This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

In the digital age, we are all suffering from varying degrees of information overload and must lean on trusted guardians of the narrative to make sense of it all. Our good friend Ben Hunt (Epsilon Theory), one of the most reliable guardians, joined us this week for a thought-provoking conversation that included:

  • How he witnessed and reported on the COVID pandemic story unfolding well ahead of most people and his current efforts in helping to supply medical masks in the US
  • Why mainstream media keeps getting it (mostly) wrong
  • Staying true to your wolfpack and avoiding the temptation of adding too much cheese to a story – even though it might greatly amplify your reach
  • Gresham’s law and how fiat news often crowds out truly important stories
  • Wallstreet as a highly effective narrative machine that keeps driving investors to buy like clockwork

Ben’s alter-ego Neb took charge when describing the system as dominated by crony capitalism and ultimately broken, while his B.I.T.F.D. mantra got plenty of pushback from the South-Americans across the screen. Towards the end Ben returned and shared some very cool images from his own Narrative Machine, focusing on the stock that has dominated headlines this year.

Thank you for watching and listening. See you next week.

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Ben Hunt, Co-Founder and CIO

Ben Hunt is the creator of Epsilon Theory and inspiration behind Second Foundation Partners, which he co-founded with Rusty Guinn in June 2018.

Epsilon Theory, Second Foundation’s principal publishing brand, is a newsletter and website that examines markets through the lenses of game theory and history. Over 100,000 professional investors and allocators across 180 countries read Epsilon Theory for its fresh perspective and novel insights into market dynamics. As Chief Investment Officer, Ben bears primary responsibility for determining the Company’s investment views and positioning of model portfolios. He is also the primary author of materials distributed through Epsilon Theory


Ben taught political science for 10 years: at New York University from 1991 until 1997 and (with tenure) at Southern Methodist University from 1997 until 2000. He also wrote two academic books: Getting to War (Univ. of Michigan Press, 1997) and Policy and Party Competition (Routledge, 1992), which he co-authored with Michael Laver. Ben is the founder of two technology companies and the co-founder of SmartEquip, Inc., a software company for the construction equipment industry that provides intelligent schematics and parts diagrams to facilitate e-commerce in spare parts.

 He began his investment career in 2003, first in venture capital and subsequently on two long/short equity hedge funds. He worked at Iridian Asset Management from 2006 until 2011 and TIG Advisors from 2012 until 2013. He joined Rusty at Salient in 2013, where he combined his background as a portfolio manager, risk manager, and entrepreneur with academic experience in game theory and econometrics to work with Salient’s own portfolio managers and its financial advisor clients to improve client outcomes.

Ben is a graduate of Vanderbilt University (1986) and earned his Ph.D. in Government from Harvard University in 1991. He lives in the wilds of Redding, CT on Little River Farm, where he personifies the dilettante farmer that has been a stock comedic character since Cicero’s day. Luckily his wife, Jennifer, and four daughters, Harper, Hannah, Haven and Halle, are always there to save the day. Ben’s hobbies include comic books, Alabama football, beekeeping, and humoring Rusty in trivia “competitions”.


Adam:00:00:00 Not ready. He’s not afraid to just let it fly.

Richard:00:00:04 To pretend he’s ready.

Adam:00:00:08Exactly. So guys I think we’re live. Welcome to this Friday’s ReSolve Riffs. You’ve got the usual barrel of monkeys and in addition this week we’ve got none other than Ben Hunt who brought his best moustache and check out the party in the back Ben, don’t be shy.

Ben:00:00:29 I won’t. I won’t be shy. I’m not shy about this at all. As it stands guys this my version of dyeing my hair purple for the quarantine and I’m shooting for the Sam Elliot moustache in Roadhouse.

Adam:00:00:43 That’s exactly what you’ve created.

Mike:00:00:46 I like that.

Ben:00:00:46 That’s nice of you to say because frankly, I’m worried I’ve got the Wilford Brimley look. There’s…

Rodrigo:00:00:53 I just came out of listening to a podcast on Almost Famous, the movie, a six-part podcast and then watching the movie. And man did you look like a cast member. Casted directly from that movie, I have to ask, I’m like, were you in the movie? Did you-

Ben:00:01:11 Yeah. That was me.

Rodrigo:00:01:12 Were you the road manager, I think.

Ben:00:01:13 Yeah, exactly.

Rodrigo:00:01:15 Love the 70s Look.

Ben:00:01:16 Thank you.


Ben: 00:01:20 It’s definitely a seventies look.

Richard:00:01:21 Cheers guys.

Adam:00:01:22 Yeah. What’s everybody drink as well?

Ben:00:01:24 Drink as well, Right on. Happy Labor Day or Labour Day as you might say.

Mike:00:01:31 Cheers. We’ve got people in the…we want Ben.

Ben:00:01:37 Nice. It’s nice to be wanted. Here I am. So have it my bros.


Adam:00:01:44 The last time we got together which it seems like literally a decade ago Ben. But remember we sat down in person, broke bread, shared drinks and had a blast, a grand conversation you came in the next day, we had a really wonderful chat for our podcasts. Literally seems like years ago.

Rodrigo:00:02:04 And back up it was there for an event, where there were 30 people in a room?

Adam:00:02:10 That’s right.

Thoughts On the COVID Crisis

Rodrigo:00:02:11 You were expounding on your regular narrative but also warning people of what we’re gonna see on the COVID side of things.

Ben:00:02:17 Yeah, that’s true.

Rodrigo:00:02:19 That must have been one of our last events you-

Ben:00:02:21 It was. I remember it well because flying back out of your lovely Toronto airport. That was quite an experience. It was just jammed with people, wall to wall, everyone was trying to I guess get back to your…go somewhere before they shut down stuff. So it was just wall to wall people and just of course, the most horribly unsafe place available, but that was like the weekend before everything really went down.

Adam:00:02:52 I have this…, when you actually came and spoke to us and I remember sitting across the table and very arrogantly feeling like you were being an alarmist.

Ben/Adam:00:03:03 Yeah, right. A fear mongerer. And then the next day we had our podcast and I was beginning to, I was still skeptical but beginning to think that you might be onto something. And then I think it was the next day that Tom Hanks announced that he and his wife had it and they cancelled the NBA. This got really real and there was this weird shift in the Zeitgeist almost in an afternoon, when everybody was changing from being disbelievers to believers.

Ben:00:03:34 This is like a really crazy thing, but I have a couple of really good friends who are around the Houston Rockets. We were texting, one of them in particular knew a family member of someone in the Jazz and then also someone who was there in the Houston, on the team and so you’re not going to believe this, but I’m the one who broke the Rudy Gobert story. It was me on Twitter. It was literally me. It wasn’t an NBA reporter, it wasn’t ESPN reporter, they all got it like 15 minutes after I did. So I tweeted out saying, well, Rudy Gobert is COVID positive and that’s why they’re all in the locker room and why they’ve shut down this game. Rusty immediately calls me, my partner Rusty calls me on the phone says, where did you get this information? Because you’re going to need to retract that up here. What the hell do you know about stuff? I said nothing. I got a source and I told him what the source was. He said, all right, good by me. So the whole NBA shut down. That was me. I broke that story.

Rodrigo:00:04:44 That’s crazy. How far back do you remember when you started talking about it?

Ben:00:04:53 Yes, late January. Because the data was coming out of China and it was obviously being falsified. Meaning it followed a function and a smoothness that you just can’t, you don’t see in nature or in human society, confronted with an exponentially expanding virus. So that’s when I really started focusing on it and looking at the Chinese narrative that was at first domestically directed, then internationally directed, that narrative was then monkeyed by the World Health Organisation to I think, horrible effect. Then it was the narrative of, it’s just the flu and we’ve got this under control. It was taken over by the US government, and most governments, particularly the US government. So, it’s just been one series of my word “betrayals” after another of governments in the way that they’ve tried to control and shape the narrative around a plague.

Rodrigo:00:06:14 Governments and large organisations like World Health Organisation.

Ben:00:06:17 Absolutely.

Rodrigo:00:06:20 I think Eric Weinstein had an interview with Joe Rogan where I think it resonated with me so well, it was about, again let’s think about the narrative. The idea about masks, and why they came out with the narrative that masks are bad. I remember seeing that the video where I’d read a white paper on the use of masks in Japan and this is again, like shortly after we chatted. Then seeing the World Health Organisation coming out with this PSA video that said, if you wear it, you’re going to get it because you’re going to be playing with it. Likely that it’s worse if you use it. So transparent in my view that it was about protecting, the road to hell is paved with good intentions is trying to protect the health care workers. Eric pleaded in that podcast, what if we just change that narrative to one of dear patriot, we have these people in need, if you have masks, you’re hoarding. He did a much better job than I will never know. There was a narrative there that could have been used that wasn’t lying to the public.

Ben:00:07:29 You know Rodrigo, I’ve been very involved with N-95 masks, getting them to doctors, nurses, EMTs. So far we raised about a million dollars, we distributed about 150,000 of these masks in packets of 100 and 200 to about 1200 or 1250 individual clinics and hospitals and fire departments all across the United States. So I’ve been so involved in the whole PPE question of medical masks. And you are so right, Rodrigo. For me, it was Fauci in particular, the World Health Organisation is it okay, is a dish that. But it was Fauci whether it was in 60 minutes and then later saying, and this is what really bugs me. So you’re absolutely right. The intent was, let’s call it a Noble Lie. Fauci knows perfectly well that the reason that health care workers wear these masks is they are effective, right? They keep you, they keep the wearer from getting sick. They don’t do anything about the spread, but they are armor, they’re that personal protective equipment for the wearer. I don’t approve and I get in fact it just, like Eric was saying and others have mentioned as well, the whole idea of lying to the public, for the quote unquote greater good. It always blows up in your face. Always. Without exception. It never works. The Noble Lie.

Rodrigo:00:09:13 … credibility.

Ben:00:09:16 Absolutely right. But here’s what made it worse. Here’s what made it worse, Rodrigo. Was that what Fauci said was not only that, no, you don’t want to wear those medical masks. But he also said, you don’t want to wear the surgical masks either. You don’t want to wear the mask that we wear today. Which in backtrack feels like there was a shortage of those, bullshit. There was never a shortage of surgical masks, there was never a shortage of these masks that we wear today in public, because these masks are just designed to just stop the extent of the particulates you’re breathing out and it’s to keep others from getting sick. It provides you no protection or very limited protection. And the idea that the masks were somehow in short supply. It’s just bullshit. It was it was this knowing mistruth that again, it always blows up in the face of government or a corporation that tries to do it and it’s that nanny state, we know what’s right for you. So, we’re going to lie to you, kind of thing the way you’d do to a three year old. That burns me up more than anything.

Rodrigo:00:10:34 And a lot of people.

Adam:00:10:36 How do you prevent that though? How do you prevent the phenomenon? Word gets out, there’s a pandemic, the N-95 masks are helpful. There’s an instinct to protect your family, your loved ones. What prevents people from seeking out that protection? Because …Ben:00:10:56 You couldn’t buy those masks. The way we got them we had to design like this underground railroad of masks. It was Intel actually, it was a company that kind of approached us and…Not the company. Can I take that back? Was never the company. It was employees at the company saying, hey, we can buy these on our own here in China and we can ship them over to you in like packets of 200 and 300. We can stuff them in envelopes and send them to you. And it was literally this underground railroad of getting 30 or 40 people to do that. That got us really going on getting masks out here that we could then distribute to doctors and nurses and EMTs and the like. Those masks, you couldn’t buy them here. So, it’s not like oh, there was gonna be a run on Walmart to get N-95 masks. They didn’t exist.

Rodrigo:00:11:52 Just curious. Did you ever have anybody, any individual or group of individuals who did have them, to distribute to you, ever? Or was it always this underground market that you-

Ben:00:12:06 For us it started with like that underground railroad of just good people going out as individuals, this kind of bottom up effort and doing it. The reason it’s very difficult to get corporations involved is like I remember Facebook had 900,000 N-95 masks. Why Facebook is hoarding 900,000. But they’ve all got their disaster plans, in their campuses that, Google’s the same way, Apple, they’ve all got this. So they will make a show and it’s a good show, don’t get me wrong. I’m glad they do it, of giving them to a state or federal emergency management group, a hospital system, let’s say. The problem with that is that it’s the same problem we have in our economic system as a trickle down system of PPE, in the same way that we’ve got this trickle down system of monetary policy and everything else in our world today, where the idea is, let’s make the rich even richer, whether it’s money or PPE. And eventually some will trickle down to the clinic in Port Charles Louisiana. And of course the answer is this stuff never trickles down.

So, our goal was never to compete with, Facebook’s got a million N-95 masks, well, good for you, give them to the FEMA and they’ll sit in the warehouse forever. We’re not going to compete with them but we weren’t going to wait on them. So what that meant was starting with that very grassroots, Underground Railroad of masks and then finding suppliers. These are all typically Chinese suppliers of KN-95 masks, because you can’t get 3M masks, they don’t exist for ordinary people to buy. Over time you find good solid suppliers who aren’t trying to rip you off and you find out what makes for a good mask and what doesn’t. Mistakes were made but that’s what it took.


Rodrigo:00:14:25 So back on the idea of the narrative. 2020 feels like, you probably…I have no idea, I’m making these up, but just every year five major narratives to deal with and it feels like in the last 10 months we’ve had 35 different narratives to try to disentangle.

Ben:00:14:43 Yeah, right. So big stuff, stuff that would ordinarily be a narrative avalanche in years before. It’s like, okay well, I guess it’s Friday so see ya. It’s really been amazing.

Rodrigo:00:14:57 And you see that visually in your- Sorry Adam, go ahead.

Adam:00:15:01 No, it’s cool. I want to get to the maps because they are absolutely fascinating. One of my favorite things. But I want to get your thoughts on just speaking and narratives because one of the reasons why I was late to the party in terms of embracing the importance or the urgency of response about the COVID pandemic is the fact that there was complete absence of narrative urgency in the previously respectable media.

Ben:00:15:38 Absolutely right.

Adam:00:15:39 That’s fine. Actually, I stopped paying much attention to them years ago. But I have always paid attention to markets as a signaling mechanism. And what was so shocking to me, so jarring to me in this episode, and actually over the past three or four five major episodes, the Trump election, Brexit et cetera, was how markets have so consistently gotten these exactly wrong, not just in magnitude but in sign.

Rodrigo:00:16:14 Do you remember your tweet? That tweet that you sent? It’s Teflon Market. It was two weeks before the crash, and every bad news that came out of China, the S&P would go up. And you wrote a tweet saying, this is Adam saying, my god this is a Teflon Market. Clearly you said something with regards to clearly this isn’t a thing. Because the markets were telling you a completely different story. Anyway.

Adam:00:16:37 How do we reconcile this? Because this is not just pandemic, there’s five or six just massive stories over the last three to five years that the market has just gotten like I said, the sign completely wrong on but that that wasn’t really…like typically you had this the market has this topping pattern and it’s been a completely different characteristic of markets in the modern era, and I see sort of modern era last five years. Can you make any sense of that?

Ben:00:17:07 Yeah, I’ll say two things. The first is that I have only felt…let me back up a second. So, the hedge fund I used to run my focus was on the short book. If you’re a short seller, you’re just wired that way. I hate it. I don’t like being a short because you’re always seeing the flow and things and you tend to be just kind of, it wears you down frankly, being a short seller, but that’s how I’m wired. It just is. You do it long enough and you start distinguishing between I’ll say kind of market stories and how you’ve got to play the short, being a short seller is like playing poker. Because you have to fold a lot of hands, and you can’t get impatient and you can’t go on tilt and you have to play for what the pot will give you. There have been two times in my life when I felt in my bones that, okay, this is, this is a systemic shock that the market narrative is focused over here when they should be focused on the real world, the real economy. This isn’t something where there’s an easy fix in market world for what will happen in the real economy. The other time I felt it in my bones was going into 2008 after Bear Stearns was taken out in the street and shot, because what I knew was that the story, the systemic risk is good and the systemic risk is off the table that that was bullshit. Because I knew the prices that they were carrying, residential mortgage backed securities.

Adam:00:19:21 The toxic debt on their assets depending on-

Ben:00:19:23 Angelo Mozilo and Countrywide, you’re listening to him you know give his quarterly call. He’s saying we kind of got a little problem here, I remember the call is clear as day said, yeah, people keep talking about the subprime I get it but the real problem for us is the alt A. The stuff that’s not subprime, it’s the alternative….anyway, we don’t have to get all back into that. I just remember that conference call like a ton of bricks, and just knowing that the whole world is not ready for this. Because there is this $10 trillion asset class, that cannot withstand a nationwide decline in home prices. So I felt that in my bones when the market rallied in April in May of 2008.

February of this year was the only other time I have felt it in my bones, that there is a real world crisis that I am on top of that I’ve been immersed in and I know and that I’ve been around markets long enough to know that they have got this wrong, and there’s not a market solution to come out of nowhere whether it’s the Fed or what have you. Now, the aftermath, the April and the May, the bounce back, I get it and that’s how you have to do shorts. Shorts happen in punctuated fashion. They’re not forever things. You can hold long position forever. The short, you make your money and you get out but those are the two times in my life when I’ve truly felt it in my bones.

Richard:00:21:07 And the signs were there in terms of the narrative, because I think we were talking about how mainstream media got it all wrong, and they were so late to the game, and they definitely were but the signs were there. We were talking about this earlier, Rodrigo, earlier in the year. When you start seeing whole provinces and cities shut down, and then all of a sudden, Italy shuts down and the mainstream media in North America hasn’t caught on to it. If you’re something of a keen observer. You’re like, okay, I don’t care what the mainstream narrative is saying. No one shuts down a country.

Adam:00:21:37 Richard and I were getting-

Richard:00:21:39 You were way ahead.

Rodrigo:00:21:40 Oxygenators and our masks and everybody thought we were crazy.

The Three Body Problem

Richard:00:21:47And that big short would have happened for you, Ben. Were it not for the Three Body Problem, FED, ECB, BOJ, sort of the one gravitational pull that matters now in markets, which is central banks.

Ben:00:21:59 For sure. Market world is so disjunct disconnected from real world but this was a real thing. So in March this is when the chickens came home to roost. But yeah Rodrigo. So right about that. Italy was like this is why I was just kind of crawling out of my skin. It’s like, guys, I mean, this isn’t looking back, I’m like, wow, China has excellent medical care. China in general has an outstanding, I’ll say top of the line medical system. But you were looking in Italy and you don’t see this is just a crystal ball for what’s going to happen here. It was stunning. But it gives you a point about mainstream media. And this is true today as well. Everyone sees things through the lens of Trump, anti-Trump, Democrat versus Republican, and COVID was no exception. What was different about COVID was that both the White House and his opponents at different times at different points didn’t want to embrace the danger that there was COVID. The Democrats embraced it after it became clear that it was a crisis but leading up into it when Trump is saying I’m banning flights from China, the knee jerk anti reaction to Trump is, how racist is that? … And it’s just like bullshit. It’s just such bullshit. Doctor Gupta on CNN saying, well, the flu kills more people is like,

Rodrigo:00:23:48 One trusted institution after another, and trusted political party, whatever trust that political parties had at that point. It’s all gone now. I think I read this morning that the Trump administration is trying to push through a vaccine and let’s say, I don’t know. I don’t even know whether it’s true or not. But clearly now I see it through the lens. Oh, Trump’s trying to get elected. He wants to be like, well, what if I’m wrong? It’s like there’s no signal there anymore from trusted institutions trying to do the right thing for their communities.

Ben:00:24:23 Yeah. It’s all been either Noble Lies or just outright lies for their own self-interest. It’s just been a betrayal of trust time after time after time, and it’s like when you have a teacup and you break it, you can glue it back together, but it’s still a broken teacup man.

Fiat News

Adam:00:24:44 This dovetails into your, I think your concept of fiat news which maybe it’d be helpful if you get a go into that concept because I think it’s really relevant.

Ben:00:24:53 Sure. Well, look, it’s we’re all familiar with what a fiat currency is, and we all railed about fiat currencies right? Well look, information which I’ll call news it’s fiat news, it’s the presentation of opinion presented as fact. An opinion is made up. Opinion is something that I’m going to construct just like a sheet of fiat currency that Mnuchin and his wife can hold up like this, you know, right? It’s just a constructed thing and what I think is important though, is that’s not fake news. It’s not fiat news that we are immersed in. Again, the presentation of opinion as fact, as if it were news. It’s not counterfeit news, right? It’s not fake news. It’s not a lie. Sometimes it could be misleading and all like that, but it’s not counterfeit money. That’s not the analogy. It’s fiat money. And there are lots of things that go into this. One is, it’s just incredibly effective for politicians to do this.

Adam:00:26:07 Sorry I don’t know what noise is that. I keep muting myself.

Rodrigo:00:26:12 I’m muting myself so it’s not me. Somebody …

Ben:00:26:17 Yeah, that’s weird. So all right without the rumble. Fiat news is constructed, a presentation of opinion as fact. It’s incredibly effective. It’s required by our 24-7 content providers. The CNBC, the CNN, the Fox, MSNBC business model requires on the constant presentation of news. There is no constant presentation of news. There’s like one or two interesting news items a day.

Richard:00:26:54 Is a new cycle, right? It’s the breaking news. Everything is breaking news.

Rodrigo:00:26:59 Everything is breaking.

Richard:00:27:00 Everything is breaking all the time. That red banner’s everywhere all the time and you-

Ben:00:27:04 But frankly, what’s usually breaking is somebody with an opinion about something. Breaking is “somebody said something”.

Rodrigo:00:27:12 We have a game with my group of friends and call it in our WhatsApp chat is the rename the title of an article. You read the title and you think it’s one thing and they got yeah? And then the body is a very reasonable balanced whatever it is, that could have, and that should have actually had the complete opposite title. Why Japan is losing lives and then it’s like how Japan actually handled it and they may or may not lose lives but they’re actually doing a good job. Well, what can we learn from Japan and that’s the other alternative title that you can have.

Ben:00:27:44 Entirely different editors as you know, are responsible for the text of an article, and for the headlines. Entirely different people with entirely different job descriptions and entirely different pieces of the business model they’re responsible for.

Adam:00:27:58 I’m sure that’s happened to you all the time, Ben, it’s happened to us too. I write an article for, and it gets syndicated and then the syndicated person rewrites the title and then you get all the comments come back, these vitriolic comments come back about the title and…

Richard:00:28:13 It’s an incentive to get the clicks because at the end of the day, it’s massification of information, it’s the fiat of information and so the news business is dying to one degree or another depending on what outlet you’re talking about. So they need the clicks as badly as they can and so the incentive is there to just destroy-

Rodrigo:00:28:34 I didn’t notice.

Ben:00:28:35 But I’ll say this guy’s because the company that my partner I started, we do two things, we do research like you guys do and try to apply it for investment models and portfolio models and the like. But the other thing we do is we publish a lot and we’ve got a subscription business for what we what we publish and we don’t do advert, we don’t have an advertising model that was just a race to the bottom, it’s just a pittance you get for all the headaches. So it’s not that kind of an eyeball model, but it’s important for us and what we write to drive engagement and I find myself whether it’s the title of an article, whether it’s the image that you choose for it, whether it’s the topic itself.

So, I wrote this piece on N-95 masks, something that was so important to me personally, and I think encapsulates so much of the betrayals that we’ve suffered in every country from our government and around this crisis. And we got a good reaction obviously. It’s part of the series I was writing on grifters. But you just got a fraction of the response, just the merest fraction of response that my first piece did which was about Kodak. Because Kodak had he got the villains man, it’s like this is not grey. Everybody can get the idea of these Kodak, having some contacts in the White House with Peter Navarro inside, yeah, we’re going to be a pharmaceutical company now and we get $800 million and a non-recourse loan. Everyone gets that.  It’s so hard though to get the eyeballs and the clicks, the engagement for stories that I think go with the heart of really what we’ve been talking about.

Adam:00:30:46 I’m curious Ben because at least I’ve noticed this, that the amount of engagement that we get for a piece of writing or for a podcast or what, is almost perfectly inversely proportional to how valuable I think the content is.

Richard:00:31:08 Nothing sells like … man.

Adam:00:31:12 Like just what if it’s dramatic and whimsical, but says almost nothing, then it gets lots of engagement and retweets. If it’s actually content rich, if it has meaning, if it is mildly prescriptive or provides a path to a change of behavior that might be constructive, almost completely ignored.

That’s the Cheese

Ben:00:31:37 Yeah, I definitely endure I’ll say the same dynamic, if we’re just talking about just sheer popularity, but what I decided early on particularly with the writing because this sounds ridiculous. But I do want to change the world. You’re never going to do that by appealing shallowly to an enormous number of people that the way to change the world at whatever level you’re thinking about, the world and what change you want to bring. It’s having really deep engagement with a smaller group of people. And so I think it’s important when we’re when we’re writing, you lose your soul when you say, okay, I need to write, I got to do a throwaway line on let me write about Tesla. Which is funny because I did write about Tesla and it was a throwaway, frankly. But, I did it in a couple hours. It’s something that you’ve got to mix up the things that are going to be appealing to a broad audience but the stuff that’s important is the stuff that’s going to really connect. Maybe it’s just with a few people, because that’s really all you need.

Richard:00:33:14 There should be an alternative because I remember in a recent conversation you had with Grant Williams, I think you were talking about how Rusty calls you out on a mention of a CEO and this was kind of an aside to a story that you were writing and you were calling him out and you were telling him, you’re just adding another chapter to the crony capitalism that we see. But you were talking about how that piece would have gotten a lot more clicks and you would have been able to reach many more people outside of your … pack. Isn’t there a way that we can…

Ben:00:33:45 Yeah. Let’s talk about that a second. Because this was that N-95 grifters piece that I was writing about and part of it was went off on a semi tangent,  I got my juices going because one of the focuses I’ve had in the past has been looking at how stock buybacks, they’re not bad in and of themselves. I get that. I love stock buybacks as an investor, truly I do. They are used to sterilize ridiculous management compensation schemes. I’m sorry, that’s just the fact. And one of these ridiculous management compensation schemes happened to be with Honeywell, who is one of the major manufacturers of N-95 masks.

So, I just had a little blurb where I was talking about, oh my god, this guy, the CEO, none of these the CEOs, they’ve never bought a penny of stock. It’s just given to them and it’s set up in such a way where if he plays his cards right, he’s not a founder, he’s not an entrepreneur. He is an engineer who came up through the ranks and he’s a manager. He’s looking at a payoff of maybe, I don’t know 150, $200 million if he plays this card right over the next five or six years. What world is that? I’ll say productive or capitalist.

Adam:00:35:21 As Rusty said, and that’s the cheese.

Ben:00:35:23 He says that’s the cheese and he said look it’ll get the juices flowing for a lot of people but that is not what you’re trying to say here. And he was exactly right.

Richard:00:35:34 But you can add back to that. You can maximize the reach of your content by perhaps adding that cheesy-

Rodrigo:00:35:42 Cheating a little bit, cheesing it a little bit.

Richard:00:35:45Yeah, including the real message that you’re trying to get in there for sure. Because the whole idea of stock-based compensation is here to stay, right?

Ben:00:35:56 I think that’s a bit of…I mean, look, that’s the excuse I gave myself all the time. It’s like yeah, you’re kind of cheesy here but you’re doing it for the greater good. It’s that same thing we’re talking about kind of the Noble Lie, it’s not as bad as the Noble Lie. But when you’re cheesing it up, when you’re playing just to the crowd and…masses is fine, but that just the cheap thrill.Rodrigo: 00:36:28 Because it comes back down to credibility. The reason I think you got the support that you did with masks and the people that helped you out and actually do the heavy lifting. I think it’s because they trusted you, because they trusted your organization, you and Rusty.

Ben:00:36:45 Right on brother.

Rodrigo:00:36:47 And like you said, you can have this shallow following but the moment you ask for help, are you going to get it? Are you going to get the same type of principled people as you would otherwise? I don’t think you do. I think you’d become a tool for other people’s narratives. If you make your headlines extravagant and you push on that cheese, you are giving whomever believes in your values and they’re using that without having probably read your article, using that title and using that lead paragraph in order to further their own arguments and those facts, what we call opinions masked as facts. I think we need to … I always like there’s you want to push for a good title and you always fighting against getting too much cheese but it is something you need to be vigilant of.

Ben:00:37:41 Look, the only coin of the realm that means a damn in this world of debasement that we’re in, debasement of information, debasement of opinions, debasement of currencies. The only coin that’s worth a damn is authenticity. Again, it’s that teacup. When I was running my fund as part of a larger asset manager, and I remember having a conversation in the kitchen, was one of the two co-founders of the firm. I don’t know how we got on it, but he was saying, we tried to do the Brooklyn accent, but it is a bad. They’re two things you got to know about business. And is like okay, what’s that David? And he’s so smart, this is really good. So he said, well, first thing is this, it’s not about the money. It’s about the money. That was number one. And he’s so right and I’ve remembered that a lot of times it’s really served me in good stead. The other thing he said was you always live to fight another day. What he meant by that is what we’re saying here. Which is that in this business of financial whatever that we’re all in, it’s a good business. If you can make a…It’s a business you can stay in your entire life and do good, make money, do all those things. But you can’t be that teacup that gets broken. Once you lose that credibility, once you lose your authenticity, once you lose your reputation, there’s no business on the face of the earth where reputation is more important than what we do, investing. Period.

So just preserve that even if you’re wrong on stocks or the markets or whatever, don’t ever feel like you have to go all in or make it all up or tell a little lie that leads into the big lie. You don’t. Just play it straight, keep your authenticity and this is a business where you can do good and make money for a lifetime.

Adam:00:40:26 I agree. We obviously espouse the same value system and then I contrast that against the Tesla game or Benioff, or-

Richard:00:40:36 … capital management, the guys are back in business and-

Adam:00:40:40 The cheese. Rusty’s recent article, the cheese, really resonated with me where we’re now in a society where politically, economically, financially, the way to extract profit is to create edge cases. They have to get around of the spirit of the laws and the rules and the regulations and the spirit of capitalism in creative destruction. We talk about authenticity and we I think, as a group espouse it in our writings, in our operations, what we stand for and yet when you look around us at those that are extracting the most from the system, we observe the exact opposite.

Ben:00:41:32 Yeah, but it’s always been this way, man. It’s always been this way. Look, don’t get me wrong. I think we’re not just in the golden age of fraud and cheese and pursuing the edge case. We’re in the Platinum Age. We’re in the Diamond Age. It’s beyond anything in my adult life of understanding or anything I’ve read about quite frankly for that matter. But, Adam, so what?

Adam:00:42:11 I hear you right and that’s the best …

Rodrigo: 00:42:16 It just makes you a little jealous. That’s all. It makes a little jealous like can I get some of that juice? Wouldn’t that be nice? Let’s change that title. It’s tough. Some of these things go viral. That are absolute nonsense.

Ben:00:42:32 It makes me angry. Look, I get it. And this has been the thing that keeps me going to your question, when I started writing Epsilon Theory, I may have told you this in the last talk we had, this was the summer of 2013. So a little over just over seven years ago. And as I’m pretty dark place I don’t mind telling you. We had given all our money back in the hedge fund, it was close to a billion dollars, I gave it all back because it just wasn’t working, we never lost money for clients but you know when it’s just not working and trying to figure out what does work? What the hell is going on in markets and politics? I started writing, and it was 100 people and now it’s like what 100,000 and it’s like that old Police song tossing the “Message in a Bottle” onto the ocean and you come back and there are 100 bottles washed up on your beach, and that’s what this has been for me. The publishing or any anything, guys like yeah, I wouldn’t know you guys if we weren’t writing, if you weren’t writing, and it’s finding this brotherhood and sisterhood, and unfortunately, it’s too much of a brotherhood and not enough sisters in what we do, in our business. But it’s finding that, I like pack, because it sounds a lot more forceful than community. But that’s what it is. And it’s Fight Club man, except it’s okay to tell people you’re part of it. But it’s everywhere in every city in every country, every burg and hamlet out there. There’s one of us. It’s just hard to know who we are and how to connect and that’s where the writing and staying true and what you guys do and even, God bless you, Labour Day weekend, a little pious. This is how people get connected and that’s how the world changes.

Burn It The Fuck Down

Adam:00:45:04 So you’ve been very active with the burn it the fuck down and that really, it resonates with a lot of different people I’m sure for a bunch of different reasons. But what I’ve been so admiring about with you is how, and you do get you get pissed off and you definitely go off on Twitter and you need to take a break and I certainly get that maybe, but what’s been so great is just how you’re able to come back to it over and over with such grace. Without the grudges and without the…like you literally just keep going back to the Brownfield or the Greenfield objective of this whole thing. Like yes, there’s all this bullshit out there and yeah, I want to burn down the edge cases but how do you carve yourself off from that trajectory towards nihilism because I don’t get that from you. I get the, I’m still hopeful meme from you or impression from you and not the nihilist meme, but you do need to get to know you in order to be able to see that. But you, I genuinely feel it. So how do you separate those or how do you avoid going down that nihilist path?

Ben:00:46:29 You do good works, that’s it. That’s it.

Rodrigo:00:46:35 Back to the original topic. Do good work.

Adam:00:46:38 You connected with good people doing good things and by doing good things with good people you …
Ben:00:46:41 Yeah. And by good work I mean research on good works. I also mean that in the, I call it the religious sense. I’m not a religious guy at all. But I mean, help your freaking neighbour and just do that. Just do that and you get back so much more than you give. I know that sounds trite and silly. But brother, it’s the truth. It’s the truth.

Adam:00:47:14 So are you winning the battle?

Ben:00:47:20 You know, it’s two steps forward and one step back. It always is. I’ve got my alter ego, Neb Tnuh, who’s kind of adrift in the sea of social media and communicates better with strangers and bots on Twitter that he does with his own family, frankly, and is anti-social and can’t connect and can’t kind of form the words. And Neb’s with me every day. Neb’s with me every day.

Adam:00:47:55 I just can’t shake Gresham’s law. I feel like the bad means just crowd out the good, and no matter how much good you want to put out there, there’s just at the moment anyways that seems overwhelming.

Ben:00:48:10 Well, this is why I wrote that fiat news concept and in the articles I read around that, because it came out of Gresham’s law. So Gresham’s law, he was the treasurer or whatever you call it for Queen Elizabeth. Right? She had a problem because her dad had taken all the silver coins, is that, can’t we recast these but only with half the silver as before? So, it’s marked this recession in Elizabethan England and said, what’s going on? And of course, Lord Gresham or whatever his, you know his first name he said well bad money drives out good. Bad money drives out good because if you do have a good silver coin and you know it’s a good silver coin, you’re sure as hell not going to spend it. You’re going to hide it, you’re going to keep it, you’re not going to spend it because you don’t know, you just don’t know what those other if you’re exchanging it for a good coin.

So in exactly the same way, bad news and I don’t mean bad in the sense of distressing. I mean bad in the sense of constructed and fake fiat news drives out good money. It’s exactly the same thing. So you’re right Adam, it’s not just a daily battle. Is a losing battle man. This isn’t a mean reverting phenomenon. This gets a lot worse before it gets any better, which is exactly why Adam you say, well why not join the other side and rape and pillage with the best of them. Is that, things get worse from here not better and you need to know who your pack is because that’s the only way we’re going to make it. Is to have a pack.

Rodrigo:00:50:24 And is burn it the fuck down mean that final recognizing, that shrinking good money and trying to make your best effort. Is it something you truly believe that you will be using if you were winning the battle or is this kind of like a last ditch attempt to get people’s attention?

Ben:00:50:49 I’ll tell you where it came up. It wasn’t thoughtful, it wasn’t a planned thing. There wasn’t some grand strategy to start saying Burn it the Fuck Down, BITFD. Although I do fancy myself the whole second foundation Isaac Asimov, that you kind of plant these things and try to create it. I’ve tried to do some stuff like that, but this was not one of them. It’s kind of, I want to try to channel it in that direction. Don’t get me wrong. But I first wrote this after Epstein was killed or died in his jail cell.

Richard:00:51:32 Was suicided. When he was suicided.

Ben:00:51:34 Yeah and I still don’t know, right? Whether it was suicide, was murder. I don’t know. Here’s the thing. I don’t care. I don’t care. It doesn’t matter.

Adam:00:51:45 Why wasn’t he protected?

Ben:00:51:46 That’s it. So a legitimate non-corrupt government. You’ve got one job in this situation. You bring the bastard to trial. That’s your one job. And the fact that you failed for whatever freaking reason you failed means that you’re a corrupt system. By definition you are. The note I wrote was, I’m a superstitious man which is after The Godfather, where Vito comes into the meeting of the five families, and he wants to bring his son Michael home. And he says, look, I’ve got to, he’s going to come home, got to clean up all these false accusations of him killing the police captain and all. I forgive the death of my other son but Michaels coming home, and he said, his death I do not forgive. And if by some accident, he’s struck by lightning, or he actually says this, he’s arrested and he hangs himself in his jail cell. That’s the example that Mario Puzo uses when he writes The Godfather, whatever, 50 years ago. Vito says this I do not forgive, because he says I’m a superstitious man. And I’m a superstitious man too. I do not forgive this. So that was the first moment of writing “Burn It The Fuck Down” because the entire system is corrupt, and it has to be reshaped.

Rodrigo:00:53:26 I have to admit that as…I don’t know if Richard feels the same way. For those who don’t know, Richards from Brazil, I’m from Peru. When I started having conversations with Adam, but he’s a bit of a nihilist and I think he likes the idea of Burn It The Fuck Down. I have issues with that concept. Starting fresh. That when you burn it down, you’re going to rise like the Phoenix and something better is going to come up. Because we’ve seen in my lifetime and my parent’s lifetime and in many South American countries, the third world countries, things being burned the fuck down. And sometimes Peru’s an example of rising like a Phoenix, taking poverty from 55% to 35%. Seeing growth every single year for seven years, we burned it all down. We did our Constitution and started fresh in 1989 after my family left. After the terrorist, communist organization, we burned it down.

But then we’ve also seen other scenarios like Argentina, constantly burning it down and rebuilding and burning it down and rebuilding and many other third world nations have these massive revolutions and the complete opposite happens. So, when we South Americans look at your corrupt system, we want it. We want oh my god, it’s so less corrupt than anywhere else on the planet. It’s like the ideal everybody still wants to come to America, still wants to be part of that system. It is still an operating system that tends to not allow individuals to completely ruin it. Not an individual can do that in South America. A single individual can not do that in America. Trump has not been able to do that in the US yet, in my opinion. I find that like, I have a negative reaction to the nihilist approach of like, burn it down and start fresh and just curious to hear if you’ve had that pushback before.

Ben:00:55:28 All the time. And it’s a legitimate pushback. It’s entirely fair and sometimes I push back on myself and then some other slap in the face will occur and I’ll say no, forget the fuck down. Look, you’re right. It’s a first world luxury to be able to say that and it is a constant issue for me to, back up a second. So there were these riots in Atlanta and Killer Mike he comes on he starts talking about, when we talk about burning we want to burn down the system. We’re not burning down your neighbor’s house. Me and Killer Mike are saying the same thing.

Rodrigo:00:56:27 There’s nuance there.

Ben:00:56:29 I know it’s a nuance and I know particularly the people who don’t want to burn it the fuck down, who profit from keeping it up the way it is. They’ll come at me and say, you want to burn it the fuck down, your fucking you know, blah blah blah. That critique when I know where that’s coming from I get all bristly about that. I don’t get bristly at all about what you’re saying because it’s fair. Frankly, what I want is a Constitutional Convention, because we can disagree about Trump the man, catalyst or something deeper. But I think the fact is that in the United States, our domestic political games are now this kind of game theoretic craziness. We are in a competitive game. We’re talking right there, where nobody can see past anything other than through the lens of the competition of Dems versus GOP. Trump versus Biden or whoever. Everything goes through that lens. That didn’t used to be that way. There’s always been an element of that. Don’t get me wrong. There’s always been an element of that. But in the past when we, the United States has had a threat to all of us, like COVID is a threat to all of us today. It has not been made partisan. I’m not saying that’s all Trump’s fault. I’m not saying that. But the system that he broke as a result of, this is the way it is, and it doesn’t fix itself. I don’t know what to do other than to burn it down.

Rodrigo:00:58:37 Well, I agree with Killer Mike. We watched that many times over and I had a feeling when he said those two things that he was saying something that he thought he could do. Separate the burning the houses down and the stores down with burning the system down. Here’s the way I see this idea. I see it as an options contract. You just increase volatility. The moment you start rooting for that and asking for the complete annihilation of a system, whatever it may be, you increase the volatility of outcomes. So you can have something really great or something really bad. I just don’t think you can you can do one without the other, and that’s my big fear. I’m suffering PTSD in my past. The question is, is there no other way? Like can’t we not reform? Can we not move forward and try to fight in a different way than trying to burn it down? Isn’t that gone now?

Ben:00:59:42 I think that what burning it down in the way that I want and that Killer Mike wants. I think what that requires, and it’s the hardest thing to do is, truly effective leadership on the side of the rebellion, the resistance. Because again, both from a narrative sense and from an efficacy sense, the only thing that works is in the 20th century at least, or the last half of the 20th century and the 21st century is profound non-violence, profound non-violence. That is not been the leadership. It’s been a leadership failure of particularly the Black Lives movement, a movement that I support on 1,000%. But the leadership, there’s been a failure of leadership in the sense of seeing the violence that emerges it, as regrettable, or ain’t that a shame. No. The violence that emerges from this is a betrayal of your movement and it must be treated like that and it requires the kind of leadership that you got from an MLK that you got from a Gandhi, that people who knew how to play the game effectively and the way you play the game effectively is, and the way you burn down a system is the long game with absolute adherence to non-violence. It is so hard from a leadership perspective, is the hardest thing that a leader of a resistance movement can ever do. But if you’re the underdog in any sort of fight, this is true if you’re an underdog business. This is true if you’re an underdog social movement. This is true if you’re an underdog sports team, you must have more discipline than the people you’re fighting.


The Three Body Problem

Rodrigo:01:01:51 It’s such a long game. Is the interesting more two words there that I think we’ve all been reading The Three Body Problem? The series. And one of the things that it’s about is about planning for 500 years ahead.

Ben:01:02:10 Right. Which makes it a very Chinese novel frankly. I’m serious. The translation’s phenomenal but one of the things I really loved about that whole series was I felt like I got a view into modern China and I’ll call it Chinese culture in a way that I don’t otherwise. So what you’re just describing, that’s a pretty Chinese perspective just right there.

Richard:01:02:38 But it sounds like what you’re saying then in terms of Burn It The Fuck Down really is working through the system, playing a long game in a sense, you don’t really want to burn it the fuck down and bring on the terror years of the French Revolution. It’s not that chaos that increases volatility to the degree that Rodrigo was describing which as a Brazilian myself I also don’t want to see because you have a neighbour to your north to see what’s happening, but as well you have this. And so I shared that view, but you want to burn it the fuck down-

Ben:01:03:13 I really do. I really do want to burn the stuff down. Because I do not believe that you can change the system through incremental adjustment. I think that the system that we have set up today does not allow for effective change from within. That the rules have been so co-opted and dominated by the self-aggrandizing rich people and powerful people. That change within the system is not possible. So that’s when I say that I want to have a change of the rules. I want to have a Constitutional Convention. I don’t think we’re ready for that. I think any Constitutional Convention next week is just going to be co-opted by the same cast of characters.

I think that there’s probably a dissolution and a splintering that’s required. But the person I look to for inspiration on this is, also sounds so ridiculous. But it’s St. Augustine. Who’s looking from afar at Rome? And it’s not a five year decline for Rome where it goes, no, it’s hundreds of centuries where Rome just slowly winds down in the west and keeps on going for centuries more in the east. But, he’s writing out there and what he’s saying is that he has to separate himself. We got the City of Man over here and we’ve got the City of God over here. Again, I’m not talking religious. I’m talking purely secular worlds, we need to form our own community, separate from this world that keeps trying to drag us in and in, and try to force us to see everything in the world through their lens. The revolution’s going to happen in our hearts first. It really is where the revolution happens first. And that’s the hardest revolution of all. But I really do mean burn it down. I don’t mean just reform the system, I mean, new system.

Richard:01:05:39 Not in our lifetime.

Rodrigo:01:05:41 I don’t know man …

Ben: 01:05:46I’m hopeful.

Adam: 01:05:47Well I think where you’re going is that the failed state is the result of a successful mission to burn it the fuck down. So far, do we agree about that with that premise? Because I think that’s where our South American guys are.

Richard:01:06:12 And you have example in the Middle East right now. You took these terrible people who were oppressing portions of their population, for sure. And they were bad actors definitely, and in the toppling of them, the chaos that ensued in the vacuum of power actually brought in something worse.

Rodrigo:01:06:31 Belarus right now?

Richard:01:06:33Like you have many examples of that. I’m just trying to understand how this could bring about…

Ben:01:06:40 Guys, we know we’ve got the blueprint. Is it’s not like we have to invent a new form of government. It’s not like this is the, I mentioned Eric Weinstein earlier, Eric and his brother Brad’s got these Articles of Unity thing. I think it’s silly. I think it’s silly. I think their hearts are in the right place. I think it’s like a high school senior decided to write political philosophy and I mean that with a lot of love, but a top down new system of government, a new state and that’s not it. Neither is the strong man or the dictatorship. We’ve got lots of those. Look, we know what it looks like. It really is liberty and justice for all. It really is these small L liberal virtues, these small C conservative virtues. It really is one person one vote. It’s all of those things. I believe though we’re at the point where there’s been so much detritus built up on this edifice that we had, 1789 that it doesn’t, it’s like one of these old master paintings where they say, we’re going to clean it off. And he said, Oh my god, there’s colour underneath there. And it’s like the painting comes alive after they just take all the gunk off from a couple of centuries.

Rodrigo:01:08:37 Somebody wrote here that it should be the Wolf Pack as Founding Fathers 2.0. I like that.

Ben:01:08:47 Not wrong. I like that because the whole notion of the pack is that you are…here’s some of these other kind of phrases. It is the “clear eyes, full hearts can’t lose”. The pack is like a high school football team in Odessa, Texas, where that phrase comes from. Friday Night Lights. Clear eyes, full hearts can’t lose. Because it gets back Adam to what we’re talking about it but before it’s finding those people who you want to be in the foxhole with, who see you as not as a means to an end, which is what every politician and every political party and every corporation today does. They see you as a means to an end. What I’m saying is that you find the people who see you as an end in and of itself. That’s it. That’s it, find that pack. That’s what a pack is. And that’s how you create a society, that has to come before you have a state. Before you have a government, you’ve got to have a society that works.

Adam:01:10:01 I agree and I think this is kind of…correct me if I’m wrong, I don’t want to put words in your mouth. But the way I sort of see it is we don’t want to burn it the fuck down. I think the way that Rodrigo and Richard are coming at this, we don’t want to burn it the fuck down because you get a failed state, you don’t want materializes, you know what materializes after a failed state. So, I think where maybe you and I Ben are a little closer to is the idea. We’re already in a fucking failed state that has been painted over by a fucking bull market.

Rodrigo:01:10:30 You’re out of your mind. If this is a failed state…

Adam:01:10:33 …by a bull market.

Richard:01:10:37 It couldn’t get worse than this.

Adam:01:10:39 No. I know it can get vastly worse but I’m saying the idea that we have a functioning state. The broken concept. It is a broken state that has been painted over by a bull market. Period. Full stop.

Rodrigo:01:10:56 Yes.

Ben:01:10:58 We have a luxury here that I think many other countries are trying to create in Latin America. And that is a sense that that you are a nation, frankly. In the same way that I think the notion of a Peruvian identity. I think is kind of finally, right maybe taking root. It’s declining in the United States, the idea of an American identity is

Rodrigo:01:11:32 Well it’s true there. There is no doubt that you guys are on the downswing. 100%. For me it’s all just how much you want to burn it down like it’s going to go like this. Can we inch it up, because I’m just always terrified of that other scenario. And what I’m finding when I speak to my American clients and friends and even Canadians is, again speaking from just coming out of reading the Three Body Problem and planning 500 years ahead. We’ve had legitimate discussions about how far forward you want to think when it comes to global warming when it comes to Black Lives Matter.

Like, some of my friends are like, I care about my children and after that, I’m done. That’s all I care about because right now, this is all I can control. Whereas in the past, when you stop half for, when you saw this bit of stability in your future, you can plan, you can do an estate plan and there’s no estate planning in South America. You’re just cost. Whatever you get you spend. Whatever you have, the friends that you have, you take advantage of them because they’re going to be gone tomorrow to another country because they can’t live in this place anymore. They’re going to be shot or whatever. I do see it in North America that people are becoming more and more insular rather than thinking about like when you have stability, you have the luxury of thinking about 2,3,4 generations ahead. And I agree that there’s a trend toward, be more insular, because of what’s going on.

Ben:01:13:05 We talked about the American founding as being this exemplar, because we know what it should look like. There’s another great period of time. It’s the Scottish Enlightenment. So it’s in Edinburgh, in Scotland, also the kind of the 1700s. There was this guy there, the Scottish Patriot, his name was Andrew Fletcher. And his quote was, “I don’t care who writes the laws. I care not who writes the laws of my country so long as I write the songs.” And then that’s what I want to do. I want to write our songs. It’s like Lin-Manuel, right? He’s writing the songs man. His songs, of course, is a metaphor for the society that underpins whatever you build in terms of the edifice of the state and the like. And it’s that society is where we’ve got to start and you start that means from the bottom up, it means, pack the Fight Club analogy is man, I’m sticking with that. That’s how it changes. That’s how the system burns down. Or maybe that’s how the system is rebuilt in a better way. I don’t know. But if you’ve got that society in place, the rest of it, you’re writing the songs, the laws take care of themselves.

Narratives That Click

Rodrigo:01:14:38 So I’m just going to shift the narrative a little bit here towards…in one of your previous interviews you talked about how some narratives click and some narratives don’t. And one of the things that I was thinking was if we do take a middle ground is there. Have you identified any ways of finding the narratives that click in order to get what you want than you did in the past? Or are you learning something from the tools that you have in order to get better at it and get better at getting the message out?

Ben:01:15:12 Yeah. So the first one is one we’ve talked about already here today and that is, whatever you’re doing in your messaging, it has got to be authentic. If it’s a little fakie, if it ain’t you, and I mean profoundly you, people sniff that shit out from 100 miles away. And maybe it works for a little bit, but it doesn’t work for long. The converse of that is true as well, you may come up with something that’s true to your heart. That is authentic to you and it may not work. Stick with it, is what I’m saying. There is a long game here in the same way that we have this… I know it seems like with a short attention theatre going on with all of us and Rodrigo is saying that we’ve got 30 big stories this year. The message you have, these stories that will also never go away. So if you just stick with it and if it’s really authentic, you will find your pack. It’s never been easier to get a message out there today. You don’t have the intermediary forces of publishers and government and the like, if you’ve got a message, you got something to say, you can get it out there. People may not care, but you’re not going to be prevented from getting it out there.

Rodrigo:01:16:50But I guess what I was asking is, do the narrative maps that you use help you in trying to navigate it better?

Ben:01:16:58 Well, I’ll give you an example from…because usually the examples I’m looking up are things where I think the world is not, has gone awry. And you can really see it in these narrative maps. Like Tesla’s a great… I know it was right about Tesla but let me talk to you about Tesla and the narrative around Tesla. Historically, there have always been two narratives around Tesla, and you can actually see them in these kind of like clusters and maps that we create. There’s the narrative around Tesla, the company, how many cars has it build, how profitable is it? Blah, blah, blah. And then there’s the narrative around Tesla the idea. Autonomous vehicles, batteries and space and all these ideas. What you see is this great big tug of war between these two very distinct narrative concepts around Tesla. And whenever Tesla the idea is more central in the map, whatever its dominant, stock price goes up. Whenever the narrative around Tesla the company is dominant, stock price goes down. What’s happened just over the last six months though, is something really weird. There’s been a new third body, a third narrative body and that’s just Tesla the stock. Tesla the stock. The articles, the narrative is there. What did the stock do? Not what’s the company doing? Not what’s the big fundamental idea by driving it? No, it’s just Tesla the stock. You also see this like with Bitcoin and cryptocurrencies. You’ve got a small smattering of articles that are about Bitcoin, the store of value or whatever the fundamental ideas are, and then there’s another cluster is just okay, Bitcoin the price. The price of the commodity or coin, whatever you want to call it. When the narrative is about the price of something and the sentiment is positive, when you’ve got effective missionaries it just goes up, it wins.

Mike:01:19:18 It’s self-reinforcing expectations of price reinforced by the self-reinforcement is…

Ben:01:19:24 Is what George Soros called reflexivity. That was his concept and he was right. There’s a bigger concept. There are lots of messages that we get. He was just focused on the messages that the market gives itself. That’s reflexivity. The information in price and the way that rolls on itself. It’s also messages from what called missionaries and from the…but that is exactly the idea. So that’s a really interesting thing to think about. If you’re thinking about how do I create a narrative where I want the price of my effort to go up? How do I want people to be talking about it? One of the real important things is you want people to be talking about you, because it’s the crowd looking at the crowd. And so you should absolutely tell people, I’ve reached this milestone in AUM or whatever this stuff. It’s a little you can be bragging about it, and then you’ve got to craft it in the right way, but crafted in the right way when you get that kind of snowball rolling down the hill, and you get people talking about the success of you. That makes you successful. It’s nothing that a PR guy doesn’t already know.

Adam:01:20:56 It’s from saying praising the million people in the crowd, and there being 4000.

Ben:01:21:03 You got it man.

Adam:01:21:04 Exactly. Just that that sort of signaling.

Ben:01:21:06 You got it. You call the attention of the crowd to the crowd and to the signifiers of the crowd, whether that’s stock price or what have you and you take it away from the quotidian details of the performance of your entity. Because that’s just going to be a downer.

Adam:01:21:24 Yep, it’s the laugh track. People have to be told what they should think about it. Exactly.

Ben:01:21:30 Figure out your laugh track, man. That’s exactly yeah. We’re all sitcom here. We’re all sitcom.

Mike:01:21:38 Does anyone know where Galt’s Gulch is? I need directions to. I think that’s where my pack is.

Adam:01:21:45 So I’m curious what the current, this year the changes in narratives and the turbulence in narratives has just been unlike anything I’ve ever experienced. Anyways, I’m just wondering because you’ve had this quantitative tool that you use to sort of identify the clusters of narratives and a minimum spanning tree or something, but like, there’s some causal chains in the narratives and stuff. And I’m just wondering, what are you seeing or what is most relevant to what you’re observing or have observed about that in the near term or at the moment?

Ben:01:22:27 So, big picture. What I’d say is that yes, we’ve had all these, literally a cataclysmic shock in the form of COVID-19. We’ve got the political shocks that come every day. One of the things that I find most fascinating though, is that the day to day business of Wall Street, which is to make up stories to sell you shit. It just goes like clockwork. It just keeps on going. Every month there’s a new story buy financials, buy consumer discretionary, buy technology, what are you going to buy next? What are you going to buy next? And that constant metronome of narrative, it’s still with us, man. I don’t know how it ever goes away. So that’s what we try to focus most on and kind of applications of this, is identifying the business of Wall Street, which is to make up stories to get you to buy shit. And they’re really good at it and it doesn’t stop, it never stops. So that’s one picture.

Mike:01:23:38Can you differentiate that for me from just business? Isn’t that the objective of capitalism? To make up stories for you to buy shit?

Ben:01:23:47 No.

Mike:01:23:48 No. How would it be different than the reason we, again, you’re sold things, whether it’s food, whether it’s cars, whether it’s the next thing to create a narrative around your social status.

Adam:01:24:02 It’s such an …

Ben:01:24:03 This aspect, this exercise is part of every business. It’s been part of humanity since we have had humanity. It expresses itself a lot in politics but where I find it in its purest form is financial assets. And that’s what a multiple is. How do you price a cash flow? What’s the story? That’s all it is, price a story, right? It is such part and parcel of these, intangible things that we live and breathe. It’s all story. You’re right. It’s in every business. You got to sell … you got to sell cars-

Mike:01:25:07 … I mean maybe art would come close, I’m not sure.

Ben:01:25:12 Art comes pretty close. I agree with that. Art comes close. As I said it pretty well it’s how I’ve always thought of Bitcoin. I think Bitcoin is very elegant art. Does it have value? Absolutely. That’s what Bitcoin is to me. It’s very elegant and beautiful art, but its story.

Narrative Clusters

Adam:01:25:34 So apart from the Wall Street narrative, are your graphs showing you any other narrative clusters that are particularly insightful or that you’re paying attention to and you think that others-

Ben:01:25:46 Yeah. What we try to look at are called the micro narratives. That’s the Wall Street drum beating. That’s every thematic idea you’ve ever been pitched, and it’s the subject matter of 98% of the content on CNBC. Is what I’ll call is a micro narrative. There are also macro narratives that are constructed. One macro narrative is well, what’s the central bank narrative? Is it a hawkish? Is it a Fed Put narrative? Is it oh, we’re looking at inflation and we don’t care narrative. There are about five what we call narrative regimes around central banks. And right now we’re in this narrative regime of the way that everyone is talking about central banks, the Fed and the way the Fed talks about itself is around the language of inflation. That is generally market positive.

You can go back and see in history when this regime has existed and typically the next month the markets up 2%. It’s a pretty big impact, frankly. Another one we track is how the market talks about itself in terms of what matters. Is it focused on technicals? Is it focused on valuation? Is it focused on fundamentals, which is a little different than being focused on value? But it’s talking about fundamentals. Right now, we have this transition into a fundamentals focus, and that is typically…that can be not as good for markets. If the news flow, if the fundamentals and news flow. So what I mean by fundamentals? It’s talking about things like, what’s the jobs number? What is the economy bouncing back with the growth? Those are the questions that are really dominating how the market talks about itself today. And so long as the news flow is good, that’s constructive, but when the news flow ain’t so good. Like, we’ve got an election in 60 days where you could have a constitutional crisis where we haven’t seen this country in 150 years. You know, that’s-

Richard:01:28:18 Did that election enter in the Zeitgeist in terms of price action, as far as you can measure from your narrative machine. Are the markets paying enough attention? Or is this still led by the inflation?

Ben:01:28:29 Yeah. So what you’ve seen dominating the macro narrative has been questions about COVID for obvious reasons. And what we’re seeing over the last two days, this is a non-COVID related correction. I very much believe it’s because people looking forward 60 days to an election, not because it’s Biden might be elected or it’s not who but it’s, are we going to have a functioning transition of power?

Richard:01:29:04 The uncertainty around the election. There is a lot of-

Ben:01:29:06 This is going to happen. You see this in the VIX curve, you’re seeing really elevated VIX levels out around the election. I don’t think it’s elevated enough. So, you’re going to have spot, catching up to that. That’s what I think is going on.

Adam:01:29:26 You’ve got some pretty neat graphics or charts or something that you typically show too, right? Do any of those help to illustrate the story? Or are they kind of confusing at the moment?

Ben:01:29:40 It’s the sort of thing we need a good half hour to really to really do it justice. Otherwise, it’s just kind of that’s cool. We got some. Which I’m happy to show. I love showing cool stuff, but it would just make everybody I think…this is just kind of showing some of what it is we do. I’ve got some cool maps. But let me pull something else up. Let me see if we still got this up on our screen.

Adam:01:30:12 Now that’s what I’m talking about.

Ben:01:30:13 Here’s what you’re talking about.

Richard:01:30:15 Yeah. Look at that.

Ben:01:30:17 So it looks cool, right? Well, this is the Tesla narrative. So this is in 2019, all the articles that were published about Tesla. So if you zoom in on this, it’s comprised of about 6000 little dots. And each little dot is a separate unique article about Tesla in major publication, the US. And then it’s what’s called unsupervised search. So it’s comparing every word in every article to every other word in every other article, which is the factorials. It’s like a couple of trillion calculations. Then this is a map that shows the similarity and language, the similarity in word choice and grammatical structures so that the computer clusters all the articles and shows the connections between them. And the way you read a map like this is you’re looking for centrality, what’s the stuff right here in the middle of the map, because this is where the gravity is really coming from. Do you know what all these articles are right here in the middle of the map? Elon Musk tweets. This is at the core of the narrative around the company. It’s the cybertruck is this a big one here, the Tesla semi electric. All of these central narratives are about big ideas. We’re going to do car insurance. That’s a really central one right here. What’s the Tesla Model Three performance, and way over here off in the side, you’ve got stock market stuff. You’ve got, you’ve got company stuff which I like to say is kind of a negative that’s off to the side, you’ve got Tesla short sellers way out here. You know why Tesla stock fell? It’s all on the periphery of this narrative map. That’s really meaningful. So what’s useful here is trying to understand what’s at the core of a narrative and it really lets you visualise that. I’ll show you everything.

Adam:01:32:47 What clusters are migrating toward the center? What ones are moving more toward the edges? And what does that say about how the stock is likely to react to news and the type of…

Ben:01:32:57 Exactly. You need to start thinking about memes and narratives as living creatures. And you put them under, it’s like getting a drop of water and putting it underneath a microscope in the 1700s. And you look through the microscope says, oh my god, they’re things living in there. It’s really like that because then you track over time how a narrative is born, and how it lives and how it dies. I tell you, every year I look at this, these Elon Musk tweets are always at the core of it. He’s really good at controlling the narrative. He’s really good at this. I think he’s kind of a sociopath. But he’s really good at this stuff. I’ll show you, this won’t look as pretty because I’ve just got it on PowerPoint. Or I think I’ve got it on a PDF. Let’s see if I can pull this up. Tesla this year.

This doesn’t look as pretty but I’ll bring it up here and see if I can zoom in on it. What I was showing you before was 2019. This is year to date 2020. Let me zoom in here a little bit. Here we go. All right. Still got Elon Musk tweets right there in the middle. But look at how this whole map is. There’s really no center to it, right? It is what I mean there is no narrative anymore about Tesla, the company. You’ve got the car stuff, it’s way over here. It’s no longer in the middle. It’s way over here to the side. All this stuff around here is Tesla the stock price. All this stuff is Tesla the stock price, analyst worried, Tesla stock. So there is no…

Adam:01:34:51 They look more financialized than the previous map. The previous map is much more about the company, what the company was doing.

Ben:01:34:57 The company are the big ideas. We can do car insurance – why not? Autonomous driving? Yeah of course we can do that.

Adam:01:35:07 This is a map of reflexivity – this is the market watching the market.

Ben:01:35:13 It’s the market watching the market, there’s no there, there. Except for Elon Musk tweets. Anyway so that’s the kind of stuff we do and both on kind of fun stuff like Tesla but also the business of Wall Street which is make up stories and sell you shit. That’s our bread and butter.

Richard:01:35:33 You derive portfolio decisions based on a lot of this narrative meshing?

Ben:01:35:39 Yeah, much less. So I’ll call it the idiosyncratic stuff. I mean, this is for if you’ve got a big position in Tesla, you want to know this stuff. But I don’t have a systematic strategy around Tesla. We’ve absolutely got a systematic strategy around the drumbeat of Wall Street because what happens is that what you’re creating is…how to say this? The advertising model, because that’s basically what we’re saying. We’re saying Wall Street’s an advertiser. So, whatever you want to look at, we like to look at S&P 500 sectors. So month to month S&P sectors, if you start seeing others not a lot of drum beating yet, but what drum beating there it’s really positive coming out of financial media. Well, that’s a potential snowball that is still at the top of the hill. I want to be long that, it’s what we call an emerging narrative. When stuff gets high, what we call the structure of narrative, the attention that the drum beating, the focus and the negative sentiment, that’s what we want to be short. So it’s a sector rotation strategy where we look at every sector and figure out these behavioural signals to go long or short. So yeah, that’s what we put together into portfolios. That we put together in portfolios, a systematic strategy.

Mike:01:37:18 Is there any general sense? As you said, you want to get sort of long, the positive news or the positive drumbeat? Is there any signals in there that are counterintuitive that were not what you expected? I suppose what I’m asking areas where that to me is somewhat intuitive, like okay, you’re there ahead of the news. Was there anything in that sine curve that you felt was wow, this was kind of an interesting point in the narrative that was unexpected?

Ben:01:37:46 Well, I think what’s interesting to us is how powerful these are regardless of what all is happening in the world. It’s just the day to day business of say Wall Street and financial media to be coming up with these stories and it’s just the life cycle, the stories that it really is like an organism and it’s just like clockwork, there’s always got to be a new story to get people to buy more stuff.

Adam:01:38:13 Sorry I thought it was going to be cockroaches, that would work.

Ben:01:38:15 Yeah, that would too. That works too. To your point, it’s been very important for us that what we did we started with the behavioural models, we started with our idea of how the world works, because and you guys know this, the ability to try to do your data fitting and backfilling on this stuff is once you start going down that path is like the Noble Lie. You kind of construct this stuff that works but it’s got a, I’d much rather have something that I don’t know how it’s going to work, but this is how I think the world actually behaves. And so that what we’re going with.

Mike:01:39:01 Great.

Adam:01:39:01 Awesome.

Mike:01:39:02 Love this. Thanks, Ben. Really appreciate.

Ben:01:39:04 Thanks for letting me show it. No, I appreciate it. That’s great.

Rodrigo:01:39:08 We’re at an hour and 40 minutes now.

Ben:01:39:12 I got to start drinking.

Mike:01:39:16 Faster, you mean right?

Rodrigo:01:39:20 It’s always a pleasure to talk.

Adam:01:39:22 Thank you so much for all your time guys.

Ben:01:39:23 Thanks for having me on guys. It’s such a blast.

Richard:01:39:26 That was awesome Ben.

Ben:01:39:28 Thank you guys.

Richard:01:39:28 Or Neb, I’m not sure who we have-

Ben:01:39:29 No. It’s all Dr. Jekyll right now. Yeah, we keep Mr. Hyde locked away as much as we can.

Rodrigo:01:39:37 Fantastic. In two years, we’ll do this in person againBen:01:39:41 You got it guys.

Adam:01:39:43 Have a nice long weekend guys.

Ben:01:39:44 Same to you.

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