One evening a few weeks ago, I was on a Zoom call with a bunch of academic, think tank and Fed economists for a Bitcoin discussion. A lot of names you’d know if you’re familiar with those circles, the most famous one being Paul Krugman (who, btw, I found to be charming, genuinely open-minded, and surprisingly humble about the entire enterprise of academic economics). I had been invited to be on the anti-Bitcoin ‘side’ of the discussion, but they needn’t have bothered. Because there was no pro-Bitcoin side.
Krugman led with a simple question – what’s the use case for Bitcoin? Not a theoretical thing, but an actual use of Bitcoin to solve a problem in the real world? – which led to an hour-long, extremely earnest and altogether unsatisfying conversation about financial transfers out of Venezuela, trade settlement and securitization on a blockchain, and Taylor Swift’s ability to control the scalper/resale market for her concert tickets.
All of which are real things. All of which are interesting things. All of which are good things. But none of which are what got 20 busy people on a Zoom call at 8 pm on a Thursday night.
None of which ARE Bitcoin.
Now, to be fair, there were no old-school Bitcoin maximalists on the call, or if there were, they were too intimidated to make an Austrian economics, hard money, neo-goldbug, Bitcoin-is-the-inevitable-global-reserve-currency argument in front of Paul Krugman. LOL.
But I finally couldn’t take it anymore.
Is this really why we got on the phone tonight? To talk about a novel form of digital rights management? To talk about payment transfers out of authoritarian third-world countries? Are these REALLY our questions about Bitcoin?
Answer: of course not. What got these academic, think tank and government economists on the phone that night was Bitcoin trading at $50,000. The question that everyone truly cared about, but a question that everyone danced around for the better part of an hour, was this: Is there any there there in the price of Bitcoin?
To which everyone, including the supposedly pro-Bitcoin contingent, said no. Not just no, but no, no, no. The price of Bitcoin was an illusion. The price of Bitcoin was the madness of crowds. The price of Bitcoin had no connection to any fundamental economic activity, just like gold had no connection to any fundamental economic activity, and thus – to this audience – could have no inherent value by definition.
I think this is very wrong. And I’ll tell you, like I told this Zoom call, why I think there is a lot of inherent value in Bitcoin.
Because Bitcoin is good art.
Or better yet, because Bitcoin is elegant and beautiful fashion, sitting at the intersection of art and commerce.
Most importantly, because owning Bitcoin has been an authentic expression of identity, an extremely positive identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy.
I’ve been saying that Bitcoin is art for more than six years, from The Effete Rebellion of Bitcoin (Feb. 2015) to Too Clever By Half (Feb. 2018, my most popular note ever!) to Riding the Cyclone (June 2018) to The Spanish Prisoner (July, 2019), and it’s been a very frustrating place to be. Frustrating because public stances on Bitcoin are almost immediately turned into cartoons – either you’re the grumpy grandpa “Bitcoin is worthless!” cartoon or you’re the laser-eyed cultist “Bitcoin will be the world’s reserve currency!” cartoon, with no room in between.
The value-deniers, like the Zoom crowd the other night, think I’m agreeing with them when I say that Bitcoin is art. I’m not. The true-believers think I’m trolling them when I say that Bitcoin is art. I’m not. The creation of good art is – in my opinion – what we are put on this earth to do. It is our highest calling. It is my highest praise.
There is lasting value in good art, because it is a very scarce thing and it never gets used up.
Bitcoin is itself an NFT, a unique digital art work instantiated on a blockchain. It’s the most valuable NFT in the world. I don’t mean a Bitcoin, obviously that’s a fungible thing. I mean THE Bitcoin … the 21 million Bitcoins that make up the Bitcoin Project. The notion that Bitcoin would ever “go to zero” is ludicrous. Good art is always worth something. But how do we measure that something … how do we put a price on the value of good art at this particular moment in time? It’s a REALLY tough question.
There are no cash flows to art. There are no fundamentals to art. There is no “use case” to art.
There is only story. There is only narrative. There is only common knowledge – what everyone knows that everyone knows – about the value of art, common knowledge that emerges from our social interaction with story and narrative.
In every respect that matters, Bitcoin IS Epsilon Theory.
The Epsilon Theory Manifesto (June 2013)
Our times require an investment and risk management perspective that is fluent in econometrics but is equally grounded in game theory, history, and behavioral analysis. Epsilon Theory is my attempt to lay the foundation for such a perspective.
So yes, I’ve been saying that Bitcoin is art for a long time now. But what I haven’t been saying – or at least not as loudly – is that bit about identity, and that’s the part that needs to be shouted today. So here it is again, this time a little louder …
Most importantly, owning Bitcoin has been an authentic expression of identity, an extremely positive identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy.
This, too, IS Epsilon Theory.
Why am I shouting about identity?
Because the artistic Bitcoin identity I admire and value has been subverted by the neutering machine of Wall Street and the regulatory panopticon of the US Treasury Dept.
Because what made Bitcoin special in the first place is nearly lost, and what remains is a false and constructed narrative that exists in service to Wall Street and Washington rather than in resistance.
Yes, the Nudging State and the Nudging Oligarchy strike back. They always do when it comes to money. Not with imperial stormtroopers or legislative sanction, but with golden handcuffs and administrative surveillance.
It’s not that the State and the status quo institutionalization of capital – call it Wall Street, for short – have any desire to ban Bitcoin. Why would they do that? No, far better to accommodate and swallow Bitcoin, like they have every other financial “innovation” for the past 1,000 years. Far better to neuter the censorship-resistant and anonymity-preserving aspects of Bitcoin, and turn it into another gaming table in the Wall Street casino.
In my dystopian vision, Bitcoin isn’t banned or criminalized. Pfft. That’s a rookie, weak State move. No, I see a future where everyone buys Bitcoin. Where you are encouraged to buy Bitcoin. Where Bitcoin is sold to you morning, noon and night. Where normie economists get on conference calls late at night because they’re Bitcoin price-curious.
Except it’s not really Bitcoin.
Instead, it’s Bitcoin! TM — a cartoon version of the OG Bitcoin, either a Wall Street-abstracted representation of the price of Bitcoin or a government-painted version of Bitcoin in Dayglo orange. Either way — abstracted or painted — your Bitcoin! TM is trackable and traceable, fully KYC and AML and FBAR and SWIFT and every other US Treasury acronym-compliant. Either way, your Bitcoin! TM has all the revolutionary potential of a bumper sticker and all the identity signaling power of a small tattoo on your upper arm.
Bitcoin!TM doesn’t stick it to the Man … Bitcoin!TM IS the Man.
Welcome to the MMXXI Hunger Games.
Hunger Games (Feb. 2021)
You’ve been told that the odds are ever in your favor. You’ve been told this for your entire life.
More and more, you suspect this is a lie.
This is no “democratization” of Wall Street. You’ve been played. Again.
The abstracted version of Bitcoin! TM is a Wall Street specialty.
What is Bitcoin! TM in abstracted form? It’s a securitization or representation of Bitcoin ownership that promises the price appreciation of Bitcoin without the hassle of Bitcoin ownership. It’s a casino chip that represents the price of Bitcoin. Michael Saylor, for example, is only too happy to sell you a MicroStrategy casino chip. Or maybe you’d prefer to play on the Canadian crypto ETF felt? Or try your luck at the wheel of a Morgan Stanley private fund?
Why does Wall Street loooove abstracted forms? Because there are no fundamental limits to how many of these Bitcoin! TM casino chips Wall Street can sell. It doesn’t matter if all the OG Bitcoin HODLers keep on HODLing. It doesn’t matter if the vast majority of all the Bitcoins ever mined never get caught up in the Wall Street neutering machine. There are an infinite number of games that can be created around the price of Bitcoin as a reference point, just like there are an infinite number of bets that can be made on a football game. There are an infinite number of rehypothecations and derivative representations that can be made off the millions of margined Bitcoins that have already been captured by Wall Street-custodied accounts.
The only limiting factor on how many of these Bitcoin! TM casino chips Wall Street can sell is the effectiveness of the narrative they have created around Bitcoin itself, that Bitcoin is a “hedge against inflation” and a “store of value” that is uniquely positioned to “protect your portfolio” against “dollar debasement” because it is “hard money” immune to “money printer go brrrr”.
It’s rather artistic in and of itself, right? Selling an unlimited number of Bitcoin! TM casino chips off a meme slamming unlimited fiat money printing? Creating an unlimited number of entertaining market games and venues where we can use our Bitcoin! TM casino chips?
If these narratives and casino games sound familiar, it’s because this is exactly the same process of abstraction, securitization and leverage that Wall Street has been using for the past twenty years with precious metals.
What is the GLD ETF? It’s gold! TM. What is a unit in an ETF basket of gold miner stocks? It’s gold! TM. They and their many kin are securitizations of gold ownership that promise the price appreciation of gold without the hassle of gold ownership. They are casino chips that represent the price of gold.
I’m old enough to remember when people bought and sold gold coins in private transactions. I guess we’d call that peer-to-peer today. I’m old enough to remember when well-meaning people would have earnest conversations about gold as a reserve currency, just like well-meaning people today have those earnest conversations about Bitcoin. I’m old enough to remember how quickly those conversations died out after State Street launched GLD in 2004 and took in a billion dollars in a few days. Turns out people didn’t really want the grumpy grandpa identity of owning physical gold in some Mad Max world as much as they wanted gold! TM in their financial portfolios as an abstracted insurance policy against central bank error.
It’s exactly the same with Bitcoin! TM today.
You think “institutional adoption” is driven by a spirit of personal autonomy, entrepreneurialism, and resistance to the Nudging State and Nudging Oligarchy? You think Paul Tudor Jones and Mike Novogratz want to BITFD? LOL.
The ONLY difference to Wall Street between gold and Bitcoin is that gold! TM is tired and Bitcoin! TM is wired.
The king is dead. Long live the king!
This is the artistic genius of Wall Street – the creation of new product to trade and new assets to manage, all through the alchemy of securitization and leverage. This is Flow.
It’s like Ash said about the chest-bursting xenomorph in Alien – you may not admire the creature itself, but you gotta admire its purity. Unclouded by conscience, remorse, or delusions of morality. Yep, that’s Wall Street.
Ditto the US Treasury.
If there’s a Western governmental institution that is more unclouded by conscience, remorse, or delusions of morality than the US Treasury, I am unaware of what that institution might be. But unlike Wall Street, which is motivated by Flow, the US Treasury has an entirely different (but highly compatible!) goal.
The goal of the US Treasury is to see all of the money in the world.
That’s really all it is. That’s what Anti-Money Laundering (AML) regulations are all about. That’s what Know Your Client (KYC) regulations are all about. That’s what Report of Foreign Bank and Financial Accounts (FBAR) regulations are all about. That’s what the Treasury-led Society for Worldwide Interbank Financial Telecommunications (SWIFT) is all about. That’s what the Bank Secrecy Act (BSA) is all about. None of these programs are really about taxes. None of these programs are really about catching crooks or fighting terrorists. All of these programs are really about information for information’s sake regarding the greatest source of power in the world and the raison d’etre of every government on Earth: money.
The US Treasury is the Eye of
— a gigantic panopticon tower that sweeps the world with its unblinking gaze, seeking out the owners of power, i.e. money.
The US Treasury can’t see Bitcoin. It can, however, see Bitcoin! TM.
The giant all-seeing eye of the US Treasury is primarily built on two regulatory structures — the Bank Security Act (BSA) to compel transparency and reporting by financial institutions on their clients and themselves, and the Report of Foreign Bank and Financial Accounts (FBAR) system to compel transparency and reporting by individuals on their financial institutions and themselves. There are a dozen more acronyms and programs involved here, all overseen by Treasury’s Financial Crimes Enforcement Network (FinCEN), but to keep things simple I’m going to refer to all of this as the BSA/FBAR regulatory panopticon.
Everything in plain text in the next two paragraphs is regulatory policy as it currently stands with the BSA and FBAR. Everything in bold italics is a new policy proposed in the past few months and expected to go into effect shortly. Taken together, I think it will be clear how Treasury uses the combined BSA and FBAR instruments to mark your Bitcoin with a DayGlo orange fluorescent paint and create their highly visible version of Bitcoin! TM.
BSA — If you are in the business of money in any way, shape or form (what Treasury calls a “money transmitter”), and you do any of that business in the US, then you are subject to the Bank Secrecy Act. Note that this money transmitter designation and BSA jurisdiction explicitly includes peer-to-peer exchanges that work with self-hosted wallets. If you are subject to the BSA, then it is your affirmative obligation to collect complete identifying information regarding clients who transmit or receive more than $3,000 over your systems, and to collect and immediately report to Treasury complete identifying information regarding clients who transmit or receive more than $10,000 over your systems – including any cryptocurrency (“convertible virtual currency”) transmitted to or from a self-hosted wallet.
FBAR — If you are a US entity (citizen or resident, any type of US-registered corporate or trust structure, etc.) and you have any sort of account (banking, securities, custodial, etc.) with any non-US money transmitter, anywhere in the world, and at any time during the course of the year, you have in the aggregate across all accounts more than $10,000 in value in those accounts – including the value of any cryptocurrency holdings (“convertible virtual currency”) in those accounts – then it is your affirmative obligation to report complete identifying information regarding each of those accounts to the IRS in a Report of Foreign Bank and Financial Accounts (FBAR).
I think the intent here is crystal clear. Whatever rules were in place yesterday regarding transfers of dollars or rubles or pesos through US-touching money transmitters or by US entities … well, now those exact same rules are going to apply to Bitcoin. As soon as your virtual currency holdings land in any financial institution that cooperates with or does business in or is regulated by the United States … BAM! your Bitcoin is painted DayGlo orange and becomes the Treasury-preferred form of Bitcoin! TM.
When these regulations go into full effect, as I understand them, the only remaining safe harbor for keeping your Bitcoin hidden from the BSA/FBAR Eye of Sauron will be to maintain a self-hosted wallet that never connects with a money transmitter that does business in the US.
That’s a safe harbor for the moment, but ultimately nothing is safe from the Eye of Sauron. While 2019 guidance explicitly states that “a person conducting a transaction through an unhosted wallet to purchase goods or services on their own behalf is not a money transmitter”, and so is not subject to the Bank Secrecy Act directly, the December, 2020 proposed rule-making doc also included this doozy of a comment.
The Treasury Department has previously noted that “[a]nonymity in transactions and funds transfers is the main risk that facilitates money laundering.”
The Financial Action Task Force (“FATF”) has similarly observed that the extent to which anonymous peer-to-peer permit transactions via unhosted wallets, without involvement of a virtual asset service provider or a financial institution, is a key potential AML/CFT risk in some CVC systems.
FATF members have specifically observed that unregulated peer-to-peer transactions “could present a leak in tracing illicit flows of virtual assets,” particularly if one or more blockchain-based CVC networks were to reach global scale.
Importantly, as explained below, while data contained on some blockchains are open to public inspection and can be used by authorities to attempt to trace illicit activity, FinCEN believes that this data does not sufficiently mitigate the risks of unhosted and otherwise covered wallets.
That last paragraph doesn’t mince words. Even if the blockchain facilitating a crypto currency allows for “authorities” to trace transactions, “the risks of unhosted and otherwise covered [i.e., hidden from the Eye of Sauron] wallets” are too great to let stand. LOL. I think we all see where this is going.
The response I get from the Bitcoin and larger crypto community to what seems to me to be the clear intent and path of Treasury regulations is always this: well, good luck enforcing that!
Unfortunately, that’s the evil artistry of panopticons like the Eye of Sauron or Treasury’s BSA/FBAR regulatory structure: we are driven to willingly enforce their discipline on ourselves.
A panopticon is an institutional structure that creates a permanent feeling of being watched. Maybe you are and maybe you aren’t at any given moment. But you’re never sure that you’re NOT being watched. And if you ARE being watched, then you better ‘fess up and cooperate before you get your head stuck on an orc’s pike. Did I mention that the penalty for a willful failure to make an FBAR report was the greater of $100,000 or 50% of the unreported foreign assets?
Moreover, a panopticon structure allows you to see the behavior of others. And they of you. If the discipline imposed by the Watcher includes obligations to snitch — and that’s exactly what the Treasury requires here, with obligations on money transmitters to report on clients, and obligations on clients to report on money transmitters — a panopticon sets up a classic Prisoners Dilemma game, where the only equilibrium is for both the money transmitter and the client to volunteer information about the other.
Once you start looking for panopticons in our modern world, you will find them everywhere. And of course there’s an Epsilon Theory note on this.
Panopticon (March 2014)
“Transparency” has little to do with freedom and everything to do with control, and the more “radical” the transparency the more effective the control … the more willingly and completely we police ourselves in our own corporate or social Panopticons.
You’re not opposed to “transparency” are you? Why would you be opposed to “transparency” unless you have something to hide? You’re not a … a … terrorist-lover, are you? No, I didn’t think so.
It’s not just that Wall Street and the US Treasury dominate policy.
Far more perniciously, they also dominate narrative.
And that’s why I’m writing this note.
Frankly, I doubt that the policy battle can be won. This has been my view since I first started writing about Bitcoin, and nothing has happened to change my mind. On the contrary, Treasury’s moves to make crypto visible and controllable have happened faster than I thought they would. I mean, I’m hopeful that we are at least at some point of policy equilibrium with the proposed rule changes to BSA and FBAR, an equilibrium that will at least allow self-hosted crypto wallets to exist in peace. But hope, unfortunately, is not a strategy.
Too Clever By Half (Feb 2018)
The inevitable result of financial innovation is that it ALWAYS ends up empowering the State. When too clever by half coyotes misplay the meta-game, that’s all the excuse the State needs to come swooping in.
Just as they did with Bear and Lehman in 2008. Just as they’re doing with Bitcoin today.
So, no, I don’t think I can help much in the policy battle.
But I think I can help a lot in the narrative battle.
Or rather, the Narrative Machine can help.
Inception (April 2020)
The systematic study of narrative, what we call the Narrative Machine, can be used for analysis, yes, but also as an active instrument to reclaim our autonomy of mind and our generosity of spirit.
Everything else is commentary.
I know you don’t believe me, but we’re going to change the world … you and me.
The Bitcoin narrative must be renewed.
Bitcoin has been an authentic expression of identity, a positive identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy.
It can be again.
Wall Street and Treasury are running a psyop with their creation of Bitcoin! TM, and it’s necessary to think about Bitcoin in those psyop/narrative terms if the goal is to preserve an active community with an identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy in the context of Bitcoin specifically and crypto more generally.
That’s my goal, anyway.
I’m not in this for Bitcoin-as-global-reserve-currency. I’m not in this for Number Go Up. I’m not in this for “store of value” against that gosh darn “dollar debasement”. I’m not in this for Flow. I’m not opposed to any of those things, and I don’t think you’re a Bad Person if those are your things. They’re just not my things. I’m in this for Bitcoin as good art and the inspiration it provides to a community that shares my values and goals for making a better world.
Phase 1 of this anti-psyop campaign is to identify Schelling points (game solutions that people arrive at by default in the absence of direct communication … also called focal points) so that people who share this goal of community organization and narrative reclamation can find each other.
I think that one of these Schelling points is maintaining a self-hosted wallet and the capacity for peer-to-peer connections away from the Eye of Sauron.
Starting today, Epsilon Theory will accept Bitcoin as payment for all annual subscriptions through our BTCPay server. It’s a plain vanilla Raspberry Pi set-up. We’re not holding ourselves out as crypto mavens. We’re signaling an identity of autonomy, entrepreneurialism, and resistance to the Nudging State and the Nudging Oligarchy in the context of Bitcoin.
Phase 2 of this anti-psyop campaign is to use the Narrative Machine to measure and visualize the narrative archetypes and story arcs of Bitcoin! TM. In exactly the same way that there are only, say, a dozen archetypal scripts for every TV sitcom episode ever filmed, or in exactly the same way that there are three acts to every modern movie screenplay, so is there an underlying structure and a finite number of underlying archetypes to the media coverage of every market entity.
We believe that we can measure these narrative structures and archetypes as they apply to Bitcoin! TM, and map those structural dynamics to market behaviors.
Seeing is believing, and I think there is no better way to prove the existence of Bitcoin! TM, in both its Wall Street-abstracted and its Treasury-painted form, than to show the psyop in action. I think this sort of analysis and visualization will get a lot of people who would otherwise be quick to dismiss our claims to take a fresh look at the ways in which we have been nudged.
Phase 3 of this anti-psyop campaign is simply to call things by their proper names. That starts with locating the value of Bitcoin in its elegant art and its ability (like all elegant art) to inspire great things away from the art itself. Yes, great things away from Bitcoin itself, so that even if Bitcoin! TM dominates financial markets (which it will), the story arc of Bitcoin doesn’t end there, but generates a thousand new initiatives to improve our world.
We don’t have to tell a story of price. We don’t have to tell a story of apocalypse. We don’t have to scold or “educate”.
We can tell an Old Story of autonomy of mind and generosity of spirit within a new context of Bitcoin and crypto.
You know, a couple of thousand years ago, a really smart guy — the most subversive, revolutionary guy you can imagine — had a good line. Render unto Caesar what is Caesar’s.
Bitcoin! TM definitely belongs to Caesar. It’s part of his game. But Bitcoin doesn’t have to be. It can be part of our game. Still. Again. And that will change everything.
As traditional financial institutions line up to get into bitcoin, a debate on whether it can stay permissionless and censorship resistant.
For more episodes and free early access before our regular 3 p.m. Eastern time releases, subscribe with Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, iHeartRadio or RSS.
Ben Hunt is the founder of Second Foundation Partners and lead author of Epsilon Theory. Alex Gladstein is the chief strategy officer at the Human Rights Foundation.
In this conversation, they discuss one of the most important burgeoning topics of the year: In a world where bitcoin (BTC, +4.91%) goes mainstream with traditional financial institutions, can it keep its more renegade spirit? More important, can it keep its more renegade features such as permissionless access and censorship resistance?
Ben and Alex join for a good faith, spirited discussion of whether the bitcoin we know today will be preserved or whether it is doomed to be co-opted by the financial powers that be.
39:04up the down escalator no III think I39:07think there are real possibilities of39:09creating communities of distributed39:14trust right which is which is at the39:17core of the to in my mind the whole39:19effort right have now how do you create39:22a community of distributed trust and and39:27and what I’d like to see is that that39:29distributed trust is applied to areas39:32that are not so fiercely guarded by the39:38you know the the powerful you know39:42states governments and and and39:45businesses right because again it when I39:48think about how to play the long game39:49here I think that is possible to carve39:53out39:55areas of got resistance but what I39:58really mean is areas of sovereignty self40:00sovereignty over issues again they’re40:02not so fiercely guarded as money yes40:04about the state and and so again this is40:07an issue of tactics or other than40:09strategy right and and and so that I40:11would pursue a different tactical40:14approach to the I think the goal we all40:17or most of your listeners share with you40:20and I for sure it it does seem to me and40:27I want to bring this back to the run of40:29iris now right which is that everything40:34you’re describing whether it’s whether40:36it’s your tactical approach my tactical40:39approach I40:42I think it’s tempting to think oh the40:44instability that the virus brings is40:47going to be an advantage in fighting40:51this long game right I actually think40:54it’s it’s it’s it’s a very much40:57disadvantageous to both of us right the41:00both of our tactical approaches here and41:02and I don’t think you have to look much41:04farther than what happened in Hungary41:07right over the last two days where the41:09the Hungarian Parliament and this has41:12been building for a while right and41:14event but Hungarian Parliament in41:17response to the throne of iris emergency41:21and it is an emergency gave really41:26dictatorial powers to to Viktor Orban41:29the the Prime Minister where he now has41:32the ability ability to rule by decree41:34right don’t have to pass the law doesn’t41:37have to go to Parliament whatever the41:40executive says is law there’s no time41:43limit on this now in hunger there’s a41:47new law that if you spread false41:49information I think and use as the41:53executive describes this what at stake41:54or not you’re in prison for five years41:56and if you try to leave the areas of41:59confinement quarantine that they’ve set42:01up that’s in the this this is what42:04happens I think in weaker states42:07go back to some you know idyllic state42:09of nature where you know you can set up42:13your you know Kingdom of Wakanda you42:15know alright what happens is they’re42:17taken over by thugs they’re taking them42:19by warlords and by thugs and and you42:23know in Hungary is uh it’s a member of42:26the yeah I mean I mean it’s a core42:28member of Europe so when I when I think42:31about what’s going to happen in the next42:33year and a half in Indonesia what’s42:36gonna happen the next year and a half in42:38Egypt it’s going to happen in today42:40what’s happening right now in Iran for42:42God’s sakes I I don’t think it works to42:46our advantage42:47III think that the impetus in every42:50country and particularly in the weaker42:52States is going to be for reclaiming of42:55the physical of the violence of the gun42:59and so this is why I think it’s more43:03important than ever that we identify43:06each other in our communities of empathy43:09in our communities of our pack right so43:14that we can fight this long game this43:18long war and so we can support each43:19other so anyway that’s not I’m just43:23trying to bring it back to what’s43:25happening today and and how we should43:28think about this unfortunately I don’t43:29think it’s a great opportunity but I43:32think it’s something that we all need to43:35come together even more around so that43:38we can can stray stay strong or the the43:42dark times that are ahead and I do think43:44they’re dark times well never one to43:48mince words and and and I certainly43:50appreciate the perspective on I’m43:52slightly more optimistic for the reasons43:56that I outlined you know in the physical43:57realm but in the digital realm right is44:00the internet still a bastion of freedom44:02and can you ultimately get people to act44:05freely outside of you know some of the44:08more restrictive social media platforms44:11for instance but just any type of44:12peer-to-peer communication system44:14peer-to-peer digital realms would seem44:17if you’re more conducive for the silent44:20distance the quiet resistance yes and44:22that individual thesis but how exactly44:26we get there not not debating that it44:29could get ugly I want to change gears44:32for the the last a little bit that we44:34have and just talk about your44:37understanding of the investment you know44:40as I guess for this generation of44:45investors because one of your more44:47popular posts this is water and yeah44:51it’s still water it kind of talked about44:53this shifting mindset where deflation44:56expectations that were driven by44:58technology are now inflation44:59expectations there’s and this isn’t45:02necessarily new but I like the way they45:04laid it out the the globalism that had45:09permeated the the macroeconomy for so45:12long is now becoming more nationalistic45:13now in some respects that’s not a bad45:16thing because now you might have45:18countries that are more resilient in the45:21face of issues like pandemics when when45:24today you know we’re seeing just how45:26levered we are via global supply chains45:31you talked about the kind of shifting45:33from you know capital markets into you45:36know true market mechanisms just45:38political utilities and um and then just45:41overall how financialization is kind of45:43exacerbated you know all of those trends45:46what what’s what’s the what’s the next45:49step in in financial markets right yeah45:51if if you run out of the capacity to45:53print if you run out of the capacity to45:55spend let’s not even talk about the u.s.45:58let’s talk about some some country like46:00like Hungary they don’t necessarily46:02control their own currency it’s a small46:05but usually functioning democracy what46:09does a market system look like in a46:11situation like hungry and then how do46:13you ever get back to normalcy or how do46:18you set the reset button so that the46:24short answer is that for in a I’ll go46:30back to46:32I’m gonna go back 2,500 years yeah this46:37is the academic in me right I can’t I46:38can’t I can’t give you a straight answer46:39right what you’re asking has all46:43happened before like it’s all happened46:46before right so Peloponnesian War you’ve46:52got a thens and Sparta the big countries46:56you know fighting each other and then46:59the question is well what happens to the47:00little countries what happens to ya47:05you know magar you know all these these47:07these little city-states and the the47:11Athenians they’re trying to get their47:13their allies together in one of the the47:18little allies is saying well you know47:20but you know you’re asking us to47:22sacrifice everything is all for you I47:24mean this this sounds this justice out a47:28great deal and the Athenian ambassador47:31says you know it was ever thus the47:33strong do as they will the weak do as47:36they must strong do as they will the47:39weak do this they must47:40and nothing has changed in 2500 freaking47:44years when it comes to the ability of47:49countries to chart their own course to47:55deal with the exigencies of power hungry48:02will do as they must even weaker48:07countries than hungry will definitely do48:08is they must and the strong do as they48:10will so what they will when it comes to48:15Europe when it comes to the United48:16States when it comes to Japan which48:17comes to to China is that there are no48:20limits on you know printer Gober right48:24there are no limits on you know we we48:29haven’t even really touched yet modern48:33monetary theory in the notion that well48:35there’s not even a relationship between48:37spending and taxing right48:38you can run deficits as much as you want48:40go on go for it we’re just getting48:43started man48:45getting started hey we’re not at the end48:48game of this where yeah it’s like it’s48:52like this is halftime hey this this48:55isn’t the last few minutes of the fourth48:56quarter48:57with how governments are going to48:59transform capital markets and the fourth49:01key utilities with how they’re going to49:03you know transform the meaning of money49:06into what supports political power yeah49:09this is just half time so I I think we49:14really do have to take that long-term49:16perspective that the printer can go burr49:20for a lot longer and it doesn’t matter49:25who gets elected you know you know it’s49:27it’s it it’s all the same that the last49:3010 years have been the greatest transfer49:32of wealth – I call it the managerial49:35class then I really think anything in49:40history it has come through stock49:42buybacks through stock sales through49:44stock based compensation it’s all49:46happened in the last 10 years and it’s a49:48transfer of hundreds of billions of49:50dollars of wealth to managers not49:55entrepreneurs not founders not Shinya to49:59managers managers and when that much50:04wealth is transferred to that number of50:06people in such a short period of time50:08it doesn’t reverse itself yeah you know50:11you know people don’t the the cheese may50:14move but people still want their cheese50:16yeah and and and I just I just think50:20it’s so important to remember that we50:24really are playing that long game to50:26remember that the strong do is they will50:28and the weak – as they must and to have50:32in mind a set that that we’re just half50:34time right now and that we need to play50:39the game accordingly because what you50:42don’t want to do is you don’t want to50:46yeah you don’t want to storm an50:48entrenched machine-gun nest you know50:50with you know huzzah now is our time you50:53know then you you really do I think want50:57to play the long game50:58I think there50:59a real power of conviction and belief51:03that allows us to play a long game51:06mm-hmm and to keep it all together51:11of course people like you doing your51:13podcast it requires people like me doing51:15our writing and most of it all it it51:18requires a critical mass of people who51:22whose greatest regret would be to give51:26up and to be co-opted by the powers that51:30be rather than play the long game and51:32fight the long fight I can’t think of a51:36better way to wrap up this conversation51:39than calling for conviction and long51:42term ISM and a market remedies panicked51:45and and you know short termism generally51:48drills the day then where can people51:51find you on twitter I’m easy it’s it’s51:54it’s all epsilon Theory all the time so51:56at epsilon theory and epsilon Theory51:59comm it’s for you to read and love to52:03love to have you on board it’s a it’s an52:06excellent read always I’ve been52:08following you for years now and and52:10definitely appreciate your commentary52:11and watching it at all even as we get52:14into a slightly darker period and you52:16can tell for those that are tuning in if52:19you can hear the background noise that52:20naptime just ended so we we just wrapped52:23up with the most perfect time because I52:25just I just heard my kids wake up and52:27surprise that they haven’t run in here52:28already thank you for having me Ryan’s52:32really a pleasure anytime Thank You Ben52:35and stay safe52:36YouTube take care
In this kick-off Epsilon Theory webcast, I’m joined by renowned cryptocurrency miner and trader @notsofast for a wide-ranging conversation on Bitcoin and crypto.
To put it in crypto and Epsilon Theory lingo, we talk about talk about DeFi, the “Saylorization” of Bitcoin, and brainstorm about how to keep the animal control officers focused on the huckster raccoons rather than us too-clever-by-half coyotes.
To put it more simply, we’re talking about this:
Can Bitcoin preserve its revolutionary potential after a Wall Street bear hug?
I’m highly skeptical, but @notsofast has some ideas on how to make this work. The end result of this conversation is a challenge and a research project for both of us … and for you!
Eric it’s not gonna stop then at some
point in this crisis I know things kind
of something snapped for you because we
got to the point where the government’s
basically not doing anything terribly
productive I know at one point I was
actually following a story where there
were paramedics in New York City
dumpster diving behind the hospital
looking for n95 masks because nobody had
their act together they weren’t able to
order the right ones at some point
something snapped for you and you just
heard about this stuff and you said I’m
gonna take personal action to get n95
masks into the hands of the people in
the front line who need them
tell us what is front line heroes but
more importantly how did it come about
and what was your experience I mean
you’re you’re a very comfortable finance
guy with a great career great reputation
I’m sure you never imagined yourself
starting a charity before this all
happened something happen for you and
all of a sudden everything changed tell
us what that was like you know what what
clicked for me Eric is that
I’ve been railing about our our trickle
down economy for so long right where
where the the policy fiscal policy
monetary policy particularly it’s really
designed to support what I like to call
the the naked sinews of power and it
really comes to a head in a crisis where
you reveal that this Pleasant skin of
democracy and capitalism that that we
all believe in and and once so
desperately for ourselves and our
children it’s it’s just a skin right and
then underneath it are all these
policies which are designed to prop up
and bail out and support the status quo
wealth and an economy of the of the very
wealthy and the very politically
connected and what really clicked for me
in this this come in nineteen crisis was
it’s the same thing with medical
supplies its trickle down its trickle
down Eric where the very well-connected
the very politically connected the crony
capitalism that we see in in our economy
it’s the same thing in our health care
where you know supposedly we have these
millions of n95 masks that are
stockpiled and unavailable and yet like
you there are there are horror stories
of doctors and nurses and EMTs and in
firemen and policemen and first
responders who are forced to put not
only their own lives but when you talk
to the to these these heroes right what
they’re really concerned about is
bringing this risk home to their
families and that’s what they are forced
to do in this trickle-down system we
have not just for wealth but for medical
supplies for protecting again we call
them frontline heroes the the doctors
the nurses the EMTs the firemen who are
who are responding who are fighting this
war for us so that that’s what clicked
you know what
snapped in me Eric was was to to find a
way not to compete with the federal
government and FEMA and the state
management authorities right not to try
to buy a million in 95 masks and drive
up the price and you know do all that
which is a real problem but I’ll be
damned if I was gonna wait for FEMA and
these state emergency authorities to
find the time to trickle down masks to
the to the people who need them so
desperately so that was that that was
the I say the inspiration for for our
effort and I’m gonna I want to plug it
right now right it’s frontline heroes
usa.org all one word frontline heroes
usa.org and though the way it came about
was this is the the crazy world we live
in right Eric we’re where social media
is both horrible but he’s so many ways
but it’s also wonderful at connecting so
many people I got a Twitter DM from an
epsilon Theory reader who works for
Intel and he said you know look we’ve
got we’ve got a ton of employees intel
does over in China and I reached out to
a couple of my friends over there you
know they can they can buy these these
in 95 equivalent masks they’re they’re
pretty they’re plentiful over there in
China you know they’re not that
expensive and so I’ve had a couple of
buddies to go online order some in 95
masks ship him over here to me and you
know a bag of a DHL bag of like a
hundred masks and then I’m giving them
to a local hospital or clinic that that
really desperately needs them he was
calling from he reached out from
Portland Oregon where you know obviously
the in the early days there was a lot of
need for the for this equipment
okay so listeners who want to help get
personal protective equipment in the
hands of our frontline heroes
by going to frontline heroes usa.org
they can make a donation on the website
that directly results in effectively I
don’t want to say this too bluntly but I
want to anyway bypassing FEMA and all
the of the federal government
and actually getting the stuff to the
people who need it right now that’s what
we’ve done Eric we’ve we’ve created an
end-to-end distribution system where we
are not only able to buy and source
these masks where they are plentiful and
where they are cheap which is typically
over in China we’re getting them in
small quantities we like to call it like
an underground railroad of PPE we get it
over here to the States we get it tested
at a at a Medical Center to make sure
we’re getting quality merchandise and
then we are getting it directly into the
hands of the individual doctors and
nurses and EMTs who then distribute it
to their teams we can’t get ten thousand
or a hundred thousand masks to a
hospital system that’s not what we’re
what we’re about is getting a hundred
masks 200 masks to a clinic in
Indianapolis to a hospital in New
Orleans all around the country we’ve
been able to make these direct
connections with these frontline heroes
who are in actual urgent need of this
equipment to date we’ve raised over
seven hundred thousand dollars
we have bought and distributed over
60,000 in 95 equivalent masks to more
than six hundred individual clinics
hospitals EMT departments you name it
all across the country and I gotta tell
you Eric we’re just getting started man
we’ve got a lot of entrepreneurs and
business people in our audience I hope
that your actions will inspire some of
them to think about what kind of charity
they could create what what words of
either motivation or advice would you
have to someone who’s considering doing
maybe they’ve figured out a different
way that they’d like to help our
healthcare heroes or someone else
through this crisis well the the first
recommendation I have is just do it just
do it right if you’re waiting for
someone to organize you if you’re
waiting for someone to give you
permission you know that’s that’s what
we’ve been so ingrained and in custom to
that that’s what that’s what government
in big corporations that’s what they do
to you they make you think you you can’t
act unless you are being led or
organized by them and so my the first
thing and the most important thing I’d
say is that’s a crock you just get up
and you just do it you just do now when
it comes to actually raising money right
and it is important I think to operate
under the the 501c3 framework both to to
take in donations and and have it you
know enjoy that that tax advantaged
properties of it which is really
important but even more so it really
enforces and requires an element of
oversight and documentation that that is
so important when when money’s involved
now to establish a 501c3 from scratch is
pretty hard takes a lot of it’s not hard
it takes time what we were able to do
and I think what what many of your
listeners will be able to do to to
really I’ll say formalize this and to
get it started as a as a registered 501
C 3 is to find an existing 501 C 3
charity and in your community your
organization and partner with them to be
a program or initiative of that existing
501 C 3 organization so somebody who’s
already got the IRS letter designating
them as a 501 C 3 piggyback on them
partner with them and use their IRS
letter correct that’s that’s exactly
what we did and I think it’s a way to
get these programs up and moving more
the delays in the red tape from from
getting your own 501 C 3 designation I
think it’s important to have that
designation and to have the oversight
and controls that that requires but I
also think that you can move more
quickly if you find an organization in
your community an existing 501 C 3 that
you can work with man I can’t thank you
enough for a terrific interview before
we let you go your epsilon theory
newsletter is one of the most popular
and one of the most fascinating in the
industry tell us briefly about that and
where’s the website and Twitter handle
so people can find out more sure well
it’s easy to find it’s epsilon Theory
comm and on Twitter it’s at epsilon
Theory you know it comes from the old
investment equation of alpha and beta
there’s a third term on there called
epsilon and usually you know epsilon is
efore error but honestly Eric that’s
that’s where all of the behavioral
economics lives that’s where all of I
think narrative lives we call it the
error term but I think there’s a lot of
information there so that’s epsilon
theory calm and at epsilon theory on
Twitter I thought you were gonna tell me
the e is for extraordinary monetary
policy and fiscal balance sheet
expansion a fantastic reading though and
in great insights so I highly recommend
it to our listeners we’re gonna leave it
Patrick’s our resna and I will be back
as macro voices continues right here at
macro voices calm
macro voices is a listener driven
program please email requests for
specific future interview guests to
requests at macro voices comm you can
email questions for the program to
mailbag at macro voices comm and we’ll
answer them on the air from time to time
in our mailbag segment we also welcome
your suggestions for how we can improve
the program now back to your hosts eric
townsend and Patricks resna eric goes
great to have been back on the show what
did you take away from the interview
well I thought the most important thing
that he said which echoes something I’ve
said before is the one thing that you
really almost have to get at least
mostly right in investing is you’ve got
to have a view on whether we’ve got a
backdrop which is deflationary or
inflationary or maybe it’s in between
and and you have a moderate view but you
got to have some kind of view because
the investments and the way you
structure your portfolio is either gonna
work or not going to work based on that
and I think we’re headed for a secular
shift that I don’t know Ben doesn’t know
none of our guests have been willing to
really you know put a stake in the
ground and lay out here’s what’s gonna
because I don’t think anybody knows
what’s gonna happen but all the
ingredients are there over the next few
years for deflation to eventually end
and give way to inflation and I think
that the politics are gonna play a big
role in this we’re seeing all of the
different political parties seeming to
favor more what effectively is
monetization and you know it’s it’s
interesting how each of our guests have
different views on this we got a few
emails about dr. Lacey hunt making such
a big deal saying look the Fed doesn’t
have the ability to spend money all that
they can do is to loan money and provide
liquidity into the market and that’s all
based on this idea Patrick that when the
government engages in deficit spending
the Fed is not directly buying that debt
it’s being sent and there’s you know
free market price discovery occurring
because a private sector party is buying
that debt from the government and that
allows the interest rate to be set at
market rates and the Fed is not allowed
to buy that debt directly from the
government well if that’s the whole
intention of the Federal Reserve Act but
in practice the way it works is that
debt has to get sold to a private sector
banker who is going to turn it around
two days later and sell it to the Fed at
a markup that that’s not you know
private-sector market price discovery
that’s just a sham that allows the
primary dealers to mark up what they’re
buying and sell it back to a guaranteed
buyer of the Fed who’s effectively
monetizing I don’t really agree with dr.
hunt and other people who say that the
Fed can’t spend money there they’re
indirectly doing so by working around
the intention of the Federal Reserve Act
and I think they’re already doing that
to a large extent anyway let’s get to
the postgame chart book Patrick you put
together another terrific chart Dec
listeners you’ll find the download link
in your research roundup email now if
you don’t have a research roundup email
that means you haven’t yet or registered
your free account at macro voices.com
shame on you you can remedy that by just
going to macro voices.com and looking
for the red button on the homepage that
says looking for the downloads Patrick
let’s go ahead and dive in here on page
two this looks like a chart of the S&P
but you got a bunch of other secondary
studies around the S&P what’s going on
here right so what we had was the sp500
we’ve been drawing on analog of what a
bear market would look like and going
through all sorts of storylines over the
last month but what what I really wanted
to touch on was what’s a growing thing
in the market is that everyone’s
focusing on the big behemoth stocks that
have been running like Amazon fresh new
highs and all these other mega cap
stocks that have been running and it’s
been driving the Nasdaq and when you
look at the Nasdaq which is the black
line on there we can see that it we
the pre bear market high and really the
bigger question to ask is how did the
Nasdaq pull this off and what’s really
amazing is is that it’s just a handful
of stocks so when you look at the five
mega cap stocks the largest market
capital I stocks in the NASDAQ and the
S&P 500 and they just have a monstrous
weighting into the indices so in the
sp500 those five stocks make up 20% of
the weighting so that means the other
495 stocks in that index make up the
other 80% and therefore as go those
stocks goes the whole market and what’s
interesting is that when you look at the
indices that don’t have the market cap
weighting of those five stocks it paints
a much different picture so what I have
here is the Dow Jones which is price
weighted then you have the London
footsie in yellow you have the emerging
markets you have the Euro Stock 50 as
well as the Russell which is the small
cap indices and what you can identify
here is that once you take out those
five mega cap stocks the indices look
incredibly weak everywhere in the world
and this is what I continue to believe
is giving us the evidence that this is
still truly a bear market and a bear
market rally just because you have
enough market participants willing to
crowd into a few of these mega stocks
and drive their prices higher is not
really reflective of the underpinning
conditions from a breadth perspective
that of a very deteriorated equity
market once you leave those five stocks
and so to me it’s still a bear market
rally and it’s still rolling over
we’ll see certainly next week once we
get past the option expiration gamma
pins whether or not another round of
selling may be coming into June moving
on to page three Patrick looking at the
euro versus the dollar
boy this charts looking a little bearish
I guess you could call this either a
descending triangle or a wedge depending
on how you draw around that that late
march bottom there what do you make of
this well really you turn this chart
upside down and you got the dollar index
right and what’s amazing
a dollar index still has such a huge
waiting into the euro of 57% waiting and
so really as goes the Euro goes the
dollar index and so what we can
continuously see here over the last
month and a half every attempt the euro
has had to rally and make it stick it’s
lasted no more than a week and almost
immediately the selling comes back down
and and brings it right to the bottom of
the range and it’s just such a weak
price action now all you need is it’s
like a the euros at the edge of a cliff
and all it needs is someone to give it a
push and if it loses its footing here we
could be seeing a euro move down to 105
or 103 which would certainly be the
underpinning catalyst that will drive
the Dixie up towards that 104 target
that you’ve often referenced and so this
is a the must watch chart in my mind and
it has so many global macro implications
if it gives out so this is probably a
single big the most important chart to
watch in my opinion but I really don’t
want to highlight further if we go to
page 4 when we look at the dollar index
it really feels like the dollars been
doing nothing but really once you leave
the euro and you go and start looking at
the rest of the currencies around the
world and particularly when you move
into the emerging market currencies you
can see just how incredibly weak all
those currencies have been relative to
the dollar whether you go to Mexico
Brazil Argentina and the Russian ruble
here you have the South African Rand and
the Turkish lira all just so incredibly
weak and that just continues to support
that there is a fundamental US dollar
bull market underway and it’s being
disguised by the fact that the euro has
been pinned which makes the dollar index
look like it’s far more range bound but
I actually think the US dollar is in
full bull trend and in it’s just a
matter of time before the Euro gives out
and succumbs to that predominant trend
Patrick let’s move on to page 5 one of
my favorite charts of course is gold and
boy look at that breakout we’ve seen
just in the last couple of days all for
sure and and you were talking about it
and this is the big question right when
everybody is so convinced gold
going higher usually whenever you have
that kind of a strong sentiment usually
it means that the trade is crowded in a
backfills and so that and that storyline
makes sense but but you know when you
really look at the conditions around the
world and the size of the gold market is
it possible that it just keeps you know
punching higher and and making fresh new
highs I mean we’re right now only a
hundred or two hundred dollars away from
those 2011 highs it’s it will be really
interesting whether or not gold makes
the next push higher first before that
much awaited consolidation kicks in well
and that’s something I’ve been thinking
about a lot is maybe that’s the next
move is up to 1922 I think was the the
2011 that’s from memory so don’t don’t
hate me if I got it wrong folks we get
back to the the 2011 high and that’s
where we have a significant technical
correction maybe back down to 1500 or
1400 or something from there the
problems with this you know look that
you couldn’t ask for better long-term
fundamentals you know that the
politicians are gonna debase fiat
currency you know they’re gonna keep on
printing money to deal with the
coronavirus crisis and the next thing
after the coronavirus crisis is going to
be universal basic income in the various
social programs that some parts of the
the political economy would like to see
in place there’s got so many reasons to
be bullish but the problem is everybody
knows that and what propels a bull
market higher is when something causes
people to make new purchases and a lot
of them what could be the policy impetus
Patrick that causes everybody to say
okay this situation it’s more bullish
than we thought we got to double down on
our gold bets right here at this price I
mean look at what the Fed has already
done Patrick literally unlimited
monetary policy accommodation to the
tune of half a trillion dollars a week
or at least it feels that way and you
know for a while we were going a couple
trillion dollars a week in new fiscal
spending bills that Congress is talking
you know that they’re going to debase
the value of paper money and it’s got to
be good for gold but how do you top all
of that how do you come up with the next
news report that makes the case even
more compelling it’s already priced in I
think that’s what got us up here so what
happens Patrick if the Fed actually were
to show some restraint and maybe
moderate the amount of policy
accommodation and what if we stopped
having two trillion dollar spending
announcements from the government every
week or two then maybe we get you know
the set up so we’ve come on awfully long
ways we’re overdue for a technical
correction I still feel like it has to
come at some point but boy this chart
still looks awfully strong the this
descending triangle if it had resolved
to the downside was the setup for maybe
a really significant correction and it
looks like it’s not happening we’re
resolving to the upside instead well you
know the one thing I’ll add to that
those I mean you took a very American
approach to that which is like looking
at what the Fed itself is doing in the
US dollar obviously is the world reserve
currency but the whole world is in an
incredibly deep recession and there’s
going to be a lot of currency debasement
in in almost every country in the world
and so why you know even if there might
be a catalyst that may not have that
gold demand from the US you have to
still think that that the the safe haven
element of gold will be incredibly
popular especially in a lot of those
other cross currencies anyway let’s move
on to page six where I just wanted to
touch on uranium we don’t talk uranium
too often and rightfully so riga rana
has been a stuck in a bear market for
many many years
and what is interesting is one of the
reasons behind that has been because
there was an oversupply and they needed
to work that through that oversupply
uranium that has caused it to trade
below its actual production cost and so
what what this co vid has done though is
is that it actually shut down a number
of mines and now the catalyst for that
supply to be worked off is actually
there and so we saw a pretty bullish
breakout in uranium and they’ll be
really interesting to see whether the
can not only hold this or whether this
actually is the beginning of a new bull
market in uranium so it’s certainly
something we’re watching and folks don’t
forget Patrick does webinars with charts
like this almost every single day you
can get a free trial the information is
on page 7 to sign up for Patrick’s
trading advisory service now Eric before
we wrap up the show though why don’t you
give us a quick update on what’s going
on with the kovat 19 you know I don’t
have that much new to add this week as I
continue to learn and read more about
this there’s no you know huge
earth-shaking headline or anything but I
just see more and more evidence that all
piles up to me to say this is gonna take
longer than markets are discounting I
don’t mean the economy is gonna stay
shut down but the expectations so many
people have about a v-shaped recovery
and we’re back to normal like pre virus
normal you know three or four months
from now I just don’t see it happening
there’s no good reason to assume that
there’s going to be a vaccine for this
and there’s so many different variations
and mutations of the virus already that
if we did have a vaccine it might not
cover all the different versions of it
it could take many years before we get
completely back to normal and of course
we’re going to restart the economy what
we’re gonna get is close to normal as we
can but it remains to be seen how much
of a drag this creates and I I really
love to to get Stan Druckenmiller on the
program to go into more detail on what
causes him to say that maybe this
central bank enabled credit bubble is
finally going to pop and this would be
the catalyst to do it that would really
change everything and we could be
looking at an outright depression so I
don’t think it’s nearly as simple as
v-shaped recovery and folks we’re gonna
leave it there for today’s show this
episode was made possible by top traders
on plug com remember to get the ultimate
guide to the best investing books ever
written at top traders unplug com
forward slash macro guide for
information on sponsoring macro voices
please visit macro voices.com forward
slash sponsored info listeners be sure
to register a free account at macro
the benefit to you as you’ll receive
our research roundup email which
provides you with all of the best free
content that we could find on the
Internet each week including downloads
associated with our guest appearances as
well as of course our postgame chart
books Patrick tell them what they missed
in this week’s research roundup well
this week you’re gonna find the
transcript for today’s interview as well
as a link to the charts we just
discussed in the postgame there’s also a
link of the David Tepper interview and
where he discusses that this is the
second most overvalued stock market he
has ever seen as well as a link to an
ECB article on negative interest rates
and the transmission of monetary policy
so you’ll find this and so much more in
this week’s research roundup so that
does it for this week’s episode we
appreciate all the feedback and support
we get from our listeners and we’re
always looking for suggestions on how we
can make the program even better now for
those of our listeners that write or
blog about the markets and would like to
share that content with our listeners
send us an email at research roundup at
macro voices comm or tag it with the NVR
our hashtag on Twitter and we’ll include
it in our weekly distributions if you
have not already follow our main Twitter
account at macro voices for all the most
recent updates and releases you can also
follow Eric on Twitter add
eric s townsend and myself at patrick’s
resna on behalf of Eric Thompson and
myself thank you for listening and we’ll
see you all next week
that concludes this edition of macro
voices be sure to tune in each week to
hear feature interviews with the
brightest minds and Finance and
macroeconomics macro voices is made
possible by sponsorship from big picture
trading comm the internet’s premier
source of online education for traders
please visit big picture trading dot-com
for more information please register
your free account at macro voices.com
once registered you’ll receive our free
weekly research round up email
containing links to supporting documents
from our featured guests and the very
best free financial content our
volunteer research team could find on
the Internet each week you’ll also gain
access to our free listener discussion
forums and research library and the more
registered users we have the more we’ll
be able to recruit high profile feature
interview guests for future programs so
please register your free account today
at macro voices.com if you haven’t
already you can subscribe to macro
voices on itunes to have macro voices
automatically delivered to your mobile
device each week free of charge you can
email questions for the program to
mailbag at macro voices calm and we’ll
answer your questions on the air from
time to time in our mailbag segment
macro voices is presented for
informational and entertainment purposes
only the information presented on macro
voices should not be construed as
investment advice always consult a
licensed investment professional before
making investment decisions the views
and opinions expressed on macro voices
are those of the participants and do not
necessarily reflect those of the show’s
hosts or sponsors macro voices its
producers sponsors and hosts Eric
Townsend and Patrick’s or Esna
not be liable for losses resulting from
investment decisions based on
information or viewpoints presented on
macro voices macro voices is made
possible by sponsorship from big picture
trading comm and by funding from fourth
turning Capital Management LLC for more
information visit macro voices.com
The coronavirus has thrown us into truly unprecedented times. Most countries have enforced a lockdown, and global travel has ground to a halt, and this, in turn, has had an enormous impact on the economy.
Stock markets all over the world experienced huge volatility. Wall Street suffered its worst day since ‘Black Monday’, oil prices went negative for the first time in history and governments all over the world have been implementing extreme fiscal and monetary policies.
Many analysts have suggested that rather than coronavirus being the cause of this economic downturn, instead, it was merely the pin that popped the bubble and the enormous debts that have been amounting since long before the 2008 global financial crisis was a disaster waiting to happen.
So, how do we get out of this mess? Who stands to benefit from government money printing? Who has to pay this money back? And, why the fuck is Steve Mnuchin, the Secretary of the Treasury?
To answer these questions and more, I am joined by leading finance experts: Andrea Ferrero, Andreas M. Antonopoulos, Caitlin Long, Ben Hunt & Raoul Pal. We look at the corruption and mismanagement of the economy by central banks and governments.
That’s Isaac Newton in William Blake’s painting, one of the major villains in Blake’s philosophy. Why? Because Newton was a modeler, a proponent of Science with a capital S, the most repressive force in the modern age.
I think Blake was absolutely right.
Our narratives of COVID-19 are all lies.
They are lies of a particular sort, political narratives that have a nugget of truth within them, but are told with bad intent. They are told this way because it works. Because the nugget of truth hides a deeper, unpleasant truth. And a Big Lie.
Some are narratives of the political left. Some are narratives of the political right.
They are all narratives of betrayal, meaning that they seek to excuse or promote policies designed for institutional advantage rather than the common good.
Clockwise from Donald Trump, that’s Fox’s Sean Hannity, the CDC’s Robert Redfield, Surgeon General Jerome Adams, Speaker of the House Nancy Pelosi, Harvard President Larry Bacow, the White House’s Larry Kudlow, and Vox co-founder Ezra Klein. They all get their moment of shame in our magnum opus on the ubiquitous institutional betrayals here in the early days of the pandemic age – First the People.
How do you recognize a political narrative of betrayal?
It’s always based on a model.
A political narrative of betrayal is always a top-down application of social abstraction, where a behavioral model is treated as the thing unto itself, falsely elevated as the subject and object of policy, rather than relegated to the analytical toolbox where it belongs. A political narrative of betrayal will always use “model” as a noun rather than “model” as a verb. A political narrative of betrayal always BEGINS with a prescriptive model of mass behavior – a model that by the most amazing coincidence serves the institutional advantage of the narrative creator – and ENDS with a forced fit to the individual citizen.
All political narratives of betrayal start like this, with a disembodied, modeled abstraction like
- “the American way of life” or
- “the economy” or
- “the market” or
- “public health” or
- “national security”.
An abstraction that is then defined for you in such a way as to logically require the willing abdication of your individual rights, first as an American and ultimately as a human being.
A political lie always starts by establishing a disembodied, modeled abstraction like “the economy”. From there, the political lie will then start talking about the “sacrifices” that we citizens need to make for this disembodied, modeled abstraction.
Nothing makes me angrier.
Nothing makes me angrier than a politician like Chris Christie, a man whose idea of personal sacrifice is a regular order of fries, shaking his finger at us and telling us how reopening the local Arby’s is just like fighting Nazi Germany, how OUR deaths then and now are a “necessary sacrifice” in order to “stand up for the American way of life.”
The American Way of Life™ does not exist. It’s not a thing.
What exists is the way of life of Americans.
Start with the individual American. Start with their political rights. Start with the citizens themselves. This is how a legitimate government acts in both words and deeds.
The government’s job – its ONE JOB – is to protect our individual rights in ways that we cannot do ourselves. That’s not an easy job. At all. There are trade-offs and gray areas, and clear-eyed/full-hearted people can disagree on how to accomplish that job. But it is the job.
Its job is NOT to create “alternative” facts like modeled seasonal flu deaths or modeled herd immunity or modeled COVID-19 deaths in nudging service to institutional goals. Its job is NOT to champion the rights of the politically-connected few and ignore the rights of the politically-unconnected many. Its job is NOT to deny the rights of any citizen in service to a politically convenient abstraction like “the American way of life” or “the economy” or “public health”.
When individual rights conflict in unavoidable ways or we are faced with an immediate and overwhelming threat to our system of individual rights, a legitimate government based on the consent of the governed may be forced to decide which citizens’ rights must be temporarily suspended. This is a legitimate government’s last resort.
Today it is our government’s first resort.
Today it is the first choice of our political leaders – White House and statehouse, Democrat and Republican – to decide which rights to prioritize and which rights to deny in service to THEIR conception of what society should look like. All wrapped up in a nugget of truth told with bad intent.
This is how an illegitimate government acts.
Model-driven Narrative #1
Whatabout the Flu?
- Political goal: COVID-19 threat minimization.
- Truth nugget: The seasonal flu is a nasty (and mitigatable) disease.
- Deep Truth nugget: We are shockingly blasé about all sorts of largely preventable deaths, and we warehouse our elderly parents in horrible places.
- Big Lie: This isn’t a big deal.
- Policy prescription: Wash your hands, boys and girls!
- Embedded model: Laughably inaccurate models of seasonal flu deaths, designed to nudge popular adoption of annual vaccinations.
As the US death toll mounts, this narrative fades farther and farther into the background of our collective memory, but “Whatabout the Flu?” dominated the early weeks of American policy debates. And while it’s easy to find examples of this narrative from the political right, let’s not forget that CNN and Vox were beating this drum as hard as they could when Trump was shutting down some flights from China.
People don’t believe me when I tell them that we don’t actually count flu deaths, that the numbers thrown around by the Dr. Guptas and the Rush Limbaughs are taken from CDC models of pneumonia deaths. But it’s true. Basically we count pediatric flu deaths and hospitalized adult flu deaths, multiply by six, and intentionally generate an inflated flu death total. Why intentional? Because you need to be nudged into taking your annual flu vaccine.
If we compare, for instance, the number of people who died in the United States from COVID-19 in the second full week of April to the number of people who died from influenza during the worst week of the past seven flu seasons (as reported to dethe CDC), we find that the novel coronavirus killed between 9.5 and 44 times more people than seasonal flu. In other words, the coronavirus is not anything like the flu: It is much, much worse. – Scientific American (April 28, 2020)
On an apples-to-apples, counted deaths versus counted deaths basis, there is no comparison between COVID-19 and the flu. It’s pure narrative. Pure hokum. All based on a laughably inaccurate model. All geared towards the political lie of COVID-19 minimization.
Model-driven Narrative #2
- Political goal: Preservation of economic status quo.
- Truth nugget: Massive unemployment is devastating.
- Deep Truth nugget: Massive unemployment is particularly devastating to incumbent politicians.
- Big Lie: In the meantime, we can protect the olds and the sicks.
- Policy prescription: Hey, you’ll probably be fine! I mean … probably.
- Embedded model: Laughably inaccurate models of COVID-19 infection spread and severity, designed to nudge fantasies of V-shaped recoveries in the stock market and commercial real estate prices.
Again, it’s easy to find examples of this narrative from the political right, but let’s not forget that the most prominent national example of “Herd Immunity!” policy is driven by the leftwing Social Democrats – Green Party coalition in Sweden. Again, the politicization of these narratives is not a left/right thing, it’s a power thing.
It’s a high-functioning sociopath thing.
What do I mean by sociopathy and division?
I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill the old rather than the young, as if that matters for our policy choices, as if older Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.
I mean the way our political and economic leaders beat the narrative drum about how this virus prefers to kill those with “pre-existing conditions”, as if that matters for our policy choices, as if chronically ill Americans are lesser Americans, as if we should think of them differently – with less empathy – than Americans who are more like “us”.
I mean the way our political and economic leaders beat the narrative drum about how this virus hits certain “hotspot” regions, as if that matters for our policy choices, as if hotspot regions are lesser regions, as if we should think of Americans who live there differently – with less empathy – than Americans who are in “our” region.
And once you stop thinking in terms of trade offs, once you stop thinking in terms of probabilities and projected mortality rates and cost/benefit analysis and this expected utility model versus that expected utility model … once you start thinking in terms of empathy and Minimax Regret … everything will change for you. – Once In A Lifetime
Model-driven Narrative #3
Flatten the Curve!
- Political goal: COVID-19 threat maximization.
- Truth nugget: Lockdowns prevent a surge in cases which can overwhelm the healthcare system.
- Deep Truth nugget: When we’ve got everyone freaked out about staying alive, there’s no end to the crazy authoritarian stuff we can get away with.
- Big Lie: We can get R-0 down to zero.
- Policy prescription: You’ll find these ankle monitors to be surprisingly light and comfortable to wear!
- Embedded model: Laughably inaccurate models of COVID-19 deaths, malleable enough to serve the political aspirations of both the White House and their opponents.
Of the three politicized narratives, “Flatten the Curve!” has morphed the most from its original form, as its early success in convincing even Donald Trump that lockdowns were necessary to prevent a healthcare system meltdown gave both its White House missionaries and its state house missionaries free rein to use this narrative to fill a wide range of policy vacuums.
The original goals of “Flatten the Curve!” – to prevent a surge in COVID-19 cases with the potential to overwhelm the healthcare system – were achieved. The flood in New York City crested … and fell. Other cities that seemed as if they might follow in NYC’s footsteps … did not. Mission accomplished! But in the grand tradition of other initially successful emergency government interventions (“Quantitative Easing!”, anyone?) “Flatten the Curve!” is well on its way to becoming a permanent government program.
Today, “Flatten the Curve!” has become the narrative rationale for a range of extraordinary executive actions – on both the left AND the right – that would make Lincoln blush. This is the narrative that will propel the Surveillance State into a permanent feature of American life. This is the narrative that will propel the final transformation of capital markets into a political utility. This is the narrative that will propel us into a war with China. If we let it.
If we let it.
Okay, Ben, how do we stop it? How do we turn this misbegotten process of political lying on its head? How do we reject top-down, model-derived policies and their narratives? How do we BEGIN with the biology of this virus and the rights of individual citizens and build a policy framework from THAT?
This virus is 2-6x more contagious/infectious than the seasonal flu (depending on environment), and 10-20x more deadly/debilitating (depending on whether or not your local healthcare system is overwhelmed). It hits men harder than women, and the old harder than the young. Those are the facts. They’ve been the facts since January when we first studied this virus. The facts have not changed.
Knowing these biological facts, what social policies would you design around THAT?
As a 56 year-old man in just ok physical condition, I figure I have a 1% chance of death or disability if I catch COVID-19 when my local healthcare system is in good shape, maybe 4% if my healthcare system is overwhelmed. Both of those odds are completely unacceptable. To me. Other 56 year-old citizens may feel differently. Other 25 year-old citizens may feel the same. Each of us has a right to life, liberty and the pursuit of happiness, and the legitimacy of our government is predicated on preserving those rights for each of us. Liberty and justice for ALL … imagine that.
Knowing these foundational rights, what social policies would you design around THAT?
If you’ve read notes like Inception and The Long Now: Make, Protect, Teach and Things Fall Apart: Politics, you know that I am a full-hearted believer in acting from the bottom-up, in bypassing and ignoring the high-functioning sociopaths who dominate our top-down hierarchies of markets and politics. I still believe that.
But it doesn’t work with COVID-19.
The core problem with any rights-based approach to public policy is dealing with questions of competing rights. Under what circumstances could your right to liberty and the pursuit of happiness come into conflict with my right to life? Under most circumstances, neither of us is forced to compromise our rights, because we have the choice to NOT interact with each other. If my laundromat requires you to wear a mask to enter, but you think wearing a mask is an affront to your liberty, then the solution is easy: go wash your clothes somewhere else. And vice versa if I think your restaurant does a poor job of enforcing social distancing and food safety: I’ll take my business elsewhere.
Let me put this a bit more bluntly. I think that COVID-19 deniers and truthers are idiots. I think that people who minimize or otherwise ignore the clear and present danger that the biology of this virus presents to themselves and their families are fools. And there’s no perfect way to insulate their idiocy and foolishness from the rest of us. But if these idiots and fools want to take stupid risks alongside other idiots and fools, if their vision of liberty and the pursuit of happiness is to revel in some death cult, but in a way that largely allows us non-death cultists to opt out … well, I believe it is wrong for a government to stop them. Yes, there are exceptions. No, this isn’t applicable on all issues, all the time. But I believe with all my heart that if we are to take individual rights seriously, then we must take individual responsibility and agency just as seriously. Even self-destructive agency. Even in the age of COVID-19. Especially in the age of COVID-19.
There are three common and important circumstances, however, where this choice to NOT interact doesn’t exist, where the rights of yes, even idiots, to liberty and the pursuit of happiness as they understand it will inexorably come into conflict with the right to life of those who understand all too well the highly contagious and dangerous biology of this virus.
Only government can provide the necessary resources and the necessary coordination to resolve these conflicts of rights peacefully and without trampling the rights of one set of citizens or another.
You have no idea how much it pains me to say that.
It pains me because I think there’s a snowball’s chance in hell that our government will do that.
Here’s how a legitimate government would deal with the three inevitable and irreconcilable conflicts of rights in the age of COVID-19:
Healthcare workers and first responders have no choice but to risk their right to life in caring for all citizens who are sick, regardless of the agency or lack thereof behind that sickness.
How does a legitimate government resolve this conflict?
By mobilizing on a war-time basis to provide personal protective equipment (PPE) to ALL healthcare workers and social workers and first responders and public safety officers and anyone else who must serve the sick.
Workers who believe that their employer does not provide sufficient protection against this virus have no choice but to risk their right to life in their return to work, as unemployment insurance typically is unavailable for people who “voluntarily” quit their job.
How does a legitimate government resolve this conflict?
By providing a Federal safe harbor to unemployment claims based on COVID-19 safety concerns, AND by maintaining unemployment benefits at the current (higher) CARES Act level throughout the crisis.
All citizens who use public transit or use public facilities have no choice but to trust that their fellow citizens share a common respect for the rights of others, even if they may differ in their risk tolerance and private beliefs regarding the biology of the virus.
How does a legitimate government resolve this conflict?
By mobilizing on a war-time basis to provide ubiquitous rapid testing in and around all public spaces, starting today with symptom testing (temperature checks) and required masking to limit asymptomatic spread, and implementing over time near-instant antigen tests as they are developed.
It’s just not that hard.
But it is impossible. Politically impossible.
So what do we do?
“I have no idea what’s awaiting me, or what will happen when this all ends. For the moment I know this: there are sick people and they need curing.”
— Albert Camus, The Plague (1947)
We do what we can. We howl our discontent. We resist. We help our neighbors. We make. We protect. We teach. We keep the small-l liberal virtues and the small-c conservative virtues alive in our hearts and our minds.
So what do we do?
For the moment I know this: there are sick people and they need curing.