Threat Display

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

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


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

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

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

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

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

ET Pro Trade and Tariffs Monitor – 6.30.2019

Welp.

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

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

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

Source: Bloomberg

Extra credit for spotting the Fiat News angle here.

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

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

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

Source: Bloomberg

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

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

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

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

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


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To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You'll get two or three of these emails every week, and your email will not be shared with anyone. Ever. It's our effort to spread the word about what we're doing, and allow you to read more Epsilon Theory!

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cartoox
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cartoox

almost every time I read ET i get a little more insight into everything ….Thanks !
I live in HK…..Watching the crowd seeing the crowd……changing protest tactics constantly in the fight against the Communists and the local Government……when I read ET it actually feels that some of the insights are being played out live in front of me……not sure how else to put it……Great work guys !

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The Daily Zeitgeist

Frauds and Traitors

By Ben Hunt | August 16, 2019 | 2 Comments

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

It makes it easier for them to hide.

Read more

When Potato Salad Goes Bad

By Ben Hunt | August 15, 2019 | 4 Comments

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

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

This is what it means for a narrative to go bad. This is what it means for a story to break.

And when a story breaks, so does the stock. Not just for a little while, but for a loooong time.

Just ask GE.

Read more

A Cartoon in Three Parts

By Rusty Guinn | August 8, 2019 | 2 Comments

Cartoons are not evil. And yet they are the engine behind the Long Now, and very much at the center of our financial Zeitgeist. What is a clear eyed, full-hearted investor and citizen to do?

Read more

The Last Chance

By Rusty Guinn | August 7, 2019 | 6 Comments

You want scarcity? Access to the upper echelons of high society? Well, say no more. It’s your very last chance to buy this most special, most fantastical, most legendary, most unattainable of whiskies.

Read more

Are You Sweet Talking Me?

By Ben Hunt | August 6, 2019 | 4 Comments

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

It’s a funny scene in a movie.

It’s a crappy way to run a country.

Read more

The Donkey of Guizhou

By Ben Hunt | August 5, 2019 | 7 Comments

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

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

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

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

Read more

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