims of a mixed post-secondary educational system, we received a lot of thoughtful comments – enough that it made sense to make sure all of our readers saw them:

Interesting selection. You might be interested to know that something very similar (https://lambdaschool.com/) already exists. I have no association with them, other than working with some graduates and recommending people send their kids there as opposed to University. There are a couple of changes:
1. Students pay no tuition until the graduate and get a job that pays $50K plus/year.
2. The annual amount they pay is charged as a percentage of their salary and is capped both in what’s paid in a year (I think around $17K) and in total (I think its around $30).
3. There is testing to get in.
4. It is based around software engineering.
5. The program takes 9 months to complete.
6. Lambda school is incentivized to get the students jobs, though there is more demand for graduates than there are graduates.

I can attest that their graduates are excellent.

– Andrew Meyer (ET Subscriber, via website)

We are big fans of Lambda . That said, it is a software development-focused program, whereas we think the problem it would solve is much larger. Still, both our theoretical solution and the solution Lambda is actually pursuing are both incapable of solving the credentialing problem on their own. This is a demand-side problem (w/r/t labor), not a supply side problem.

I’ll add an anecdote from my earlier years…..I knew a Burmese family that was rather wealthy – the men told me that as part of their social education, they had to spend one month as Buddhist monks , and beg for food on the streets every day . Regardless of the fact that they lived in big houses with multiple servants or that their parents drove expensive European cars.
The idea – to teach them humility ……
Of course, they cheated by asking friends and relatives to give them food every day but I thought the original concept – humility – was a good one.

– Cartoox (ET Subscriber, via website)

One of the primary challenges of the American public school setting, I think, is its inability to cultivate humility. The entire experience teaches most students that strident confidence is the path to success. In fairness, that is ONE path to a form of financial success in some professions, but the kind of self-introspection and honesty necessary to achieve more meaningful forms of success don’t come easily to those who (like me) were educated in environments where maximizing relative comparisons was the most immediately profitable path.

I could quibble in detail and pick nits around the edges, but my first reaction is that I wish that had been there for me. This would change the world, and it got me wanting to start a school.

– Howard Wetsmann (ET Subscriber, via website)

Thanks, Howard. Me too.

This is stellar. I’d add a module on design/aesthetics and probably pull the calculus. Just a tiny bit of design training makes a world of difference in almost every aspect of business.

– Brent Beshore (Via Twitter)

I struggled over this exact thing. I don’t know that I’d swap out calculus (it’s a hill I’ve chosen to die on, for better or worse), but Brent is right – design is huge. The ability to frame an idea in words is powerful. The ability to frame it in visuals is no less powerful, and in some circumstances even more indispensable.

If this was your reaction, too, I probably agree with you.

You inspired me to take a stab at this myself, @EpsilonTheory: (link: https://blog.dthomason.com/a-better-vocational-curriculum-for-university/) blog.dthomason.com/a-better-vocat…. Quite similar to @WRGuinn‘s answer, but with a bit more focus on meta-skills. Interested in your thoughts!

– Daniel Thomason (Via Twitter)

Please take a look at Daniel’s link.

There are some things here with which I’m in violent agreement, and a few which I’m not sure about. Most notably, Daniel’s list is high on meta-skills, as he points out, which I think is spot on in terms of what leads to professional, financial and personal success. These are things like ‘discipline’, ‘decision-making’ and the like.

When we consider education, however, I personally think that we must separate what is important from what a formal direct educational platform is the best venue to convey. I agree with Daniel, for example, that personal discipline, self-control and decision-making processes are going to be far greater indicators of success than whether you remember the derivation of Black-Scholes. Where I differ, perhaps, is that I think that these are skills that are best developed in live workplace situations. Entry-level professional projects have a comparative advantage vs. formal education in developing them, and I would not focus on them in a vocational program. Your mileage may vary, however – just my take.

I’d add a course in ethics. I took an ethics course in biz school that was revealing. The class was mostly mock situations wherein collaboration produced a satisfactory result, but individual promise breakers came out better. Everyone needs to know how it feels to be cheated.

– George Hill (Via Twitter)

Unfortunately, everyone will learn how it feels to be cheated pretty quickly in their career.

This is a similar point to the one I would make to Daniel: much of what we teach is based on what we believe is important, even if the setting isn’t one that will most effectively convey the lesson. Unlike Daniel’s point, however, I think that ethical behavior is a thing which – if it isn’t clear by the time someone has graduated high school – is probably either unlikely to be grasped at all or which has been very consciously ignored by the student. In either case, post-secondary instruction doesn’t seem as useful to me.

If reinforcement is useful, it will be in assuring young professionals that there is a path to financial success and opportunity that permits reciprocity and full heart behavior. Again, however, I think that is a thing that can only be learned in practical settings.

Every Shot Must Have a Purpose

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I rather enjoy playing golf. But there’s no denying golf is infested with raccoons trying to sell you stuff. Swing trainers. Special clubs. Systems “guaranteed” to lower your handicap.

This ranges from the oversold…

…to the utterly ridiculous.

Not to mention a fair bit of coattail riding on anyone with an aerospace engineering background.

Golf’s a lot like investing that way. And a lot like life, for that matter. Once I realized this, I began to enjoy the game much more, as an exercise in both mental and physical discipline.

Any progress I’ve made on that front, I credit first and foremost to the book Every Shot Must Have a Purpose, by Pia Nilsson, Lynn Marriott and Ron Sirak. It’s rather critical of current methods of golf instruction and training—particularly of what the authors see as an overemphasis on technical mechanics at the expense of player psychology. Early on, they write:

This is where honesty comes into play. The first step toward expanding our perception of the game in general and reaching a better understanding of our own game in particular is to face reality. If that bad swing was caused because you tensed up under pressure, hitting a million practice balls won’t fix the problem.

Rather than the minutiae of swing mechanics, or gimmicky shortcuts, you’re better off focusing on:

  • Course strategy and risk management
  • Shot commitment
  • Focus and tempo

We see this in investing, too. Particularly when we’re investing other people’s money. The most grievous portfolio construction issues I see inevitably seem to center on basic issues of strategy and commitment. Particularly around whether a portfolio should be built to seek alpha or simply harvest beta(s). 

You don’t have to shape your shots every which way and put crazy backspin on the ball to break 90 in golf. Likewise, not every portfolio needs to, or even should, strive for alpha generation.

There are few things more destructive (or ridiculous) you can witness on a golf course than a 20 handicap trying to play like a 5 handicap. And it’s the same with portfolios. For example, burying a highly concentrated, high conviction manager in a 25 manager portfolio at a 4% weight. Or adding a low volatility, market neutral strategy to an otherwise high volatility equity allocation at a 2% weight. (See: Chili P is My Signature

I’ll go out on a limb and suggest very few financial advisors and allocators build portfolios capable of generating meaningful amounts of alpha. The hallmarks of portfolios purpose-built for alpha generation are concentration and/or leverage.

The hallmark of a portfolio lacking strategic direction and commitment, on the other hand, is optical diversification that rolls up into broad market returns (more pointedly: broad market returns less expenses).

I’m absolutely not arguing every portfolio should be highly concentrated. Or that every portfolio should use leverage. I’m merely arguing that portfolios should be purpose-built, with portfolio construction and manager selection flowing logically from that purpose. 

How is it we end up with portfolios that are not purpose-built?

We don’t commit to the shot.

Nilsson, Mariott and Sirak describe a textbook golf example:

Patty Sheehan, the LPGA Hall of Fame player, was playing the final hole of a tournament when she needed to hit a fairway wood second shot to a green protected by water on a par-5 hole. A birdie was essential to play in contention, and the possibility of an eagle was a chance she had to take. What resulted, however, was her worst swing of the day–in fact, probably one of the worst swings she ever made in competition—and she cold topped the shot. As the ball bounded down the fairway and into the creek short of the green, she watched her chances of winning disappear with it. […]

[T]he TV commentators missed the point. If they wanted to run a meaningful replay they should have shown the tape of the indecision BEFORE Sheehan hit the shot. First she had her hand on a fairway wood, then she stepped away from the ball and her caddie handed her an iron. Then she went back to the fairway wood. The indecision in the shot selection led to a lack of commitment during the shot. The poor swing resulted from poor thinking.

For an investment committee, the rough equivalent is the four-hour meeting that results in a 50 bps change (from 4.50% to 5.0%) to the emerging markets weight in the Growth model portfolio.

At best you are rearranging deck chairs with these kinds of moves.

Granted, when it comes to investing some of us will have a more difficult time managing shot commitment than others. For the self-directed individual, this is simply a matter of managing your own behavior. Advisors and institutions, on the other hand, must manage other people’s behavior, often in group settings.

There’s no easy solution to this issue. It can be fiendishly difficult to manage. But there’s at least one essential precondition for shot commitment in investing and that’s a shared investment philosophy. A code.

I’m not talking about the obligatory investment philosophy slide of everyone’s investor deck that’s included to pay lip service to a “process orientation.” I’m talking about genuine philosophical alignment. The kind of philosophical alignment that runs deep into the marrow of the decision makers’ bones and therefore permeates every aspect of portfolio design and management.

What does this look like in practice?

More time spent on philosophical discussions around persistent sources of returns and, more importantly, whether the investor(s) can credibly access them.

Significantly less time spent on chasing shiny objects, debating the merits of individual investment manager performance and statistical rankings of investment manager performance. (In fact, it’s okay to spend basically no time on this at all)

Significantly more time spent on managing the alignment of expectations across investment professionals, clients and other stakeholders in an accessible, plain-language manner. 

This is fairly straightforward in principle, but extremely challenging to execute.



  PDF Download (Paid Subscription Required):  Every Shot Must Have a Purpose


Election Index: Beyond the Debates – 6.30.2019


This is the third installment of Epsilon Theory’s Election Index. Our aim with the feature is to lay as bare as possible the popular narratives governing the US elections in 2020. That includes narratives concerning policy proposals and candidates found in the news, opinion and feature content produced by national, local and smaller outlets.

Our goal is to make you a better, more informed consumer of political news by showing you indicators that the news you are reading may be affected by (1) adherence to narratives and other abstractions, (2) the association/conflation of topics and (3) the presence of opinions. Our goal is to help you – as much as it is possible to do – to cut through the intentional or unintentional ways in which media outlets guide you how to think about various issues, an activity we call Fiat News.

Our goal is to help you make up your own damn mind.

Our first edition covered April 2019, and included detailed explanations of each of the metrics we highlight below. If this is your first exposure to our narrative maps, analysis or metrics, we recommend that you start with that primer.


Election Narrative Structure as of June 30, 2019

Source: Quid, Epsilon Theory

Commentary on Election Narrative Structure

  • Our previously expressed views – that adoption of active narratives into public common knowledge would cause Biden to fade in favor of Sanders, Warren and Harris – proved largely accurate (although we did not anticipate how meaningful the bump to Harris would be).
  • Our data covers the whole month (not just the post-debate period), but it is striking that the debate-specific coverage in the southeast quadrant of the graph is so distinct and separate from the rest of election coverage. Some of this is just a reflection of pre-and-post-debate narratives changing, but we think this distinction is indicative of very strong narratives in media that are being promoted by outlets in spite or or in response to debate outcomes.
  • The most connected language and most central articles, however, are not candidate- or issue-specific. They are identity-related, articles about “White America”, ‘Black Voters”, ‘Hatred, Prejudice and Rage”, and the candidates capable of representing and achieving electoral success by appealing to each. In the wake of the Harris/Biden busing debate issue, the media have taken this lens to a new extreme.
  • President Trump has entered the narrative fray on 2020, and coverage of his comments and campaign launch represented a meaningful change in the overall network structure.
  • The debate has not reshaped the narrative of “Issues That Matter”. That continues to be built around democratic socialism and more general leftward inertia. Both fear-driven articles and those with a favorable temperament toward these policies and the inequality faced by the poor, students and migrants are far ahead of competing economic, abortion, impeachment, foreign policy or entitlement program policies.
  • At a high level, we think these are the issues that media outlets are promoting as “what matters” in 2020:
    • Social equality (race, sexuality, gender and treatment of immigrations/asylum-seekers)
    • Economic equality (income and wealth)
    • Healthcare
    • Education, Student Debt
  • We think these are the issues that are otherwise absent so far from any media-promoted narrative about the 2020 election:
    • Trade
    • Foreign policy / military
    • Abortion / reproductive rights
    • Climate change and the environment (surprisingly)
  • As we gauge our own sensitivity to and focus on certain issues, we would be conscious of Fiat News nudges to “care more” about certain issues than others, and to be sensitive to those cases where certain positions are more or less attached to various candidates.

Candidate Cohesion Summary

Commentary on Candidate Cohesion

  • Despite a generally panned debate performance, Sanders remains at the top of our cohesion score, both for the primary process to-date and for June specifically. That means that the language used about Sanders continues to be internally consistent. The Sanders narrative is common knowledge.
  • A Buttigieg narrative, however, has emerged following a debate performance that crystallized in a substantially higher rate of pieces characterizing him as erudite, well-prepared and intelligent, in addition to an almost obligatory reference to the recent police-involved shooting event in South Bend.
  • While Biden content to-date has referenced a generally consistent – if negative – internal narrative, the internal cohesion of Biden stories cratered in June. We think much of this pertains to the conflict between pre-debate stories about Biden as the candidate with the greatest potential among black voters, and post-debate stories positioning Biden based on a segregationist-friendly past. It further muddies the waters of an already challenging narrative to manage.
  • The Sen. Harris narrative was less cohesive in June – a result, we think, of broader, further-reaching coverage after she emerged as a more prominent candidate following her first debate performance.
  • We would continue to be cautious in our consumption of Fiat News about Sanders, where we expect coverage to continue to be auto-tuned to existing narratives of what Sanders is as a candidate. We would likewise be cautious of Fiat News in news about Buttigieg and Biden, where significant change in narrative cohesion indicates to us potential new missionary activity and attempts to change that narrative.

Candidate Sentiment Summary

Commentary on Candidate Sentiment

  • The biggest positive movers in sentiment of media coverage in June were Sanders, Warren and Buttigieg, all of whom were already relatively positive to begin with. But social equality, economic equality and socialist-friendly narratives were especially powerful in June coverage.
  • The negative sentiment attached to Biden narratives persisted in June, and worsened slightly after additional negative coverage of his debate performance and poll results.
  • We think that sentiment, as manifested through Fiat News and affected language, is perhaps the easiest narrative structural element to spot. It is also, however, very easy to slip into confirmation of our preconceptions. When sentiment aligns with our predispositions, we tend to see it as reasonable, factual language. When it is misaligned, we tend to see it very clearly as biased.
  • For this reason, we continue to recommend caution in all news and analysis judging Biden, Sanders, Warren and Buttigieg, regardless of whether the sentiment strikes us as ‘reasonable’ or ‘justified’ given recent events.

Candidate Attention Summary

Commentary on Candidate Attention

  • If you are surprised that Harris has not risen in terms of attention in June, don’t be. Our attention measure is not a measure of how much coverage a candidate or topic receives, and while Buttigieg and Harris were the big winners from June on that dimension, our measure is one of the consistency of candidate/topic language with the overall narrative. Despite a powerful group of post-debate articles arguing for Harris as the ‘winner’ of the first round of debates, the language used to describe Harris’s candidacy remains disparate and distinct from most of the language used to describe ‘what matters’ about the election.
  • In other words, we think that Harris gained in polls and favorability through what was perceived as a rousing personal defeat of Biden, the front-runner.
  • We think that this victory hasn’t really resonated in narrative world, because it isn’t connected to the common knowledge about what the 2020 election “is about”. We think that means that – barring a change in those narratives – observers expecting Harris to demonstrate continued momentum against Warren and Sanders may be disappointed.
  • Sanders is the candidate whose own narrative is most ‘on-narrative’ with the election more broadly. In other words, what Sanders is about (in media) continues to be what the 2020 Election is about (again, in media).
  • The biggest positive mover, as elsewhere, has been Buttigieg. We think that the rise in attention here is more sustainable, given that Buttigieg’s message, sentiment and cohesion appear to have been adopted by media outlets fairly readily and quickly.
  • That also means that we would expect to see more coverage of Mayor Pete’s candidacy that seek to tell a story through Fiat News. We would remain mindful of this in our news consumption.