Ben Hunt | The Narrative Machine: Investing in a World of Tall Tales, Big Games, and Giant Cons



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this week's episode what's up everybody well you're about to
hear today is only part of an over two hour long conversation that I recorded
last week with investor and self ascribed dilettante farmer ben hunt Ben
has a very interesting career arc he got his PhD in political science from
Harvard he's co-founded multiple tech companies and he managed his own
billion-dollar hedge fund he now spends most of his time farming which we'll get
into and writing what has become an extremely popular website and newsletter
called epsilon theory where he focuses on trying to understand the narratives
that are being created refined and repeated in the media and social media
and which drive so much of our perception of the world and our behavior
as investors he's done two other interviews one with Grant Williams for
real vision in 2018 and the other with Patrick o Shaughnessy also from last
year both were excellent and I think complementary to one another and I
didn't want to really repeat much of what was discussed in those and I think
we accomplished that the main themes from Ben's work that we focused on were
his use of the three-body problem in physics and how it relates to markets
and the illusion of pattern and predictive power in historical data and
also the power of narrative and how he tries through his work to not only
understand what people are saying and thinking about the world but how the
media and society shapes how we think about the world and in that vein we
discuss a number of contemporary market phenomena including a really unique
thoughtful and I think illuminating conversation on Bitcoin its culture the
narrative of Bitcoin how that narrative emerged how its evolved and how it
informs the trajectory of cryptocurrency prices like I said this is an over
two hour long conversation and much of the conversation on crypto continues
well into the overtime segment I've also put together a series of time codes in
the description for anyone who wants to skip ahead check that out and with that
please enjoy my conversation with dr. ben hunt it's like you went to the wall
and you flipped a switch in march of 2009 we'd made good money in
a 506 a seven and we killed it in oh eight just killed it in oh eight yeah
running net long the whole year and 20-something percent and I've thought
about this since that a lot since then as you can imagine and you know people
are saying oh man that's great how'd you do it and the real question people
should be asking is that given your positions and your views in 2008
why weren't you up 50% right right so the question is not oh how did you do it
to be up 20 something percent the better question is why weren't you up a lot
more and the answer to that question is that none of us expected the debacle
that was 2008 to occur and those of us who did not come from Wall Street you
know who had an outsider's perspective were able to stick with it pretty well
right but not to the point of fully either understanding or taking advantage
of that situation we were in so in March of a nine for all of us it was like that
you went to the wall and you flipped a switch on our returns they flatlined
it's not that we lost money for clients in fact you know my head Sean I never
lost money for clients and which is I'm really proud of that you know one the
reason I never lost money for clients is that I gave all the money back at the
end of 2011 which you know my wife I don't think still has actually forgiven
me for because he that's that's a big lifestyle decision when you give back
close to a billion dollars but it wasn't just an issue of intellectual honesty
right it was an issue of playing what I call the metagame that the big picture
game because when it's not working when your strategy for making alpha money
which is what hedge fund managers are for right when it's not working to play
the longer-term game in finance it's a long
game you're playing the long game you should give back the money right it was
the smartest thing actually have ever done because now the investor I had
there they love me you know they are the ones reading your newsletters among
others really exactly right and they're there for me to do something else in the
future but it's so hard in this business that we're in and this gets us into a
broader discussion about other meta games and finance whether it's around
Bitcoin was around crypto more generally with us around active management more
generally where what you end up doing is you end up playing out a string so most
active managers today their assets are in if not free fall at least very
consistent decline listen I get this because still even to this day the
incomes that are possible for managing other people's money are you're saying
AUM they're exactly AUM is down not just down but actually at a terminal rate of
decline right but you still play out the string and I get it because the
lifestyle is so remunerative that it's very hard to try to step back and say
okay well what what does work or where where am I going personally for my
career for what I want to accomplish for my family and for you know my pack going
forward so it's very difficult to step back it's very difficult to give it up
but I think in these days and and these are days of enormous upheaval
particularly in the money management world it's incumbent on all of us to try
to step back and think about what our larger game is what made you decide in
2011 specifically to give it back was it because just that was the amount of wear
and tear that you could bear three years after 2008 yeah so when you're managing
other people's money if you're doing it appropriately which what I mean is it is
a full-time commitment right and that means that you don't have the luxury of
stepping back and figuring out how to be right it's like you know there's a
famous scene and Goodfellas right where they're talking about the dynamics of
the mob right which is you know pay me my effing money right yeah always pay
via a Domo and Jimmy was choking Maury and
we came off that's exactly pay my effort money and that is the dynamic when
you're managing other people's money it's not something to be adult on with
it you have to make money not be right and their points of time where what
you're doing your stripes as a tiger what you've been trained to do it's just
not working and this has been the case for anyone who's making discretionary
evaluations on a fundamental basis whether that's the fundamentals of
economies a macro perspective with us the fundamentals of companies a micro
perspective it empirically has not worked since March of 2009 so we're
talking about you know more than a decade now especially 2012 now well 20
2012 was a bizarre-o year they've all been bizarro years it's been an enormous
ly consistent lifting of what I mean is there was still some moderate amount of
volatility in those first three years is it unfair to say that after the summer
of 2012 the outperformance of beta really became the dominant trend honest
to god it started in May of 2009 and what I mean by that is that in March of
2009 you got a very sharp rally off the the all-time lows right so the you know
the sp500 hit like 666 you know the mark of the devil ah right in the end you
know early March of 2009 and you had a rally you know off those I got that
rally I understood that I didn't catch all of it I caught some of it right and
then the market went back down you know people forget this in April of Oh 9 and
then in May of Oh 9 you had a sharp rally that was a crap rally so the
stocks that went up in May of Oh 9 were the crappiest stocks imaginable it
wasn't like March 4 9 where everything went up yes but it was quality that
worked in March of Oh 9 May of oh 9 and then they were you know every four five
months you'd have another crap rally and that's what really I think turned active
investing on its year at first nobody wanted to believe it it was like okay
we've seen this movie before it's a it's ephemeral right you're going to have a
crap rally occasionally quality will still out but you're right though by
2012 right you had a bad year for most active
managers in 2011 because you had a significant European downturn hit the US
markets came back by the end of the year but most active managers were down for
2011 2012 that was the turning point not in the I caught the balance of crap
rallies versus you know quality but it was the realization for me at least that
I was something else is really going on here because in the summer of 2012 that
was the summer of Mario Draghi and the euro crisis right and so that was the
summer of Mario Draghi first in a conference in in London and then
subsequently first week in August with an ECB conference of the words whatever
it takes and the words of outright monetary transactions the OMT program a
totally mythical program right but it was just words but it changed everything
and I remember so vividly the summer of 2012 I had a large short position built
up on European financials because by God had seen this movie before I know how
this plays out I was gonna make just a shit ton of money and you know when
Draghi had his press conference the ECB at that first weekend in August that day
of the press conferences I did I mean I made an enormous Samoas the best day
I've ever had frankly the next two days were the worst two days ever had and
what I remember about those days is that in the morning
the online headline of the FT the Financial Times was Draghi's blunder
because this was the press conference where he had to put some meat behind his
whatever it takes statement from two weeks prior and in London and so he had
to actually say well what do I mean whatever it takes and he made up this
thing called OMT outright monetary transactions well I miss those I was
there until Cilla day that they came up with exactly it just but it was just
pure words by that afternoon the online FT headline had changed and it was no
longer Draghi's blunder it was Draghi's bold move amazing I'll never forget that
right it was that change in narrative it got picked up in the the US press I was
watching CNBC during the day you know European markets had closed at whatever
eleven thirty or something like that and from 11:30 on the markets rally the
US markets rallied I remember thinking myself hmm I wonder how this turns out
even though it had the best day ever right and the answer was I got my teeth
kicked in the next few days because you had an enormous rally I can't even
describe it as a crap rally right where it was the you know distressed companies
doing particularly well it was a lifting of markets based on the narrative based
on the words the words what we call in game theory of missionary where Mario
Draghi was shaking his finger at us and telling us not just a fact but he was
telling us how to think about facts in the world and that's such a powerful
trick if you can pull it off right that you know we think about people in the
news telling us a piece of information that's child's play right that's telling
you what the unemployment rate is the real trick is to tell you how to think
about the unemployment rate right how to think about the role of the ECB and that
is what struck me so hard in the summer of 2012 and it was like okay I've given
all the money back now I've got to step back from any sort of investing and I
got to figure it out because it finally gave form let's say to the fact that I'd
been flatlining on performance that since March of 2009 now I got the
glimmer of okay I see what's going on now it's the use of words and narratives
there are no fundamentals for markets now and it took me about two years I
started writing Epsilon Theory really kicked it off in the summer of 2013
centered about the first notes to about a hundred you know friends colleagues
and it struck a chord at so we've got close to you know about a hundred
thousand people and so there's a lot of people for this type of material it is
and it frankly it's the best mailing list in the world I mean it's the play
game where you know name an institution and there's someone there at whatever
institution anywhere in the world who gets these notes
that's not about me right well it's about is that what I'm describing is
affecting all of us who are professionals in markets and it has
truly changed the yeah the water in which we swim it also so many thoughts
came up listening to you talk one of them obviously is that what you're
describing is also a community and there's got to be something really
gratifying about being at the center of that change will change my life yeah and
so that that leads to a larger thing that I'd love to explore a bit later
which is I imagine your life is more fulfilling now that it's ever been
it sure seems like it you know Dimitri I used to get up at 3 a.m. in the morning
with a knot in my stomach because I had to get up in time to go you know prepare
for the open and the the European markets right and today I wake up at
3:00 a.m. it's not with a pit in my stomach I said oh my god I've had an
idea and I've gotta write it down – so exciting yeah for when I can share that
Plus exactly what you said the notion of community the real is a you know I
started writing I was a pretty dark place frankly cuz that you know I'd had
my teeth kicked in by markets you know I'd given up a billion dollar hedge fund
because I'm trying to figure something out I mean what the fuck right and so it
was enormous ly it frankly gives me hope about everything to understand that
there are you know not just hundreds not just as about tens of thousands of
people like us right who are just trying to figure this out so I want to get into
that but I want to create some structure for our listeners sure aren't familiar
with your work because some are going to be it looks like you did a spout of
interviews in 2018 you did one with Grant Williams of course everything
grant does is beautiful it is it was a beautiful conversation recorded at your
farm house you call yourself a dilettante farmer oh I am Green Acres
that that's well even Thoreau was not that far from towns that's true
so you're in good company again let's begin first with a paper you wrote when
did you write the three-body problem was that 2015 2016 2016 2016 I want to begin
with that because it seems to me that there are two main components to your
work or things that interest me perhaps and we can explore more one is this the
use of the three-body problem as a metaphor or maybe not even a metaphor
really but as a framework for thinking about the
impact that central banks have had in monetary easing and monetary policy has
had an forward guidance and all this stuff has had on financial markets and
investing and all the stuff that we were just talking about yeah and then the
other component is this narrative which is what I think is the most interesting
and more unique to your work I think then then even that lets begin first
with the three-body problem sure what is the three-body problem
well the three-body problem is a question in physics that was answered by
Enric Wong Kar a the French mathematician in the late 1800s and it's
a it's a classic problem with an interesting answer and the the problem
is imagine you're in outer space right and you've got three planets or whatever
spinning around you know everything about these three objects you know their
mass you know you know the laws of gravity you know their velocity you know
their exact position tell me now you know where these three bodies will be
located at some time T in the future right what is the formula for
calculating the position of these three objects about which you know everything
right this is not some problem of uncertainty where we're trying to guess
something I know physically speaking everything there is to know about these
three bodies spinning in space and what Wong Kar a proved in the late 1800s is
and this is so powerful there is no algorithm there is no in the term of art
closed-form solution for predicting where those three objects are going to
be now obviously you can calculate where they're going to be a second from now
it's an issue of computational complexity well as time increases the
computational overload becomes well a straight set that's exactly right right
but it is possible to calculate the future it is not possible to predict the
future that's a such a hard statement for a
human particularly any human is I'm not sure it's ready yeah what do you
there's no formula there's no formula by which I can plug in all the information
I know about those three objects there is no formula right that I can plug in
and will give me the answer there is no closed-form solution right there is no
algorithm and that's such a hard thing for us to wrap our heads around
particularly if you're involved in markets because what all of us would I
like to call coyotes you know problem solvers smart guys who are you know
trying to make some money and trying to figure out these questions we all get
into markets because we're trying to identify the pattern right and so
traders do it I'll say instinctively but you know fundamental managers all manage
everyone is involved in markets and there's what humans do we're good
pattern and identifiers even if they're not there this is the thing exactly is
this exactly the thing and what punk RA proved is that when you've got these
three objects floating around in space right there is no predictable pattern
mm-hmm and in any pattern you think you see you're wrong you're wrong and this
is something that all of us humans do particularly those the clever coyotes
here in markets we see patterns all the time we ascribe patterning to events and
I know it's hard to accept but the mathematical proof is that it's not true
it does not exist and so what we end up doing is that we've ascribed these I
call it laws to markets that when we get a new gravitational body that's
introduced for example central bank's buying trillions
that's trillions with a t worth of gravity of you know balance sheets of
financial assets it then creates movement positioning of prices of assets
of anything you want to name in financial markets where there is no
pattern it requires and this is so hard for people to for me as well right it's
so hard for can I ask you something just wanted to be profoundly agnostic I
something sure we're getting to that also if you were to close this data set
you can derive patterns that would be meaningful no as long as the data says
open what I mean is at any pattern you derive is backwards
looking the entire sets got to be closed the problem is that this is this is an
open data set right so the mystery and it really is this profound mystery is
that no amount of historical data on the the three-body problem right we'll give
you the answer for T plus 20 hmm right but it's cuz it's infinite in other
words it's ongoing I just mean that complex I understand your point exactly
I mean I agree with it I just make the point that because this is yeah you
cannot make forward predictions looking at historical data sets that's right so
the boilerplate that we see on all of our you know investment products
required is you know past performance is no guarantee of future performance right
and what plunk RA was saying was well that's not just legalese that is
actually the law that's the law of nature and so what is possible though
and this is again something that's hard for humans to wrap their heads around is
that it is possible to calculate not predict but to calculate the position of
each object in some you know short time in the future and then use more
processing power to calculate the position a little bit farther in the
future so it's possible to simulate to her in position but that's very
different incredibly different from having a formula that predicts it and
what I find frustrating about I call it the the anthropomorphize ation to use a
ten-dollar phrase of the way you will use computing power is we use our
computing power today in an anthropomorphic way in a human way to
try to find these formulas and these algorithms when what we should be using
computing power for is not to predict but essentially to observe to simulate
to use I'll call it an atomic model for understanding the future as opposed to
predicting the future the most powerful computers in the world today are used
for not predicting the outcomes of nuclear weapon testing but simulating
them right and that's why it takes a supercomputer to try to test the output
in a computer of an atomic bomb blast right so our nuclear blast so we don't
actually fire off nukes anymore we simulate them in a supercomputer and
we're not doing this by applying some algorithm we're applying it by modeling
the behavior of each atom of fissile or fusible you know material right which is
why it takes a supercomputer so it's gonna be different every time
it's going to be different every time depending on this is gets a little bit
in the chaotic situation in that my nudists change in the starting
conditions will have increasingly enormous changes down the road in the
simulation right and the truth of the matter so it's a very non human way of
looking at the world but it's a way that all of us need to start getting used to
right because this is the power that the utility availability of computing power
makes these source calculations possible using AWS or whatever and that changes
everything so that's an R upon Corday's interpretation in the realm of physics
yes how does that apply to the social sciences and to central banking where
you've applied this this model well first of all there's a wonderful science
fiction trilogy by and I'm gonna butcher the pronunciation kicks in Lou you know
he's a Chinese author won the Hugo Award for this trilogy which is the three-body
problem is a science fiction book right it's taking directly from the plunk are
a you know physics experiment trying to imagine well what you know what would it
be like if you had humans actually living in a three body system right it's
an amazing work of fiction it's just one of the best books I've ever read and so
the application of this write is not just when we're thinking about a physics
system like Poincare a was proving this but it also impacts social systems
whether it's in fiction or in reality and kicks in Lew wrote this amazing
trilogy a fictional application of the three body system what I think we're
seeing in markets today and this gets back to my point about how since March
of 2009 any notion of quality any notion of differentiation of you know I like
this company and I don't like that company on some basis or I'll
this macro-environment better than macro macro environment has failed
it has empirically failed so why is that and is this a mean reverting phenomenon
because the the value investor will say well give it time and my style will come
back and what the three-body problem teaches us is that actually no actually
no that that these are not mean reverting systems right these are
profoundly unpredictable systems and the I'll use another analogy now in that you
know Game of Thrones you know winter is coming and winters here their seasons
are based on a three-body problem where it's not predictable how long winter
will last right winter may last three months
winter may last thirty years right that's what the three-body problem
teaches us about any sort of social system which markets are one value has
not worked for a decade is not a mean reverting phenomenon it is entirely
possible that value will not work for another four decades right this is what
I mean by requiring profound agnosticism it is not enough to say of my style will
come back in favor it has to right it doesn't have to when you change the
system by introducing in this case central bank's buying trillions of
dollars worth of securities it creates a force of gravity which changes the
trajectory permanently so that your analysis this based on the last 40 or 50
years of measurements has zero validity not just oh it has less validity it
actually has zero validity and requires again what do I call this process of
profound agnosticism which is one of the hardest things for humans to manage how
new is this way of thinking not this most recent or describing here of this
profound agnosticism or this fact that we're living in an unpredictable
circumstances but rather that the world is predictable that we can look at
historical data and draw it's a great pleasure covariant relationships yeah
and predict the future based on that data set how new is that so I'll say
this this notion that social systems are in effect a clockwork
a machine that's most famously Ray Dalio Bridgewater's that's his metaphor he
talks about the economic machine which is a wonderful metaphor and Dalio does
phenomenal work I mean I don't need to say that I mean he's built the largest
hedge fund in the world and without no I understand what you're saying though I
hear where you're going with that it was it's not a deterministic that's right
but it was the late 19th century where the model of a machine you know it comes
out of the the Industrial Revolution and it starts in the UK where you start with
metaphors and allegories but then becomes much more pronounced in the
sense that society is described as a machine well it's also fascinating to
interject here and then please continue I would love to talk to you about this
maybe we can put a pin into it yeah just how impactful technology is in driving
the adoption of language and metaphor but so right yeah so that was the first
I'll call it inflection point and you see it really coming out of you know
London in the UK with describing society and machine like terms the next big
inflection point was at for world war ii coming out of the united states you know
I think both you and I studied political science right in college well just that
phrase political science right it's a very American thing you know started in
prison very pretentious if you think about it yes I mean we're used to it
right but like really is pretentious to call it a science we are so used to it
and and unless this is what I mean it becomes the water in which we swim but
it really started starting at Princeton it started in the you know the 30s I
think at Princeton but where this whole notion of thinking about the alcohol it
the scientific of social studies really gets kicked off again in the US after
World War two so the whole notion of finance and what it means to be an
investor really changes after World War two the social dynamic that goes along
with this is the extension of Wall Street to Main Street so this is when
Lynch in particular the Thundering Herd you know opens up their branches in Main
Street all over the all over the the country then there's a transformation
after World War two and I'll call it the deification of science to say that all
of these things all these social behaviors are predictable that there is
an algorithm for us to understand and that past performance is indicative of
the future it's so at odds and this is something that I find so striking that
when you read the memoirs when you read the histories of the Lions of Wall
Street before World War 2 you know the Andrew Carnegie's the Jay Gould Jay
Gould the Vanderbilt you know the Commodore right they're not talking
about free cash flow models right there's no discussion of fundamentals
Carnegie said put all your eggs in one basket and watch the basket watch the
basket understand the store no diversification no no no absolutely and
look it's diversification and portfolio theory is it true is it right of course
it is the math is not wrong anymore that the Gaussian copula which you know
wrecked of the world with mortgage-backed securities was wrong
anymore that the you know the code that underlies Bitcoin and crypto is wrong
it's not it's not the math is right is the same way that Poincare raised math
is correct what changes is our social meaning that we attach to this but also
it changes when everyone's doing a diversification along a particular
systemic trading strategy means one thing when you're the only one using it
versus when the entire market is chasing that same beta well it does and it
brings us back it becomes social systems in complexity a social system attack
feedback and the intentional desires of I like to call it the nudging state
right the clear goal and this is intentional I of political actors
economic actors since the crisis of 2008 the near-death experience of the system
which we can talk about right near-death experience it wasn't your day I mean I
mean it was cardiac arrest for sure it was we were there I mean we talked about
our memories of the those times the decision is never again
never again there's another miss another appropriated phrase you know correct but
when drug he says whatever it takes you know he's not lying and the belief is
whatever it takes to prevent those kind of deflationary shocks the sort of
liquidity systemic shocks from ever happening again
so there's been a political change a political intention to change capital
markets into what I like to call political utilities I love that quote I
actually put that top my run dot what started
I'm gonna quote you here I found it I think maybe in what are you can use
letters or maybe you got an interview gave yeah what started as an entirely
laudable effort to keep capital markets from collapsing became an entirely
problematic effort to turn capital markets into political utilities I'd
never heard anyone put it that way what do you mean by that well you remember
the movie Pulp Fiction yeah right yeah we were a great work of art and my
favorite scene is when uma Thurman Odie's on you know the heroin that John
Travolta you know gives her she thinks is coconuts heroin and she ODS and so
they take her to you know Eric Stoltz his house and and they get the that
syringe of adrenaline your Jesus Christ of course I remember I every scene in
that and and John Travolta takes that syringe of adrenaline and plunges it
right into luma Thurman's heart hey that is what central bank's did in March of
2009 and that is exactly what central banks are supposed to do the only job of
the central bank is to provide emergency liquidity when as you said the heart the
beating heart of the global financial system stops beating and that's what
they did right but this is what happens and this is what always happens that
emergency government action becomes permanent government policy I'm not
saying that's good I'm not saying that it's bad I'm saying it is they never
released the patient from the hospital you keep on now it's not a one-time shot
of adrenaline you put them on on adrenaline
trip yeah right and that's what you know you hear today that everything is framed
and termed as stimulus you know oh what stimulus is fiscal policy going to do
next right what stimulus is monetary policy going to do next
let's give let's have more stimulus right this is not the language we had
before 2007-2008 and this is what I mean that yeah it's really that nothing
language has changed the intention has changed the water in which we swim has
changed to one where all of us as rational investors now expect and
frankly live for the stimulus the slice our sense of resilience has changed the
sense of fragility of our economy has changed we we can't seem to imagine
living in a world without central bank intervention at this level it's and
that's what happens with any and was gradual to right
it was very gradual I started with the Greenspan administration it has been
gradual it did start with Greenspan right the intentional pulling forward of
economic activity so that we can be richer than our economy grows indeed
that but also I mean the ocular quality the fact that remember the briefcase
indicator that obsession with the central banker this Chairman everything
else I mean we don't have that level of centralization within the FOMC that you
had under Greenspan but the FOMC itself is more powerful in terms of guiding
forward expectations with press announcements and statements everything
that's so right and again it's entirely intentional and this isn't a tinfoil hat
thing this is you know Bernanke in his last public speech is it's interesting
what people tell you in their last speech right whether it's Washington in
his last speech or Eisenhower I mean when Dwight Eisenhower for God's sake
tells you to watch out for the military-industrial complex I mean
that's something right well Bernanke in his last speech as Fed chair said it was
a retrospective anything well you know it's been a long eight years frankly we
have the Great Recession and we started off we just had one toolkit the toolkit
of what do we do with short-term interest rates also another form of
language toolkit that didn't exist before either the this is
correct right so he says look we took short-term rates down to zero we didn't
know at the time we could have negative rates we took him down to zero we
thought we've done everything we could so what did we do next he said well our
next toolkit was let's call it quantitative easing but it's basically
using our balance sheet to try to change behavior right at market behavior so
it's what they call large-scale asset purchases buying stuff right you know
changing the the tenor duration of the bonds that we buy and so but he said
even that wasn't enough so he says look I think QE 1 I think that was really
effective I agree I think QE 1 saved at the freaking world that was that shot of
adrenaline like in Pulp Fiction but Bernanke saying look you know qe2
qe3 we thought it was a little counterproductive you know and after
that we we're not just pushing on a string we thought we're not really doing
much for the real economy agreed right but he said we still felt like we had to
do something so what do we do we had a third tool kit we call it communication
policy call it forward guidance you know there multiple words used for it's not
an accident that every week you have a couple of Fed governors who have you
know interviews on CNBC or the journal or something
the schedule is planned right it is a centralized determined activity that
this is not an accident it is the intentional use of words not
as an indication of what internal belief is but the use of words to try to change
other people's behavior you know what we might call lying under other
circumstances right and it doesn't mean that they're lies it means that the
words are carefully chosen and then carefully promulgated and distributed in
order to achieve some sort of effect in an investor view do you know when the
Fed first began to broadcast its targeted rate because it didn't always
do that that became policy later on no it became policy under Bernanke so
Greenspan was famously in favor of intentional ambiguity but you always
knew you knew if the rate was 5% in other words what I'm saying is even
under Greenspan markets knew what rate the Fed was targeting on any
given day right not forward guidance but they knew that the rates were at 5%
that's right right guidance started with the Bernanke but I'm saying that it
wasn't always that wasn't always the case
he used open marker operations to manage the interest rate but it wasn't
something that it would broadcast in the newspaper what that rate it was
targeting there's been a an enormous body of work and I think it's correct
which is saying that what really drives investor behavior is not whatever the
interstate is right now but its expectations right so what our
expectations for inflation in the future deflation what the Fed intends to do in
the future markets happen on the margins right markets are forward-looking
entities right and it's the magic of them most makes it fun what Bernanke
started and Yellen really advanced because Yellen was the one as vice-chair
who developed this committee on forward guidance and the communication policy is
to try to remove that ambiguity to try to say to markets this is where we're
going to be in the future and it's like Frankenstein's monster right it really
is a Frankenstein's monster and this was a Bernanke's point in his last speech he
said and that last toolkit of giving forward guidance we we didn't know how
effective it would be it was effective beyond our wildest dreams and now we've
created a monster right because now we've created
expectations that if we do something in the present that are at odds with those
expectations you know the market throws a temper tantrum they've created a
maladaptive environment for risk sensitive investors or anyone who can
evaluate the merits of a particular just make sure they started this off to try
to channel or push investor behavior in a certain direction they are now
prisoners literally prisoners of their own words they can't the great great
point thank you guys nerves of their own work
it's amazing right they have to keep going you've got to keep digging that's
right they've created this prison they've built it stone by stone brick by
brick and now they are well and truly fucked and to keep that metaphor had to
keep that that Hall of Mirrors in the hall that's the problem for the
Fed the Fed has sold the markets and the media and or everyone sold each other on
this idea that the Fed is outside of the market the Fed isn't outside of the
market the Fed isn't that side of the narratives that it spins it is the
largest player within those narratives and its own actions impact them which
are create the feedback and they've lost the thread long ago so true story when I
first started writing Upsilon theory in summer of 2013 I would go around to talk
to you know Masters of the Universe you know guys like Lee Cooperman or you know
Stanley Druckenmiller right so this is call it call it 2014 going into 2015 I'd
say you know what I got to tell you you know the world has changed and the
impact and I think I can understand this through this what I call the common
knowledge game the impact of words in narrative dominates market outcomes and
you know they didn't do this literally but figuratively is like you know Pat me
on the shoulder and you know dear boy you know yeah no no no you don't
understand we're actually it's a self-sustaining
economic recovery in the United States that's why the market is going up
self-sustaining economic recovery you know we have our indicators we've what
does that technically mean self-sustaining economic recovery it
means that it's not words it's not the Fed and therefore word guidance
it's that profit-driven right that's right the companies are selling more in
doing all this and over the course of the next 2015 16 17 Druckenmiller
Cooperman all these again Masters of the Universe
they just fall on their face right you know this is why these guys have have
shut down their funds and they're you know
converted to family offices because everyone took their money away right
it's because they're models of fundamentals and how that drives market
prices stopped working so it was such an interesting transition that exactly to
your point right that the effectiveness of the Fed words and and the like was
actually much more powerful when people weren't convinced that yes the Fed is
the end-all and the be-all for market outcomes today no one believes in
fundamentals anymore right everyone believes that it is the Fed and monetary
policy that term is market outcomes that has become the water in which we swim
and that is what creates that prison for the Fed it's a transformation that if
you hadn't lived it a decade ago you wouldn't believe the sort of
transformation that's occurred so where are we today normally when I prepare for
discussions I have elaborate rundowns full of tons of material I read a bunch
of your stuff a lot of your stuff I watched a number of interviews the ones
I could find so I researched and I really couldn't come up with a game plan
right and I think that's I'm not sure exactly why that is but part of it might
just be because I wanted to kind of flow with it and see if we could kind of
explore some of these narratives but one of the things I've heard you talk about
is the inflation versus deflation narrative okay where are we now
with that it seems to me that that was the narrative up until 2012 and then it
went away I still don't know that it's back the way that it used to be it used
to be that kind of risk on risk off environment there was a car being risk
gone or we risk off which is why I mentioned the volatility that we saw
between 2008 and 2012 so the great financial crisis of 2008 was a systemic
deflationary shock and deflation meaning a decline in prices it was right on by
the level of indebtedness well the epicenter of it was the deflationary
shock in US housing prices right a nationwide decline in housing prices
which had been levered to your point the indebtedness around the housing stock
and then the the securitization of that said that we had a ten trillion with a t
dollar asset class in residential mortgage-backed security the
securitization created the conditions for the contagion yes what it created
was not just a I call it a solvency problem right where you had banks and
other asset owners who had these assets on their books and
oh they're worth X when they're really they were worth 1/2 X right in terms of
the mortgage-backed securities so the solvency there was a real solvency issue
for banks but then what kills you is not the solvency not being bankrupt but
illiquidity when you can't fund yourself when the banks can't fund themselves and
this is what we mean when the beating when I say the beating heart of global
markets ceased I mean that there was no bid for these assets right right yes
they declined in value but they declined in value to a point where people didn't
know what the value was right and many of these tranches of mortgage-backed
securities had no value they were worth and these banks risk models a necessity
that those assets be worth what they said they were worth in order to
maintain their other positions it created a series of liquidations of
collateral calls as necessities if they were to mark those to market that's
right it's a classic run on the bank right and it's a classic sensitive I
don't know how deep the rot goes so give me my fucking money and I'm out of here
mm-hm and that's when first the US central bank US Federal Reserve other
such banks do the same thing that is the job of central banks to be that that
provider of last resort liquidity to give that shot of adrenaline say we need
money to purchase stuff psych here you go here's the money and that's what the
Fed did right and that's exactly the right thing to do that's what a central
bank is for coming out of that though and then we had a call it an aftershock
in 2011 in 2012 centered in Europe right which is well hmm what about these you
know sovereign debts here we dealt with the mortgage-backed securities and which
was senator of the United States in 2008 what about all that Portuguese and
Spanish and Italian debt it's crazy how fucking powerful the financial lobbyists
it's absolutely crazy I'm sitting here listening to you talk and I just can't
help but keep thinking about it because the way I see you want talk about
visuals what I keep seeing is the financial system sucking all the money
to the center and then redistribute it it reminds me of a conversation
had with our guests from Hong Kong Hong Kong where we talked about the power of
the industrial lobby in China and how they managed to usurp the funds from the
government and this is what makes it difficult to transition to a
consumer-led economy because instead of giving the money to the people they give
the money to the industrial companies which create subsidies on washer-dryer
machines and cars and whatever else yeah the same thing with the banks the banks
always have to figure out how can we manage these loans it's not about let's
free up the nation's debts let's free up the debts of the consumers or the
mortgage holders it's always how can we maintain the structure of the system and
so we've had these cycles of increasing levels of indebtedness and we haven't
solved the problem because of the concentration of power in the financial
system I kind of took us off a little bit there
but I was thinking about yourself at all so I'll take us back to Adam Smith let's
call it one of the founding fathers of capitalism and he's not a less a fair
guy right you read Adam Smith The Wealth of Nations I like that he understands
there's a real role for government and not a government that's been captured by
the entities that they seek to regulate but there's a role for government to
prevent to actively prevent any organization you know any company from
doing what companies do right which is to try to submit and solidify their
position no I will tell you that what 2,000 meant to me was I saw the thin
veneer of democracy and the niceties of our system stripped away to reveal just
the pure naked sinews of power the curtain was pulled the curtain was
pulled that's exactly right Dimitri and and it
was and this will get us and maybe into a conversation about Bitcoin because I
see the same actions of government there's always happened in history and
certainly happened in 2008 where again what I call coyotes you know sort people
they're trying to make a buck and you know they're too clever by half is what
I call them like an institutionally Bear Stearns right so Bear Stearns is take it
onto the street and it's shot it's a show trial it was it was a take out it
was two dollars a share yeah JPMorgan is
given Bear Sterns the the Bear Sterns building which is now JP Morgan's
headquarters of a few blocks from where we're recording this you know it's worth
far more than what you know JP reportedly went back I mean I wasn't
obviously involved in this but that reportedly went back all the way to the
bailout of long-term capital management there are stories that go absolutely
back it is fascinating but again it shows kind of the role of just
personality sample but then okay Lehman's taking out a shot now Lehman
was engaged in you know in my view criminal behavior with with what was
called repo 105 right where they are cooking the books at the end of every
quarter to show less indebtedness so they look better on their statements
than they actually worried I mean it's I've written about it and you know it's
just unbelievable but you know and remember I'm sitting in my office and so
I managed my hedge fund we had just short positions all over the place I
remember when Lehman went out and I had been able to take away all my direct
counterparty responsibilities with Lehman I had what we called novated I'd
move that away from Lehman you know a month or two before so I had no
counterparty exposure to Lehman and all my positions I mean I was killing it
David Lehman went on and I was never seen my office thing haha this is great
this is great and that's started getting calls right about Goldman right about JP
Morgan and Morgan Stanley and people calling me from you know my friends at
Lehman who you know said you know I don't know what the fuck I'm going to do
but you know I'm done here and all of sudden it hit me it stopped
being fun right because I was making a ton of money as like well you know the
whole system could go under here the whole system could go under and it
turned when not through tarp right but through a program called the temporary
liquidity guarantee program so the the US Treasury announced this was about
three weeks after Lehman went out that if you were a US chartered bank a
federally chartered bank you were be allowed to issue senior unsecured debt
with the Full Faith and Credit of the United States government
right within two days both Goldman Sachs and Morgan Stanley registered as you
know us federally charged banks I think Goldman Sachs issued something
like 40 billion dollars in senior unsecured debt with the Full Faith and
Credit the United States so it makes me angry
literally angry when you know Lloyd Blankfein or you know one of these guys
says oh you never took a bailout and you know we didn't want tarp and you're
right he didn't want tarp but that tl GP program mm-hmm it saved those
banks and it was a co-opting of those banks that and the paying off AIG you
know counterparty obligations at a hundred cents on the dollar oh my god oh
my god that story was totally miss covered
we had Matt Taibbi on the program and we talked about that because he made the
great point that no one was talking about no one was explaining how AIG was
basically a money funnel for these investment banks that had insurance
products on the other end which also they got bailed out both on the
insurance and on the bomb it was a massive heist a hundreds of massive
massive heist and the media was either too understandably ignorant to cover it
or they were totally you know in bed with the companies they were covering
because their sponsors and advertisers were those same companies you had a few
people that covered it after the crisis happened like Ratigan at MSNBC right but
you know eventually he left and went kind of you know went off to a farm or
whatever but you know this thing you mentioned you know Bitcoin and I agree
and I'd love to know how you're gonna tie it in there yeah because I think
what this time did it created a profound sense of disillusionment for a large
part of the country but in particular specifically all the people that got
screwed not just on that crisis but on the previous one and we've created such
a disenfranchised class of people and that is particularly true for
Millennials and younger generations yet right in this spring's to the Bitcoin
who have now basically they see our financial system and our political
system as a scam they know they'll never get rich playing by the rules
if they're lucky they might get into the upper-middle class they're carrying
tremendous amounts of student loans real estate prices are through the roof you
know they can't get a return worth a dime on their savings and so what do
they say if the system we're gonna do an end run around by buying Bitcoin all
right or the crypto revolution so much of that has to do with some profound
sense of disillusionment and it's a rational decision to say well there's no
way I'm gonna get ahead playing by the rules
there's no way ahead I'm going to hold shit coin Fiat US Dollars and so what am
I gonna do I'm gonna buy Bitcoin and we're all gonna huddle together and
we're gonna try to extract this wealth back for our generation so this movie
has been played before right and I think the best way to describe it is you and
by you I'm not talking about you Dimitri I'm talking about that community that
you're describing right the disillusioned
I've been disillusioned I mean I went into the financial crisis yeah could I
have foreseen every single knock-on effect no but I was certainly well
positioned to take advantage of it I understood the dynamics of the mortgage
market it was not a surprise to me at all and there was a part of me that was
finally grateful for its arrival because I had been waiting and waiting for and I
felt so stupid having all those stupid cocktail conversations where I'm saying
yeah we're gonna have a crisis everything else is like guys you know
you're you're a Chicken Little and then when it came to see just like you said
to see the curtain pulled back yeah to see Henry Paulson and Ben Bernanke and
Tim Geithner and then the new president the United States all these people you
know just basically saying okay we lost control we're just gonna stop the game
here for a second and we're gonna reach over here we're gonna take that from you
think about and you're not gonna say a word because remember we have the
military we have the power we have the laws were the government yeah all right
and then we'll reset the whole table and then you can start over again all right
you know what they have in addition to all that you said they have the story
they have the narrative and that which they've lost control of see I'll
disagree with you on that one of the amazing things about I'll say the
disintermediation that the internet provide
right is it allow someone like me right to start writing a freaking blog and now
have a hundred thousand people who are you know reading my stuff right and
there was no intermediary there there was no arbiter
there's no publisher you know it's purely word-of-mouth and they had and
that there's magic in that or you with this podcaster right in the reach that
you have now at the same time the ability and the understanding of what I
like to call the nudging oligarchy the nudging state right because it's not
done with the jackboot it's not done by sitting in the storm troopers right it's
done exactly the way that the Federal Reserve has changed financial markets
over the last eight years which is to use their words the manufacture of
consent the manufacturing right the whole noam chomsky idea right and you
don't have to have that same sort of alcoholic conspiratorial you know
bizarro sense that Chomsky has right so Chomsky is a weird freaking dude right
but there's more than a germ of truth to it right you don't have to have the
belief in the smoke-filled back room conspiracy of it to understand this is
the way it has evolved I don't know that he had a smoke-filled room view of it I
think it's interesting that's your interpretation I felt that he had I mean
I think his politics are extreme and I think they're unworkable for people like
you and me but I'm praising his know sure what you said the manufacturer of
consent is really spot-on right right so what I'm saying is that the ability to
control that narrative to present it not just when you know Newton says something
like who those terrorists are using Bitcoin right and I'm thinking more
about what's coming down the pike in terms of you know write this note about
Libre and the Facebook coin the other I'll call it not censorship resistant
coins or projects that are coming out but the censorship embracing coins that
are coming out right like Libra you know they're
embracing Libra no no I think that Libra as a call as a technology is not
censorship resistant it is censorship embracing right but the whole notion of
Libra is to play ball mm-hmm right with the government now whether there's too
much baggage associated with Facebook and as much as they try to disengage
Facebook from you know the Libra consortium and like we'll see how it
plays out everyone's thinking right now that okay libras DOA and it can't work
let's just say let's give us some time because I think this whole project has
legs and I think it will actually work and if it's not leave but I think Libra
will work you think it has legs I do why because it is so attractive as a
co-opting mechanism for government right it is so attractive for people to say oh
I'm doing good and in a sense they are right by banking the unbanked or doing
cross-border transactions so they like there's a skin to Libra that I think is
laudable but it's just a skin is why I described as the the Spanish prisoner
Khan right which is the oldest con game in the book but you know talking about
narratives been Silicon Valley has lost the narrative Silicon Valley has lost
the narrative of being the good guys that they were before 2008 and during
2008 they're now the bad guys and Facebook is the number one bad guy so I
agree with you with this I sort of mechanistically agree with this idea
that you can have this potential for co-option and that the government can
sort of reprimand Facebook and then bring them into the fold but I think
that Facebook it's just got the narrative has shifted on that company
and on the market generally Dmitri I hope to god you're right I hope to god
you're right I will say though that in a adult career
a professional career of 30 years of working with narratives I never want to
count out again what I call the Oleg our key or the state right because they're
their wheels grind slowly but they grind exceptionally well and it's almost
impossible to kill I was impossible to kill it's easy to
keep what the state or the oligarch on what I
agree with that but I'm just saying that this particular iteration this company
this project I hope you're right but the larger your larger point I regret but if
it's not Libra it's going to be another version of essentially censorship
embracing ecash right because what what the state wants is to not just get rid
of a censorship resistant coin like Bitcoin but to get rid of paper cash
right because that's also censorship resistant right the paper that's been
printed what they want and what they're getting because there's about the carrot
and a stick and both these carrot and the sticker both narrative based is to
eliminate or to drive you know greater and greater control over transactions
and currency I mean that's the existential issue for the state control
over the currency I agree with that correct right correct so there's no way
they're gonna give up control right so the carrot and the stick or both at what
are called narrative based so what I see with Libra and the other alcoholic
against censorship embracing coins that are coming down the pike that's the
carrot right it's like oh you can do good you can have all these conveniences
you know this will be just so much easier it's ye cash is used you know in
Europe so much right I mean it's when you say censorship resistant yes what do
you mean would you say that today we have censorship embracing system right
now what do you mean by that so to me the great attribute of a
Bitcoin is again censorship resistance so that it is not it is in a very
important sense inviolable right you mean the ledger is immutable correct
correct the ledger is immutable and you mean it in the sense of it is a
permissionless database granted it has its points of centralization in mining
power etc but that it is theoretically a permissionless database it is that
immutability right it is that truth that you are in a sense invisible
not only though well because there are companies that have done a lot of work
in this area to unmask accounts look I understand that and that's the
difference between the accounts and the ownership and in that intersection with
an exchange right with an intersection of the real world is where this is kind
of like twenty three weeks down yes you're right right I don't need to have
everyone giving up their genetic code to figure it out but the difference between
that and a censorship embracing system is that Libre is designed to allow right
and to encourage government monitoring of transactions right right it's that is
different than immutability yes it's different from mutability right so what
I'm saying is trying to no what I mean is you can have immutability and still
have like kyc AML all that stuff one is not exclusively exclusive of the other
with you a thousand percent with the offense for the immutability is part of
what I mean by censorship resistant but it's not really the defining
characteristic of censorship resistance right the ability not just to like I say
to you know hypothetically track it like the account or the exchange level but to
actually monitor the transactions from start to finish essentially to get a
wiretap and you know the equivalent of wiretap for you know voice
communications is what is possible for example with Libre and that's
intentional right it's intentional that there's nothing design there to maintain
privacy of transactions or of ownership right I mean I don't know enough about
the sort of initial concessions of Libre I mean yeah I guess so because they're
allowing for a full regulatory oversight but I mean is it even desirable not to
have that today given the issues of cybersecurity and the power afforded to
individuals to conduct acts of terror in a digital world and in a world where you
could 3d print the virus let's say at some point so my beef if you will with
Bitcoin is that I believe and I believe this strongly that engaging in the
business of money of creating money puts you at such existential odds with the
state that it is an absolutely untenable
position right so I am confident beyond words that whether it's Libra or some
version of this that is the version that will through both carrot and stick will
get widespread adoption and will become the water in which we swim and it
relegates Bitcoin then to essentially the role of gold Saturday all right now
and that is a role which the follows people say oh that's great we're a store
of value right that's what I mean by your being assigned a role it's like
you're invited in by you know producer of places I want you to read for this
role anything oh great I'll be in a stage I'll do this no this is a
miserable role right why but for owners of Bitcoin it could mean higher prices
the narrative in that in the Bitcoin community has consciously shifted to
what you're describing right there now the focus has not become oh this is no
longer a medium of exchange as a store that's a store value in what matters is
that there's a supply constraint supply schedule and they've fallen back on
ironically the very core libertarian they've moved away from the cypherpunks
stuff more and move more over to the libertarian Austrian economic hard money
stuff and this is I'm saying this is a miserable way to live it's a miserable
way to live it really is right can you make money with it sure you can trade it
right knock yourself out right what do you
mean it's a miserable way to live you mean it's a miserable story now what
I mean I mean is that you are now taking on the role that gold owners true
Belleza I've had for the last 50 years exactly yeah that's exactly correct it's
a role where you find yourself now essentially hoping for economic collapse
because now you'll be punished that way you mean I'll be I'll be sitting pretty
when the world comes to you know conflagration yeah it's a bet against
the system well in fact that's what bitcoin is it's a hedge against systemic
risk well but to what you're just right it wasn't always that way no it wasn't
it wasn't always a way now stories now changed around Bitcoin and in what I'm
telling you is you were being you you know won the Bitcoin community is being
led down this path right and the carrot is oh it's going to be worth something
right you're gonna be it's gonna be like digital gold which I agree it's like
digital gold but you're being balkanized it is the true and original meaning of a
ghetto right where you're having this this
neighborhood constructed for you oh look how nice this is you're gonna live over
here now as oh well thank you very much for cutting this neighborhood and then
you move in and you think well now I'm here I'm the grumpy old man who yells at
clouds now and it's pervaded with again this negative energy and it's so
different from I think where so many people started their involvement with
Bitcoin or crypto more generally that you're trying to change the world in a
possible this is you know this is an interesting conversation and it's great
to compare the work done on the communication protocols of the Internet
in the 60 70s and 80s to what's happening now because that was very
different that was government funded there was no
financial incentive to have your particular base layer protocol win out
and so you've got this perverse financial speculative layer encrypt
occurrences that didn't exist for the communication protocols and so it it
diminishes the power of the aspirational technologists relative to yes that those
who are looking to get rich with there's nothing wrong with looking to get rich
and I like I said did that bring us back to one of the things I said early on
there's been a profound disillusionment among this generation and so for many of
them not only is this the rational decision but for many it feels very much
morally justified hey you guys screwed us you screwed us big time you went to
college and you could work a part-time job and pay for your college what world
are you living in my tuition is two hundred thousand dollars for four years
I've got student debt up the ass I can't afford a house I can't even afford to
make rent I got to move out of the city you know and I'm saying so I understand
that but I think we've touched on so many interesting dynamics narrative
dynamics here in sociological phenomena and I think actually what's one of the
most interesting things to study in the Bitcoin community would be the
anthropological sociological cultural dimensions of it but you have this this
tension between the economics the speculative component
and those who genuinely are in it and have been in it from the beginning for
the technology and the technology of Bitcoin has profound limitations it has
profound scaling limitations and this I think is the underlying substantive
reason for why this narrative has had the shift mm-hmm so I'm struck and this
has been my personal I call it evolution around Bitcoin I don't change a word
I've written about the the role of Bitcoin in the its balkanization or
ghettoization in terms of narrative and it's in its
place in the financial system where I have changed is recognizing a lot of
what you're describing about the community right
and those anthropological issues which sounds to again scientific eyes too cold
to call them anthropological there's again I don't have a better phrase for
it a positive energy associated with the Bitcoin community a desire to do good
it's mixed though with and this is always the case with you know people
like to call coyotes right mix or the desire to you know makes money right to
do well that's the majority the majority that's absolutely that's investment well
and when it win Lambeau right right incidental yeah no and by the way I'll
just throw another thing out here Ben this is really interesting and and and I
gotta credit someone I was speaking to yesterday who helped me with this
realization when I was growing up hip-hop was coming on the scene and or
it was already on the scene I'm a guy grew up with like biggie Tupac Snoop
Dogg and hip-hop was cool but it wasn't mainstream culture a lot of that and
also a larger culture of emphasis on wealth specifically I frame it in terms
of hip-hop because I think a lot of that has to do with the mainstream ization of
hip hop music hip hop culture which is so focused on wealth and the displays of
wealth but also just generally speaking our society has become much more focused
it seems today than in the past that I remember on money as being the metric of
success and I think that that has also driven so much of this so you have a
generation that is more focused on wealth than they were in
the past let's see my generation growing up and yet they have less access to it
and I think that's another fascinating thing and if I'm wrong about the hip-hop
thing or generally about this I might be I'm coming at it from a bit of the
outside but that is my view so it's so striking to me in this job so what
you're saying it's so striking to me that when I have conversations with
people and I say look what I want to do is I want to separate the positive
energy and technological aspirations from the creation of money right that it
is possible to separate the two that there are so many aspects of identity
and autonomy and self sovereignty and independence and liberty that can be
advanced through the technology that have nothing to do with money in the
reactions well how are you going to incentivize people to do this work right
unless you're you know paying them you know as miners I can create the coin and
they can make money through it and my answer is you know there there's so many
things that motivate humans right in it so I think about you know I'm not a
religious guy but I think about I'll call it a civic religion I think about
politics civic religion these issues which do motivate us to spend our money
I'm all for making money what I'm saying is that when you're trying to make a
living we're trying to create wealth by making money you were setting yourself
up for a fight you're not going to win you can trade it you can do the like but
if your goal is to oh I this is how I'm going to route around the state and this
is how I'm going to undo the you know the pernicious control of you know big
government and big business I promise you you're setting yourself up for a
fall and there's another way there's another path right it's tough love is
it's hard to say right because you want to be able to say oh you can do well by
doing good right but the truth is that doing well and doing good need to be
separated and I hear you when I say that I don't know what there is to be done
about the disillusionment and the feeling and it is a palpable feeling
that you've been cut out from the wealth and the goodies that the
boomers have accumulated right but I don't think there is something to be
done about it and you've got to come to grips with
that I I'd like to talk about that and I'm gonna set the table now because I
want to move us into overtime I want to say it's ironic that these
permissionless database is these distributed Ledger's cryptocurrencies
the economic model which are talking about here is private funded it's based
primarily on speculation Stein really the miners it's people's willingness to
plow into these cryptocurrencies it's borne in part out of a loss of faith in
government not just a loss of faith in government on the monetary front which
causes the demand for the currencies right but a loss of faith in government
that the model of the government funding academic institutions to do the research
let's say to build the second layer trust layer protocols right this is a
profound change we've covered this on an episode with Bill Janeway not
specifically this but the innovation economy and the role the close role that
the government had played during some important phases in the innovation cycle
and that's something that has been lost with a lot of this ideological these
ideological divisions that have been exacerbated by political tensions caused
in part by the inequality right so I want to get into that and I want to move
us into the overtime Ben where I want to explore some of the major I think
narratives okay I have come from some of them or will be economic but I think
some of them one of them very powerful ones that emerged in the last decade has
been this rise of white supremacy okay and there's also the change of China
right China used to be considered an exemplar partner in the global order
then they moved to a frenemy kind of in the first decade of 2000's
and now we're sort of an outright conflict we're seeing them as enemies
privacy versus security isolationism as America versus the indispensable nation
things like this Ben I want to thank you for coming on for our regular listeners
could you tell them how they can read about epsilon theory and follow you oh
thank you so it's epsilon Theory comm epsilon theory it's taken from it's a
financial jargon really where we talk about alpha
beta and epsilon is considered the error term and the point of what we try to do
to look at finance and politics through the lenses of game theory and history is
say well you know there's so much that's not covered and again this over
scientific enough assigning things to alpha and beta that behavior
particularly strategic interaction and the use of narrative it's not error
right but it's there in that that epsilon term so the name of the blog is
epsilon Theory comm and you know it's free to read and and we'd love to have
you check it out well I've as I said I spent the weekend
reading your stuff Ben and it's really great you know the only other person I
can think of that does similar work is Robert Proctor I'm sure there are may be
others but Proctor's the only person with his socio-economic Institute that
I've come across who tries to figure out what sort of the social narrative forces
are that might be driving markets his is much more sort of numerological yes but
it's interesting it's quite an endeavor and I do highly recommend that listeners
listen to it on that note for anyone who's interested in listening to the
overtime to this episode Ben and I are gonna stay on and continue our
conversation you can do so by heading over to patreon comm hidden forces and
subscribing and supporting the show there's no long term commitment you can
cancel at any time and I've often said this and it's true the over time is
often times better than the full episode and you can also gain access to
transcripts and rundowns Ben thank you so much my pleasure
today's episode of hidden forces was recorded at creative media design studio
in New York City for more information about this week's episode or if you want
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