Sincere apologies for the long delay since my last post. I’ve been busy with real life and, frankly, have lacked the inspiration to write. Much of that malaise derives from my growing disenchantment with our current state of affairs, particularly as it relates to online discourse.

But the arrival of a new character on the FinTwit (financial Twitter) scene got my creative juices flowing again. I also discovered a new artist during my time away, a rapper called NF whose lyrics I’ve borrowed to light our path, which readers of this blog know I’m wont to do.

NF is a good guide for this journey since his music deals a lot with mental health. His work is raw, emotional, visceral. If he could be described in a word, it would be “real”, which is apropos the moment for reasons that will soon become clear.

While the chosen lyrics help frame each section, I strongly encourage readers to watch each linked music video for the full Combat - and NF - experience.

So welcome back and buckle up. This is going to be a wild ride.

Intro

Several years ago, beermaker Dos Equis ran a funny series of commercials starring a fictional character known as The Most Interesting Man in the World. The campaign regaled its audience with stories of incredible feats accomplished by an older, debonair gentleman in a comical takeoff of those Chuck Norris memes we all love. Like how Chuck never sleeps, he waits. How his tears can cure cancer, but he never cries. How he can do a wheelie on a unicycle and dribble a bowling ball. And so on.

Each commercial ends with Mr. Interesting telling us that he doesn’t always drink beer, but when he does, it’s Dos Equis. This has become a popular meme, with netizens playing with that tagline for comedic purposes (per the intro art to this piece).

Mr. Interesting also tells us to “Stay thirsty my friends”, a double entendre designed to encourage us to live life to its fullest while (presumably) consuming lots of Dos Equis in the process.

The fun part about these commercials is that everyone played along. We’re led to believe that drinking Dos Equis can help us achieve extraordinary things, like how we used to think as kids that a new pair of shoes could help us run faster and jump higher. None of this is true, of course. But it works as a joke because we’re all in on it.

This sets the stage for the focus of this piece, which discusses the curiosities, personalities, and pitfalls driven by the mystery that defines much of our online engagement today.

Social Media as Escapism

I have a love-hate relationship with social media. It’s mostly hate with a dollop of unhealthy love. I’m not on Facebook or TikTok, and I rarely check my LinkedIn. I never post to Instagram, but peruse it a few times a day when looking to space out.

I’ve been especially active on X over the years, with a particular focus on FinTwit and geopolitics. I’m ashamed to admit that I’ve grown addicted to the platform. Like how we enjoy reality television for the superiority we feel by watching others be awful, I catch a similar buzz listening to shitbirds so willingly profess their stupidity, hatred, and bigotry online.

Many of the accounts I follow and Spaces I listen to feature users that I either vehemently disagree with or downright despise. I could say I do so to challenge my priors for the sake of intellectual honesty, but it probably has more to do with a desire to feel better about myself.

It’s admittedly an unhealthy obsession. Or at least an abnormal one. Deriving twisted joy from such madness speaks to a darkness within me. As much as I’d like my preference for darkness to mirror that of Stan Druckenmiller in the investing sense, I reckon its nature is more in line with comic book bad guys.

This is more curse than blessing. I have a tendency to see the worst in people, which isn’t the most pleasant way to go about life. But it can be helpful in our new age of social media.

Apps like X serve up a daily assault on our collective intelligence, and it’s working with devastating effect. That’s because we aren’t thirsty enough to demand accountability from our online heroes. Instead, we engage in a never-ending search for quick dopamine hits while nodding along to the steady beat of confirmation bias.

Indeed, one of the things I find most striking is how easily impressed X users can be. Geopolitical Spaces are dominated by partisan fanatics, fake virologists, crypto scammers, and other dregs of society waxing philosophical on international and military affairs. FinTwit flocks to Spaces hosted by career losers who have demonstrated little ability to make money as investors in real life. These financial gurus (furus) are often laughingstocks in their field but have nonetheless managed to garner legions of impressionable fans on X.

This is because most of their audience has no idea what is going on, allowing folks with the gift of gab and some modicum of expertise to sound really smart when surrounded by hobbyists. I often equate it to JV basketball players impressing the Freshman B team with their dribbling skills while the varsity squad is out there competing in games that actually matter. It’s what we call in the business easy comps.

But at least we can see some of these furus coming. For all their faults, a few are willing to put their names to their failures, allowing us to watch them crash out in real time. Too many of us unfortunately take the wrong lessons from their experiences, but that’s more on us than them.

The bigger problem in my estimation are the anonymous accounts. The ability for us to engage from behind an avatar and a pseudonymous handle like John03897251 - or Johnny Numbers, as I like to say - is where things can get a little…weird.

Anonymity can be a feature or bug depending upon the context. On the one hand, it allows certain information or expertise to surface that would otherwise remain hidden for fear of reprisal, professional or otherwise. On the other hand, it helps hoards of faceless users protect their personal downside while propagating all manner of hate and disinformation.

This latter dynamic gives rise to something I’ve lamented before, which is a sort of inverse preference falsification. Anonymity lets us reveal our true selves from behind the safety of a screen while suppressing our darkest thoughts in real life.

Anonymity also allows us to play characters online, motivations for which can be several. We can live vicariously through a manufactured persona to either compensate for some life emptiness or simply for trolling purposes. Or we can cosplay as someone else for fun, feels or fraud (otherwise known as live action role play, or “LARP”).

I reckon these virtual alter egos run rampant on X, where the battlefield has been softened by years of disinformation campaigns designed to turn our brains to mush. We have been beaten down to mistrust our leaders, institutions, even the notion of expertise itself. And the consequences have been dire.

The mainstream media have been kneecapped in favor of “citizen journalism”, allowing a dude and his iPhone to create even bigger waves than the New York Times. Similar to how power vacuums develop in geopolitics, a similar legitimacy vacuum has arisen on the back of our war on expertise. This allows bad actors to occupy new high ground on that battlefield of ideas, deploying weapons-grade nonsense that has us believing crazy shit like Hitler being one of the good guys of World War II.

The prevalence of Dunning-Kruger on social media is therefore unsurprising. Propagandists, hucksters, creeps, and thieves flood the zone with misinformation while catering to our urge to understand and believe. This allows for the promulgation of all manner of bullshit so long as we find the content engaging and appealing. We superficially experience ourselves becoming smarter in the process - because we need to feel that way - which emboldens us to opine on things well beyond our purview.

These bad actors feast on our primal instincts to belong, to be heard, to be respected. In reality, they are feeding off of our collective ignorance. Most of us are expert at a few things and inexpert at many others. And those blind spots form the perfect attack vector in our social media age.

Despite my routine condemnation of this dynamic, I fall prey to it as well. I often comment on geopolitical issues when I have no formal training in the space. Why should anyone care what I have to say on such matters? They shouldn’t. Yet I nonetheless feel compelled to offer my two cents because I’ve been led to think I know what I’m talking about.

Some explanation is warranted as to my own motivation for being anonymous. I started this Substack back in 2021, roundabout when the New York Times doxxed a popular blogger who published under the pen name Slade Star Codex. I recall thinking it was pretty cool that someone had organically built a devoted following through their writing without the help of pedigree or backing.

I came close to doxxing myself a little while back to demonstrate my indifference to the idea of being discovered. Everyone who matters to me in life - professional and personal - knows my nom de guerre. And anyone managing to discover my true identity would probably greet that revelation with an anticlimactic shrug while thinking, “Yeah, that makes sense.” But I was convinced by friends to keep my identity under wraps to maintain the mystery of it all. So that’s what I’ve done.

I don’t flaunt my wealth, gains, or stature. I don’t consider myself special. Anyone who follows me can attest to my self-deprecating approach to markets and investing. Despite roughly 25 years of real experience in alternative investing - mostly on the liquid, marketable side - I make no claim to excellence when it comes to trading.

In fact, unlike the blowhards holding court every day on Spaces, my actual, lived experience has taught me that none of us has an edge in these markets. Encouraging folks to avoid day trading in favor of dollar cost averaging into a cheap index ETF is about the extent of the financial advice I dispense.

My approach stands in stark contrast to the behavior of many others on X, where it’s easy to find feeds dominated by anons engaged in a digital chest-thumping competition. Users are locked in a perpetual battle of oneupmanship, desperate to prove how rich, strong, and smart they are. Many such users get a little too caught up in all the peacocking, often making ridiculous claims that are conveniently impossible to confirm given their anonymity.

Let’s get to know one of the most egregious examples of this phenomenon.

The Most Interesting Man on FinTwit

Whatever the motivation, there is a lot of playacting across social media, with X being a hotbed of such fuckery. The app is a petri dish of fakery, manipulation, and abuse. It was bad enough before Elon Musk took over, and he’s only made it decidedly worse.

Which brings us to the star of this little show, an X user with the handle @bonkdacarnivore who goes by the name Bonk.

As a natural cynic, especially when it comes to all things X, my default position is to be skeptical of any grand claims made online. And it is my estimation that Bonk is the king of such grandiosity by a country mile, even despite the stiff competition. This is why he shall henceforth be referred to as Bunk, as I believe much of what he says is “complete nonsense, or something that is meant to deceive”.

I first discovered Bunk when happening upon a Space he held back in February. It was entitled “Open Office Hour with Bonk” and mostly featured him fielding questions at random. I stumbled in towards the end, just in time to catch one of the most batshit craziest statements I’ve ever heard. It was around the 57-minute mark when he stated the following:

For me personally, because my portfolio is so wide, that I have to be in everything. I’m in global currency markets, I’m in global equity markets, I’m constantly selling contracts against equity that I have…I assume most of the people who follow me have relatively small portfolios…If we’re being blunt, my day trading account is $26 billion…My portfolio exists outside the realms of normal reality.

I didn’t pay the guy much mind at the time, chalking him up as another of these silly stock tip posers who are more salesmen than traders, most of whom are anonymous for a reason. But he kept popping up in the geopolitical Spaces I frequent and began making his way into those never-ending FinTwit trading Spaces as well.

So I started to pay closer attention, listening to more of his Spaces and observing the behavior of those around him. It quickly became clear that he had managed to convince a lot of people that he was a real-life billionaire willing to slum it with the rest of us online. He is routinely feted as an expert on damn near everything and can often be heard holding forth on a range of topics while rudely dismissing those brave enough to challenge his narratives.

Any pushback would see Bunk quickly respond with a snarky, condescending reply and a block (or yeet, as he calls it). That eventually included some of my buddies, which at least partially served as motivation for this post.

In my years of observing charlatans on X, a quick block is one of the telltale signs of tomfoolery. Despite their tough guy personas, these dudes tend to be softer than baby shit. That’s because their games only allow for offense to be played. Their defenses are virtually nonexistent - which tends to be the case when you’ve built a house of cards - so they quickly hide behind a block to keep accountability at bay.

But we’re getting ahead of ourselves, so let’s return to our man of the moment.

It’s hard to know where to begin when introducing our own little Mr. Interesting. Maybe it’s best to let Bunk describe himself to us in his own words.

Let’s start with his X bio to kick things off.

He’s originally from Connecticut.

He received his first degree as a teenager.

He went on to collect many more degrees, and the public considers him an impressive figure.

Four of his degrees are in computer science, biochemistry, physics, and economics from MIT, making him the epitome of educated.

His PhD is also in economics from MIT, along with a few other advanced degrees, including an MBA.

About that bar number, he holds a JD from Cornell.

He hates credentialism…

…but doesn’t miss an opportunity to remind us about his many degrees, which apparently make him the world’s most intellectually dangerous person.

He was an engineer at some point.

He was a Search-and-Rescue pilot in the Coast Guard too, and met his wife after saving one of her family members. Together, they would go on to build a legendary empire.

His wife is a vascular surgeon, by the way.

He founded a venture capital (VC) firm that now has over $30 billion in assets under management (AUM).

He retired from his uber successful VC firm to go back to the corporate world so he could spend more time with his family. As one does.

That’s because he’s a great dad.

Speaking of dads, his was a rocket scientist. And he comes from a long line of warfighters.

He raised four great kids while creating tens of thousands of jobs in the process.

His kids are super smart. Among the older siblings, one is at CalTech…

…and the other is at Duke after telling Harvard to fuck off.

They speak Mandarin too.

He became the Chief Information Security Officer (CISO) for a major tech company upon returning to the corporate world.

He even had that in his bio for a minute.

He’s very proud to have been a C-suite executive, which means he doesn’t have to grift.

He was so good at his job that Elon wanted to chat with him about becoming X CISO.

He made well into the six figures in 2023, is over six-feet tall, and has at least a six-inch penis.

He’s 6’3” to be exact, which makes him taller than JD Vance.

He’s built like a Viking (also mentioned on a Spaces where he said he’s 6’4”).

That’s because he’s half Viking. And descended from an American forefather.

He was almost good enough to go pro in hockey. And he’s not a dweeb.

We therefore shouldn’t be surprised that he has abnormally high testosterone.

He’s a captain of industry, even in retirement.

He’s smarter than Albert Einstein, which is extremely rare.

He’s one of the wealthiest men on the planet and there are cities named after him.

There were maybe 30 people in the world richer than him in late 2024, wealth derived from early crypto investments and the venture capital firm he founded. He also earned a salary of “only” about $2 million, which I suppose qualifies as well into the six figures (per his earlier post).

Being this rich makes him worth 11 figures. Heck, he’s almost worth $100 billion.

His crypto bag is so heavy because he was an OG bitcoin investor.

And he now holds more crypto than Microstrategy.

He owns 25 acres in Aspen along with over 30 other properties.

Make that over 100 properties across all 50 states.

His main ones are in Southern California, Aspen, Montana, and Tampa.

His Tampa compound has a helipad.

In addition to a private landing strip.

For his three planes.

He doesn’t want to talk about the fancy one, but he will if he has to.

He couldn’t afford a top-of-the-line Falcon 7X last year…

…but looks like he can now.

Actually, make that four planes.

He’s a certified divemaster.

He’s a bladesmith, so he has a weapon room.

He also has multiple game rooms furnished with fancy tables.

That’s because he’s really into board games.

He has 22 bodyguards.

He’s got historical recall (referred to as “near perfect” on Spaces).

His family owns a seat on the New York Stock Exchange.

That may explain why he’s an incredible trader. The best in the world, actually.

He had a 98% hit rate last year.

Nobody has a higher hit rate than him, doncha know.

Because he has a crystal ball, apparently.

Which I guess is why he’s never wrong.

This isn’t meant to serve as an exhaustive list, but it should be sufficient for our purposes here.

Individually, many of these claims are outlandish enough to spontaneously combust upon contact with any scrutiny. Collectively, it’s a virtual guarantee that this character is a figment of someone’s very active imagination.

Even the OG Mr. Interesting himself would struggle to believe this shit.

Now comes the fun part.

Dude Diligence

There’s a brilliant scene in Quentin Tarantino’s Inglorious Basterds in which Michael Fassbender’s British character impersonates a member of the German SS while visiting a tavern in German-occupied France. It’s a wonderful sequence in the film, marked by extreme tension as the British spy works to convince his fellow drinkers that he is, in fact, one of their own.

Fassbender’s character acquits himself well, navigating the tense dialogue with aplomb. But he eventually gives himself away when he orders a round of beers by holding up three fingers in a manner inconsistent with the German style. What followed was a trademark Tarantino bloodbath.

This has become a popular meme when calling bullshit on someone online. And those of us paying attention encounter many such three-finger moments when weeding through Bunk’s bold proclamations.

Let’s review a few of those curiosities, inconsistencies and inaccuracies below.

The obvious place to start is the laughable assertion that Bunk is worth nearly $100 billion. He’s talked about how Elon has 3-4x his wealth and how there are only 30 or so people in the world wealthier than him. Per the Bloomberg Billionaire Index, that would rank him somewhere within this list.

It’s safe to say that none of these people are bragging about their day trading skills on X all day. It feels like I should just stop here, but where’s the fun in that?

Let’s play the game anyway.

So we’ve got the $26 billion trading portfolio plus a crypto portfolio that must be worth at least $60 billion if it is indeed larger than Strategy’s (fka Microstrategy, $MSTR) bitcoin holdings. Add to that an extensive real estate portfolio and stake in his former venture capital firm, and I suppose that’s what has Bunk pushing twelve figures in net worth.

This assertion can be easily debunked on comps alone. Think of some of the most successful venture capitalists in America, many of whom have sizable crypto holdings themselves. Peter Thiel’s estimated net worth is approximately $20 billion. Reid Hoffman comes in at around $2.5 billion and Marc Andreesen at about $2 billion. But Bunk wants us to believe he’s managed to compile a nest egg multiples their size?

For the sake of completeness, I ran Bunk’s claimed background by a few friends in the venture capital business, including partners at major firms. After they were done guffawing at the description, I was assured that there is no way in hell such a person exists. It’s important to note here that venture investing is very much a people business, making it virtually impossible for someone to accumulate any meaningful amount of wealth in that space without everyone knowing about it.

But let’s keep playing.

Bunk claims that his old firm manages $30 billion today. Well, there are currently only four VC firms in America whose AUM approximates that amount: Andreesen Horowitz (or a16z), General Catalyst, Sequoia, and Dragoneer.

None of these groups’ founders remotely match Bunk’s description. In fact, each of their founding partners are either: 1) Deceased; 2) Remain active in the businesses they founded; or 3) Have left to start new firms of their own.

Seeking other clues, Bunk tells us that his old firm is presently run by a minority. With a minority CEO and Chairman, General Catalyst comes close. But three of its four founding partners remain actively involved in the business, with the fourth having left to start his own firm.

Moving on to crypto. Despite the ostensibly secretive nature of the asset class, the big players are well known. A $60 billion crypto portfolio would not only be impossible to hide, but would rank him second in size only to Satoshi Nakamoto, the pseudonymous creator of bitcoin (an argument can be made that Binance founder Changpeng Zhao ranks up there as well). Let’s just save ourselves some time by taking for granted that Bunk doesn’t hold anywhere near this amount of crypto.

Next comes the real estate bit. According to ChatGPT, there is no record of a private individual owning real estate across all 50 states. We can’t dismiss this claim with certainty given the decentralized nature of such recordkeeping, but it’s probably safe to err on the side of skepticism here too.

Lastly, let’s tackle the assertion that Bunk has a $26 billion day trading portfolio.

Much of what the man says betrays a naiveté about how the world works, and this is a great example. The logistics associated with managing a portfolio of this size are daunting and the resources required significant. You would need a sizable team of analysts, execution traders, risk managers, and operational professionals just to help wrangle everything, not to mention the legal and compliance oversight inevitably required. We’re talking thousands of line items here. Add to that institutional grade custody solutions, algorithmic trading capabilities, and prime brokerage services that would prove crucial to managing a book of that size.

Think about similarly-sized hedge funds. Take Balyasny as an example, a $25 billion multi-strategy investment group. The firm has more than 1700 investment professionals spread across over 20 offices, all in service of managing a portfolio of roughly equal size.

Yet Bunk wants us to believe he can manage this all on his own with the help of that handy dandy Bloomberg terminal he so proudly flaunts?

As an aside, the real ones don’t brag about having a Bloomberg terminal because it’s table stakes for any serious investment operation. But a LARP certainly would. And rather than spell out “Bloomberg Terminal” all the time, we simply refer to it as BBG.

In any event, the notion that a dude and his “Bloomberg Terminal” can singlehandedly manage a $26 billion trading book is laugh-out-loud bonkers (pun!). Especially if trading across a handful of retail platforms that are not built to handle such flow. He’s demonstrating real ignorance about market microstructure here.

Ninja’s latest regulatory filing shows total client assets of only about $250 million. Clearly too small for Bunk’s size. Interactive Brokers (IB) is much larger at roughly $150 billion in total assets on its platform. IB has the operational capacity to handle a $10-$20 billion portfolio, but it would bump up against severe limitations. Not to mention any savvy investor of size would want to diversify their counterparty risk across multiple service providers rather than just the two listed here.

The bottom line is it would require a serious operation to manage a portfolio of Bunk’s purported size. This is why family offices are a thing, many of which make heavy use of third-party fund managers for the heavy lifting. And I can’t imagine someone operating within such a complex setup would wince at the added hassle of getting monetized on X.

There are other clues worth noting.

Bunk started his X account back in 2010, but we don’t have much to go on until around 2022. A visit to the Wayback Machine only scraped a few posts during the intervening period, with the one below proving interesting enough.

Our captain of industry was excited to have won an Xbox One at auction twelve years ago? It would be reasonable to expect that someone of his stature would’ve been well on his way by then, making a video game station an easy, throwaway purchase. I mean, we all enjoy free stuff, I guess. But most billionaires aren’t bragging about winning small-time auctions to randos online.

I also wouldn’t expect one of the world’s richest people to be talked out of a work sabbatical because he needs to put his kids through college.

Nor would I expect them to submit to having to deal with employers telling them what to do - like get the COVID vaccine - and consider $30,000 “pricey” for standing up to authority…

…or spend their time house-hunting in relative slums.

Which reminds me. The idea that a billionaire venture capital titan would leave a magic money machine of his own creation to work for someone else as CISO is completely bizarre. I mean, can you imagine Peter Thiel dropping everything to become a cybersecurity executive at Microsoft? All to spend more time with his family? Once you achieve such heights, you make your own schedule. You’re in the catbird seat and answer to no one.

It makes no fucking sense.

Let’s briefly turn our focus to his legendary status as a trader.

It’s difficult to ascertain when his account turned furu, but it looks to have been sometime towards the end of 2023. Up until that point, he was mostly making fun of woke headlines before getting caught up in politics by supporting the presidential aspirations of Florida governor Ron Desantis. This sees him catch a lot of heat from the MAGA crowd, though it appears he didn’t always dislike Trump.

It’s funny watching him attempt to deny his furu status while continuously - and I guess unintentionally - staking claim to it. He has written long posts lambasting “FinTwit guys” and complaining about frauds scamming people with trading Discords and other paid services. Meanwhile, the dude is constantly talking up his own book, and has even started an X community called “Bonkiversity” for people to come and learn at the feet of the great one. All free of charge…for now, at least.

The expectation is that we’ll all flock to his feed because apparently this fucking guy just does not miss. He had a 98% hit rate last year (referenced above) and was damn near undefeated this year through April.

There is precisely zero chance his trading record comes anywhere close to the astronomical winning percentage he claims. Putting aside the high frequency guys, the best traders in the world would be delighted to achieve a hit rate of 55%. Maybe even 60% in a truly phenomenal year. But Bunk wants us to believe that he routinely registers success rates north of 95%?

He and his simps will tell you that everything is there to see on his timeline. Our guy is all about transparency, after all. But good luck to anyone wading through his thousands of posts to arrive at anything resembling a coherent track. Many of his public trades are either lauded in retrospect or lack follow-through.

We saw an example of this just yesterday when Bunk wanted everyone on a political Space to know that he had purchased some Tesla puts in the morning, just in time to enjoy the stock’s ensuing selloff stemming from ratcheting Musk-Trump tensions. Of course, there is no evidence of this on his timeline, proving once again that Hindsight Capital remains undefeated.

What he’s banking on here is not just our collective ignorance but our laziness too. He knows nobody is going to take the time to audit his timeline for every callout. But even our cursory attempts to do so yield little results. The few trades we can see are hit or miss, and anyone with a rudimentary understanding of how to read an options chain will know that much of his claimed activity doesn’t add up.

But we can slay this beast by keeping it super high level. He noted in the aforementioned Office Hour Space that it took him the better part of last year to earn his first billion in trading profits. With a claimed $26 billion trading book coming into 2025, that would translate to a return of just ~4% in 2024, which compares to a blended return of about 25% for U.S. equity markets. Even if we generously assume he hit the home stretch hard by doubling those profits, he still dramatically underperformed the indices.

How do we reconcile that with his claimed 98% hit rate?

We can’t.

Moving on to his aggressive academic credentials, we can keep this one brief too. There is no one in America who comes close to matching the educational background he claims. Even playing around with different schools, no one comes within shouting distance of the degree combination he has claimed. That’s based on public information, so it’s possible I’m missing something. But I’m willing to bet I’m not.

Bunk says his ability to stack degrees was facilitated by having a triple major in college and the advent of distance learning. While MIT no longer allows triple majors, I’ve seen some chatter suggesting that it was possible up until 2003, which would seem to track with his purported timeline.

But a search for “the most educated MIT student ever” reveals stories about a gentleman named Tue Nguyen, who at seven degrees is known to be the school’s most credentialed graduate in history. I’ll go out on a limb here and assume that Bunk is not a 63-year old Vietnamese refugee.

MIT only began offering credit for distance learning around 2016. Unless most of his degrees came while he was already a VC titan, this doesn’t check out either.

Let’s pick this scab a bit more to further demonstrate Bunk’s tendency to either get things wrong (which he claims to never do), state mistruths, or sound downright silly.

Returning to that Office Hour Space provides some quick hitters.

Around the 15-minute mark, he notes that bitcoin is going into crypto winter (BTC is +20% since then). And that the March and April non-farm payroll numbers were going to be “so bad” (both prints were strong). He also said, “I think we’re officially in what I call stagflation”, like a commonly used economic term is a word unique to him or something.

In another three-fingered salute, Bunk stated that “currency markets are always a great place to go and hide” during times of uncertainty. Again, this isn’t how a real one talks. Macro trading vernacular doesn’t make much use of the term “currency markets”. Instead, we trade FX (foreign exchange). And anyone who trades FX knows that “currency markets” are more volatile than their equity counterparts, especially in times of stress.

He also noted that the average trader isn’t “going to be interested in the currency exchanges.” I suppose that’s technically true since there is no such thing as a currency exchange. That’s because FX transacts over-the-counter (OTC), meaning trades occur directly between counterparties rather than through centralized exchanges.

Shall we continue?

Bunk made more wayward claims on a Space hosted by another user on May 16, 2025. While discussing the recent Moody’s downgrade of U.S. government debt, Bunk shared with us the following:

The Fed is not going to lower rates to try and get bond market yields down. They don’t care. That’s not their job. Their job is monetary offset policy. The role of Capitol Hill is fiscal policy. Capitol Hill cares about 10-year yields. Jerome Powell does not care one iota!

The chutzpah is breathtaking here. First of all, I have no idea what “monetary offset policy” means. And to suggest that Congress - most of whose members haven’t a clue how rates work - cares more about the Treasury market than the Chairman of the U.S. Federal Reserve is asinine. This is something a charlatan would say while trying to sound smart about monetary policy, someone who derives their knowledge from Google to confirm that the Fed operates with a myopic dual mandate to the neglect of everything else.

But he says it with such authority, so it must be true! This reminds me of some marketing advice I received years ago, about the magic not being in the details but in the presentation of those details.

In reality, the Fed is hyper focused on the 10-year because it’s a benchmark funding rate and transmission mechanism for inflation expectations, which is front-of-mind for Chairman Powell and his fellow Fed governors. He is constantly talking about ensuring that the Treasury market function smoothly to avoid a spike in rates.

Let’s check with Powell himself for clarity on the issue. Here’s a snippet from a speech he gave back in September 2024:

It is essential that our Treasury markets are able to efficiently transform Treasury securities into cash, even at times of elevated stress. As I noted at this event in 2015, "these markets need to keep functioning at a high level, and we all have a stake in making sure that they do." I remain wholly dedicated to that goal.

Bunk also stepped in it by suggesting that large institutional investors would now be prohibited from holding U.S. government debt due to the downgrade because they are mandated to only hold AAA-rated securities - another remarkably amateur take.

First, most institutional allocators have no such mandate. Why would they hamstring themselves like that? They wouldn’t. And they don’t.

Second, anyone who has actually dealt with this stuff knows that it doesn’t matter what Moody’s says about America’s credit quality because Treasury securities are considered risk-free by default given our safe haven status. That may change over time, but Basel still assigns a 0% risk weighting to our debt, which is effectively all that matters if you’re an allocator. Besides, if Treasurys don’t qualify as risk-free, what does these days?

Notice too how he said he “owns” a venture capital firm. He does this with some regularity. Again, this isn’t how a real one talks. We refer to ourselves as “founders” or “founding partners”. We “founded” an investment management business, or maybe we “run” a hedge fund, venture capital firm, etc. We never say we “own” it. That’s just tacky, largely because these firms are typically structured as partnerships with equity handed out to key employees who together “own” the firm in the collective.

His post here regarding the carried interest tax loophole is another example of how he trades on the ignorance of his audience.

The carried interest loophole allows private fund managers to see the revenue they generate from incentive fees treated as long-term investment gains, which are subject to a 20% tax rate (plus a possible 3.8% net investment income tax). This in contrast to the management fees that these firms generate, which are treated as ordinary income and therefore subject to a higher tax rate of up to 37%. That delta between long-term gains and ordinary tax treatment is what Bunk claims to be benefiting from here.

Bunk is running with the notion that he retains an equity stake in the fabulously successful VC firm that he founded…and later abandoned…to return to the corporate world…so he could spend more time with his family. Again, as one does.

Let’s operate under the assumption that his old firm manages $30 billion in total AUM. And let’s further assume that the firm has launched funds on a typical cadence, achieves results in line with industry averages, and carries a standard fee structure.

In this imaginary scenario, said VC firm could be expected to generate somewhere in the neighborhood of $300-$500 million in annual incentive fees. This would represent the entire gross performance fee generated by that business, which means that Bunk wants us to believe that his savings alone would effectively equate to the entire annual incentive clip for a firm he no longer runs.

Even if we operated under the optimistic assumption that his old firm crushed some deals and massively outperformed - say, doubling its incentive income to $1 billion - the resultant savings afforded to the entire firm would still only be about $170 million.

Even more to the point, there isn’t a fund manager on the planet who knows how much they’ll make in incentive fees in a given calendar year as early as May of that same year. That’s because there are seven months remaining for gains to either vanish or be harvested.

So unless our guy retains ownership stakes in multiple private fund ventures that generate super predictable incentive streams - which I’m sure he would’ve bragged about by now - this claim makes no logical sense.

In a Space hosted by a separate X user on May 20, 2025, Bunk delivered another obvious flub. Around the 29-minute mark, he wanders into hedge fund territory by stating that:

Citadel…got stopped out of their long positions [in Tesla] because it fell so far so fast…they ended up leveraged way too heavily short and we had a violent relief rally and they were positioned in the wrong direction on that because they got stopped out of their longs right at the bottom…so they took a one-two punch which is…leaving them skittish right now, they’re not …I don’t think there’s a lot of appetite to put a lot of risk on the table long and short…ahead of their next quarterly bonus evaluation.

Bunk clearly has no idea what he’s talking about here. First off, good luck following the purported price action. Citadel got stopped out of its shorts and then got stopped out of its longs? In the same name? I suppose the implication here is that Citadel was chasing and got whipsawed, for which Bunk of course has zero evidence.

Second, Citadel’s flagship fund, Wellington, is incredibly diversified. Thousands of line items are managed by dozens of trading teams (or pods) spread across multiple strategies and geographies. Hell, the firm’s latest 13F shows over 14,000 positions.

Third, like many of its pod shop peers, Citadel runs a market neutral strategy. Among the key differentiators for these firms is their ability to manage risk, and Citadel is known to have one of the most sophisticated risk management programs on the planet. Its risk team is comprised of dozens of people whose nerve center is reminiscent of the control room of the USS Starship Enterprise. It’s often the case that multiple positions in the same name are spread across these various pods, all of which is centrally monitored at the risk level to ensure some degree of neutrality.

So the idea that a single name would leave this battleship “skittish” is patently absurd.

Lastly, Citadel - like damn near every other hedge fund on the planet - pays out its bonuses on an annual basis. That’s because incentive fees are crystallized at the end of each calendar year. There is thusly no such thing as a “quarterly bonus evaluation”. In all my years in the hedge fund business, I’ve yet to come across a single fund that would attempt such a feat (outside of some silly crypto ones I’ve seen along the way).

Let’s now discuss Bunk’s claim about Wall Street legend Marty Zweig being his mentor. This assertion also feels bogus for reasons practical and logical, clearly designed to bridge the gap between how a venture capitalist is somehow also a master day trader.

Zweig passed away in 2013. Bunk claims to be in his mid-40s, which on a standard timeframe would mean he entered the workforce sometime around the year 2000. But we’ve been told that Bunk had a habit of stacking degrees. Eight to be exact, including a PhD in Economics from MIT and a JD from Cornell. Earning that PhD and JD would typically take 5-6 years and 2-3 years of full-time study, respectively. Even with the claim of receiving his first degree at the tender age of 18, he still had a healthy amount of study left according to the profile he claims. This on top of his time in the Coast Guard, where his claim to have been a Search-and-Rescue helicopter pilot would’ve required another 2-3 years of training.

Let’s generously assume a super compressed timeframe that saw him emerge from his 20s fully credentialed as a promiscuous academic and Coast Guard veteran by the year 2010. This would leave him all of three years to study under one of the all-time greats. But we’re told that Bunk started his venture capital firm in Seattle sometime before the year 2009, which I believe is roughly when he moved from there to Los Angeles. Around this time, Zweig was battling liver cancer from his home in Fisher Island.

Why would a famed but ailing equity trader take under his wing someone who must have been a budding venture capitalist at the time? Mentors tend to have something in common with their mentees, most often working together at the same firm. It’s unclear why their personal or educational backgrounds might overlap, and venture is on the opposite side of the investing spectrum when compared to the liquid trading strategies Zweig employed. It would be like a young Marc Andreesen being mentored by Jim Simons, or Ken Griffin by Don Valentine.

Again, it makes no fucking sense.

I’ve heard Bunk describe Marty as a first ballot hedge fund hall of famer. Well, as someone who grew up at one of the OG multi-strategy investment firms and whose mentor is actually a member of the hedge fund hall of fame, allow me to feign similar outrage at some anon touting such tutelage online.

I must admit that it’s hard to keep up with all of the bollocks. Bunk routinely missteps on matters serious and trivial, offering a plethora of moments rich with irony. Researching this piece had me feeling a ton of secondhand embarrassment for the guy.

His over-the-top bravado betrays a fundamental misunderstanding of the billionaire mind. Bunk’s commentary is awkwardly melodramatic, dripping with insecurity while revealing naiveté about how the world he claims to occupy really operates.

I am by no means a billionaire myself. Like most of us, I’m impossibly far from ever becoming one. But I’ve spent a good chunk of my career knee-deep in that part of society. And the handful of billionaires that I actually know often do live lavish lifestyles, but they also tend to be intensely private.

Their displays of wealth are not designed for the proletariat - many of whom recoil at their ostentatiousness - and are instead directed towards their wealthy peers. It’s keeping up with the Joneses, Hamptons style. That’s because real billionaires compete with each other, not with us. These people are way too busy making money and memories in real life to flex to us plebes all day. The quote about the lion not concerning itself with the opinions of sheep comes to mind here.

But not Bunk! He’s here to mix it up with us peons while giving zero fucks, talking tough as an anon “who isn’t afraid of cancellation”.

That’s because he’s got “fuck you money”, so he does what he wants, which appears to involve talking copious amounts of shit while hiding behind a cartoon avatar.

Surely I’m not the only one who finds this curious. I mean, the entire point of “fuck you money” is to be your true prickly self with no concern for consequence. Being fabulously wealthy is quite the deterrent, but you can’t call yourself bulletproof if nobody knows where to shoot. So despite his protestations to the contrary, I reckon Bunk is actually quite afraid of blowback.

Now this is what “fuck you money” really looks like:

He laughs at follower counts…

…when the Wayback Machine shows him having just 254 followers 13 years after starting his own account.

He retired at 29 years old as a lowly wage earner…

…and then again in his mid-40s as a captain of industry. I guess?

He talks about firework displays that he hosts at his Aspen compound every Memorial Day weekend - including this past one - when I have confirmation from the Aspen fire chief that no such shows were allowed or scheduled during that time (we’re told this year’s show was canceled due to wind). When confronted with the notion that such shows are illegal, he tells us not to worry.

He talks about trading on the floor of the NYSE as an individual investor because of a longstanding family membership. But no such activity is allowed. And I thought his parents didn’t have any money?

Speaking of parents, Bunk has a perfect credit score because his got him a credit card at the age of three. This is something else that would put him in rarefied air since just 1.5% of all Americans have such a score. And it’s illegal for infants to be issued credit cards, so he’s either lying here or admitting to identity fraud.

Let’s see. What else?

Oh, there is no record of a newly-built private residential helipad or landing strip anywhere near Tampa. The last time something like this was attempted, it made local headlines and was eventually denied.

I could keep going, but we’ve been at this long enough already. This could literally turn into a running blog that documents all the man’s many contradictions in real time. But I actually have better things to do - believe it or not!

If you haven’t seen it by now, god help you.

Outro

Bunk and I share some things in common. His approach to the absurd is similar to my own, with takedowns often delivered in condescending, sardonic fashion. He’s smart, observant, and articulate, all attributes I fully embrace.

But the asshole he plays online goes quite a bit further than me. I too am an asshole. Like Bunk, I’m judgmental, self-righteous, and don’t suffer fools. But he treats X as bloodsport, like a game where the objective is not just to inflict damage on your opponent but to slaughter them. He is highly disrespectful - especially to women and the “poors” - and definitely not shy with the vulgarity.

But I think this is all an act. It is my contention that Bunk has spun a web of lies, each more outlandish than the last, emboldened by the sycophancy of the easily impressed and silence of the rest of us.

I mean, come on folks. He’s very obviously full of shit. Bunk’s many claims don’t just strain credulity, they torture it.

The question in my mind is why, for which I have a few working hypotheses:

1. Bunk is a professional shapeshifter working on a long con.

2. Bunk is actually a bored, wealthy retiree of provenance unknown.

3. Bunk is a mediocre executive with an active imagination who is taking out his frustrations online.

You’ll notice none of these theories involves him being anything close to the character he portrays. That’s because I’m trying to be realistic here.

One can be forgiven for settling on option #1. This very well could be a shaping operation as part of a windup for a paid service of some sort. Despite his many protestations against the idea of monetization, we all know there is no honor among tweeps. Besides, there isn’t much downside to misleading your followers these days anyway.

He does protest an awful lot, though. Just search his timeline for the word “monetize” and see for yourself.

Bunk recently directed his followers to a small private trading Discord of one of his “students”. Could this be part of a feeder program? Could that Discord actually be run by him, despite his many protestations to the contrary?

Possibly.

This is reminiscent of a situation that developed over on geopolitical X where a certain character arrived on the scene and quickly ingratiated himself with some of the larger accounts. He went by the name BZ and had everyone convinced he was a constitutional scholar of some sort. He talked a good game and even had me assuming he was in fact a legal expert (made possible by my own ignorance on such matters, of course). It was later revealed that he was a professional fraudster named Darko Johanovich who had fleeced some unassuming users for tens of thousands of dollars. You can read more about that story here.

It’s possible we have a modern day Frank Abagnale on our hands. But I don’t think Bunk is a pro, largely because he’s just not very good at it. I mean, if you want to create a persona in pursuit of manufactured legitimacy, at least make your story somewhat believable. But, as illustrated in brief above, there is so much garbage associated with his many claims that it doesn’t just border on absurdity, it has reached the heights of it. Rather than the Gatsby-esque character he wants us to see him as, he instead just sounds so…pathetic.

Option #2 stands a reasonable chance of being true as well. I could see someone familiar with social media and with lots of time on their hands choosing to take a piss online. Maybe as a social experiment or form of performance art just to see how far they can take the charade.

But my vote is option #3.

Though not very clever, Bunk is clearly intelligent. He may be an autist of sorts with some degree of the “historical recall” he claims. Or he could simply be adept at using AI chatbots while participating in Spaces. Either way, he’s admittedly good at sounding smart.

But I don’t think much of anything he has claimed about his background is true. To be fair, some obfuscation is par for the course when looking to remain hidden. A white lie here and there for purposes of misdirection can’t hurt too much. I have done this myself. While everything I’ve represented about my background is directionally accurate, some key variables have been fudged in order to throw folks off my scent. Bunk admits that he’s done something similar.

I reckon the phrase “basically honest enough” is doing real work here. In fact, I suspect the overwhelming majority of what he’s told us about himself is complete fabrication. I reckon our guy shifted his timeline more than “juuuuuust enough”, but still not quite enough for those of us with a certain set of skills.

If I were to attempt a character sketch of the real life Bunk, I imagine the following isn’t too far off. Keep in mind that this is all speculation. It’s entirely possible that I could be dead wrong in my assessment of the man. But let’s give it a go anyway, just for shits and giggles.

It’s pretty easy to start with the assumption that he is most definitely not a billionaire, much less anywhere close to “pushing 12 figures”. He’s probably in his late-50s rather than the mid-40s he’s guided towards. His voice alone gives that away, along with his tendency to double space after each period. He’s not quite retired, probably still gainfully employed. But instead of the C-Suite title he often brandishes, he holds an unglamorous job at a large technology company. He has precisely zero background in venture capital and has never held the role of CISO, but his job has endowed him with an ability to speak fluently on the tech industry.

Marty Zweig certainly never heard of the guy, but he’s an intelligent fellow who could be a quick study. Maybe his “historical recall” allows him to retain enough information to sound smart to amateurs online. But instead of his ridiculous claim to eight degrees, it wouldn’t surprise me to learn he lacks any academic pedigree at all.

Instead of stints in Los Angeles, Aspen, and Tampa, I reckon he’s spent most of his adult life in the Pacific Northwest, where he still lives. Perhaps within shouting distance of Seattle, perhaps nestled in the foothills of a mountain range nearby. Not the Mercer Island fancy he claims but a lovely home nonetheless.

Maybe instead of being a vascular surgeon, his wife performs a similar role at the same large tech company he works at, which could be how they met. Despite the stories Bunk shares to make him look like a good dad, he may not even have kids, allowing him and his wife to enjoy a comfortable lifestyle as older DINKs.

Rather than the $2 million+ he claims in annual compensation, Bunk’s combined annual household income is probably less than $500,000. This provides a good life, and could be supplemented by crypto gains and/or stock options from said large technology company.

Instead of the Viking physicality he’s used to describe himself, he presents as more of the nerdy dad bod variety. Not short per se, but not over 6-feet either. And outside of a few small Norwegian settlements, there are no cities that bear his family name.

His penchant for fantastical claims speaks to an overactive imagination, one shaped by a lifetime of science fiction and playing make-believe to escape reality in some form. We know he’s a fan of board games, and he makes regular use of terms like “hit points”, calls his students “padawan”, and teaches them the ways of “The Force”.

He speaks and acts the way someone who doesn’t understand how the rich and powerful speak and act. He thinks these people are assholes, so he behaves like one. He thinks they brag about their riches, so he does so in kind. It’s pure caricature.

I wouldn’t assign nefariousness as motivation for his online antics. Instead, I think he’s caught himself up in a super involved form of cosplay. As much as we throw the term around, I reckon this is a real life case of LARPing. He’s become a bit of a method actor in the process, consumed by the role in the same way Daniel Day-Lewis insisted on being called Mr. President throughout filming of the movie Lincoln.

This post from the other day gives away the game in my opinion. Once we get past the comical assertion that his “security team” conducts a threat assessment on everyone he regularly engages with online (LMFAO), Bunk proceeds to present a version of himself to us. Just like he uses his family as props for his storytelling, here too he’s using this Sidis guy to indirectly describe what he considers himself to be.

I reckon the real life Bunk has never held a high profile job and is not a man of great repute. The tragedy that is his life story is one of untapped potential. He thinks he’s the smartest person in every room he enters, which means surely he could’ve accomplished all these great things if given the chance. The many superlatives he’s given to his alter ego all apply to Bunk in some alternative universe, which is the one he’s created for us on X.

This is why he rushes to defend his friend when someone insultingly calls him a janitor. Bunk knows he also ranks low on the professional totem pole, making an insult of this variety also an affront to his own person. So he feels compelled to remind us that nobodies can be super smart too, all in defense of himself.

We should therefore remain open to the possibility that Bunk’s condition could be pathological. Compulsive lying, histrionic personality disorder, and grandiose narcissism all come to mind in my amateur assessment.

This paints an unflattering picture of our proclaimed “captain of industry”, which should come as no surprise to anyone familiar with the cesspool that has become X.

But again, I could be wildly off base. After all, I’m just spitballing here.

It’ll be interesting to see how Bunk responds to this piece. He makes a habit of threatening people who challenge him, likely a defense mechanism designed to discourage folks from trying to solve his riddle.

Luckily, some of us don’t scare easily. Especially when we can spot these posers from a mile away. Despite his many claims to unlimited resources, security detail, hacking capabilities, and “hit points”, I am here to suggest with my full chest that HE IS NOT HIM. Not even close.

I’m also curious to see how his fans and followers react. His monumental prick shtick appears to be working as his reach has meaningfully grown this year after getting platformed by other large X accounts and podcasts.

Just this week, Bunk appeared on The Shannon Joy Show, where he was described in the episode notes as “America’s favorite billionaire”. ChatGPT tells me that this podcast averages over 100,000 weekly listeners.

In this particular discussion, we were treated to a delicious moment of dissonance when Bunk said the following around the 53-minute mark:

I will say most of the people in this [billionaire] stratosphere are perfectly normal. Most of them…just live under the radar a normal life. The ones that are always jockeying for position, they’ve taken an attempt to become an alpha dude bro to an extreme level to where they have to model their behaviors according to what the [role requires]…Yes, the ones that are really obsessed about being high profile…they get away with so many things and surround themselves with so many people that enable all of their worst urges that when you have nobody telling you to maybe enact some self control and some limits…and you have unlimited resources, you start to feel invincible and you start making objectively bad [decisions]. Look I live a very normal life…I’m not in the public eye, I’m not trying to jockey for position.

I believe this is what psychologists refer to as projection.

Embarrassed by their bamboozlement, his little army of simps will likely react by having a go at me. They’ll laugh at my “obsession” with Bunk and call me a loser for having spent so much time researching this piece (about two weeks for those keeping score). But unless these people are truly braindead - which is entirely possible these days - they’ll know deep down that something is off here.

Besides, I admit this little hobby of mine is a weird one. I certainly wouldn’t be alone in that respect. Some people are cursed with abnormally high bullshit sensitivity, which combines with a joy of writing and solving puzzles to lead us to this Substack.

Others may be grown men who still play with action figures, perhaps posing them in random locations at a park near their house for a quirky little blog they maintain.

We all have our kinks, don’t we Bunk?

I reckon Bunk is honored on some level that he’s created a character interesting enough to warrant such attention. His outward response will likely tell a different story. He is easily flustered and knee-jerk defensive (another telltale sign). Any honorable person would immediately delete their account or slowly fade back into obscurity. But shamelessness is a virtue these days, and Bunk may be too emotionally invested in this persona to let any of us slow him down.

Whatever path he chooses, I’m cheering for the most entertaining one. That would involve him talking tough, making threats, and challenging me in some form. The most satisfying version would be a Space where the boys and I can dismantle his facade brick-by-brick for all the world to hear. He’d be smart to avoid such a confrontation, but pride cometh before the fall, so here’s hoping he’ll let me keep him around as a chew toy for a while. I’ll get bored eventually - I always do - but lots of fun could be had in the meantime.

Bunk isn’t used to encountering much resistance during his online escapades, masquerading as an alpha surrounded by betas. While psyching himself up in one exchange, he gave us another peek into the fantasyland he’s created for himself, where a predator stalks its weaker prey.

He’s certainly right to suggest there are real wolves on the plain.

He just ain’t one of ‘em.

Stay thirsty my friends!

1. The information used to form the basis of this article was obtained via Open Source Intelligence. All such information was made publicly available by the X user with handle @bonkdacarnivore (the “Subject”) or by respective affiliate organizations, current and prior, established and purported. Information sources include, but are not limited to, the Subject’s published tweets, interviews, Spaces discussions, public profiles, and affiliated websites.

   Reasonable care and diligence was undertaken by Narrative Combat (the “Publisher”) in the formulation of any speculation contained herein. The Publisher reserves the right to make its research available to the public at any time.

   None of the information contained herein relating to speculation about the Subject’s true identity should be construed as a statement of fact. Any such speculation is solely the opinion of the Publisher and whose factuality has not been independently verified.

   The Publisher contends that the Subject has, for all intents and purposes, voluntarily assumed the position of a limited-subject public figure on the basis of his claimed wealth and influence that combine with his extensive social media presence and activities, which include, but are not limited to, his contributions to public platforms such as X, GitHub, Kickstarter, and YouTube, among others.

   Given the Subject’s significant social media presence and activities, the Publisher believes that the information contained herein serves to benefit the Subject’s social media followers and the broader online community.

   For the avoidance of doubt, this article was published For Entertainment Purposes Only.

2. This piece was made possible by the support of my fellow Dudes of Diligence.

This is the first of a multi-part series focused on the rise of a certain brand of exchange-traded funds (ETF), with special attention paid to gimmicky products and shameless businesses that I believe contribute to the systematic bastardization of investing.

The idea of an ETF was conceived about thirty years ago. Canada led the way with the first iteration in 1990, which was followed three years later by the launch of the SPDR S&P 500 ETF Trust (SPY), now the world’s largest ETF.

These new vehicles were originally designed to help institutions execute sophisticated trading strategies. But they quickly evolved to offer investors of all stripes an efficient way to gain passive market exposure.

Simply put, passive investing eschews any attempt to add value via security selection and instead seeks to replicate exposure to a given index. The thinking here is that active investment approaches generally fail to beat the market on a net basis, leaving investors better served by simply settling for the market itself.

Passive investing gained popularity thanks to folks like John Bogle, Eugene Fama, and Burton Malkiel, thinkers whose collective work demonstrated the wisdom of cheap, broad market exposure. Their findings persist to this day, with the average active fund manager tending to underperform its benchmark over most time periods.

In those early days, passive implementation was largely achieved via mutual funds, which could be expensive, illiquid, and unwieldy. ETFs were thusly meant to offer an inexpensive, transparent, and liquid alternative.

So instead of paying expensive fees for an active mutual fund manager to underperform the market (however defined), it began to make more sense for investors to seek out (mostly passive) ETFs for their equity and fixed income exposures.

The popularity of ETFs surged as a result, growing from just a handful of listings 30 years ago to over 11,000 today, with total assets now approaching $11 trillion.

While they didn’t technically birth the passive revolution, ETFs did facilitate it, also paving the way for a factor explosion that allowed investors to solve for a plethora of bespoke exposures.

For example, investors can now target their allocations to small-cap stocks rather than settling for broad equity market exposures. They can drill down even further to small-cap value if they’d like. And if they’re feeling especially frisky, there are several ETFs for those seeking dedicated exposure to Japanese small-cap value stocks.

This feels overwrought to some of us, a paradox of choice that does more stunting than stimulating. I suppose all those registered investment advisors need to earn their paychecks somehow, and the Wall Street fee factory is happy to oblige. Complexity theater is part of the game, after all, so asset allocation decisions ostensibly require forced difficulty adjustments. But color me skeptical that the average consumer is made better by all the kabuki.

And things have sadly gotten worse.

The retail trading revolution that gained steam in the COVID years has created a lot of bad habits, some of which have led to the proliferation of gimmicky products like active ETFs. Instead of pursuing (mostly) passive approaches to providing market exposure, these new ETFs are actively managed to either pursue legacy investment strategies or solve for…other stuff.

Indeed, a subset of this universe is designed to appeal to a retail audience easily amused by shiny new things. Propelled by zero-commission online trading and the general gamification of investing, many of these funds tap into a trading frenzy that prioritizes fads over fundamentals. And it appears we’re all here for it since active ETFs are among the fastest-growing investment products around.

Some of the growth we’ve witnessed among these funds has surely been the result of a secular shift away from the mutual fund structure. And plenty of proper strategies are being employed by some of these products.

For example, for all the grief I’ve given personalities like George Noble and Michael Gayed, at least they implement(ed) strategies with some semblance of legitimacy. Sure, Noble’s NOPE ETF suffered from atrocious portfolio construction, and the ATAC fund family is statically based on naive academic research, but their aims are (were) at least somewhat pure in an investment sense.

In contrast, many active ETFs are built upon the flimsiest of existential foundations. It’s hard to justify any responsible need for funds focused on KPOP or memes or politics, but this new era of “investing” is happy to serve up such nonsense.

I believe the existence of these vehicles represents a moral blight on the investment industry. They do a massive disservice to the profession and consumers alike, manufacturing superficial demand for products that cater to impulse and capitalize on misunderstanding.

But we are a product of our age, which makes the traction gained by this type of investing understandable. These new gizmos channel the same energy that brings popularity to disinformation peddlers on social media, schemes rewarded for openly trolling their followers. Quoting the great Larry David, they spew a “jetstream of bullshit” that appeals to our basest instincts. These are low-IQ products made for a universe of C+ investors. And I’m here to combat certain of their purveyors.

Behold, then, the future of finance…in all its bastardized glory.

Unusual Whales / Subversive ETFs

Unusual Whales (UW) is a popular character on FinX (formerly known as FinTwit or Financial Twitter). The account can usually be found regurgitating news headlines to its 1.5 million followers, with a strong emphasis on the cowbell variety. This sort of approach is a common marketing tactic for Finfluencers: Offer low-value news curation - often draped in doomerism - to attract eyeballs to whatever product they’re pushing.

Anytime you’re looking to have your good spirits dampened, just take a peek at UW’s feed and you’ll surely find reasons to be anxious about something. Here’s a sampling of some recent posts to provide a taste of the account’s vibe.

UW is a good case study for this type of engagement farming since its primary business is an options data and trading service geared towards retail investors. I don’t need to know anything about the quality of this offering to know that it sucks. This hot take gets to the heart of an admitted bias of mine, which stems from a belief that those most likely to profit from these services are their creators rather than users.

In much the same way professional fund managers tend to underperform their benchmarks, it’s well-established that most retail traders lose money. This is especially true for those who trade options, which makes sense given their relative complexity - and which makes UW all the more nefarious.

You see, I’m of the mind that anyone offering retail trading, research, or data services through social media is complicit in the general fleecing of amateur investors. They seek to enrich themselves through offerings that encourage probabilistically unprofitable behavior. They are grifters, even if their perniciousness is unintentional.

There is no reason to believe that your anonymous trading furu: 1) Is actually skilled at investing; or 2) Would be willing to share their secrets with you even if they were.

There is no reason to believe that paying for a no-pedigree rando to pontificate about macro or earnings will be accretive to anyone’s process.

There is no reason to believe that access to more data is what is holding most of us back from being great traders.

According to my calculations, the utility breakdown of these services is as follows (for every ten subscribers):

• Forget about their subscription as I do with The Economist: 2

• Think they’re learning and manage to get lucky in the process: 3

• Quickly realize the service is a waste of time: 5

• Are super excited about Adam Neumann’s new venture: 8

• Lose money over most time frames: 9

• Would be better off subscribing to a paid version of this Substack: 10

It’s not that all retail trading is bad. Some such traders manage to do well, making them exceptions to the rule (though I would still question the persistence of those results). And there are plenty of retail investors who responsibly budget a small sleeve of their portfolios for fun, which is all well and good.

But there are many more who have convinced themselves of capabilities that simply do not exist. They spend hours in FinX Spaces and hundreds of dollars per month on sham subscriptions, all the while trading the shit out of their portfolios while making themselves poorer - and Ken Griffin richer - in the process.

Even for the rare high-quality service offered in high-integrity fashion, it’s only making the problem worse given the false hope it provides.

But back to the menace at hand.

UW has evolved into the FinX version of those conspiracy troll accounts that are depressingly popular on social media. You know, the ones that post about Barack Obama murdering his chef or Jewish space lasers causing the Maui wildfires. These accounts seek to instigate through manipulation, routinely misleading their audience in pursuit of clicks. And it’s depressingly effective at attracting followers.

UW isn’t quite as wonton in its destruction of facts, but the account is nonetheless guilty of much hyperbole and misdirection. The most blatant example is its constant harpooning of American politicians for their trading habits. Indeed, UW’s primary claim to social media fame is in documenting the perceived injustice of our elected leaders profiting handsomely by trading on their insider knowledge.

You may be surprised to learn that reality paints a different picture. The fact is that politicians are no better than the rest of us when it comes to trading - nor is there any robust evidence of insider trading beyond contrived anecdote and insinuation - as has been demonstrated by academic studies as well as writing of my own.

But lucky for UW, most of us fall victim to confirmation bias - I mean, of course politicians are cheating! - so its antics serve as red meat for the unstudied masses.

I don’t mean to suggest that zero trading on privileged knowledge occurs within the halls of Congress. I’m sure it does. There is no disputing that politicians can be a deceitful and immoral bunch. But there is little evidence to suggest that the problem of insider trading is rampant in DC - or even all that profitable.

The below is a good example of UW’s vacuous attempts to foment discontent. The dramatic ending of “A sitting Congressman is literally shorting the US” is clearly an effort to piss everyone off. But it falls apart under the slightest bit of scrutiny.

UW’s popularity nonetheless persists since most of us can’t be bothered to check their work. This makes sense for a social media character who lives at the intersection of gullibility and motivated reasoning.

In a disappointing yet entirely expected development, a group called Subversive partnered with UW in early 2023 to launch ETFs that track the public investments of Democratic (NANC) and Republican (KRUZ) politicians.

Subversive appears to be a reasonably successful venture capital group, having made 29 investments since its founding in 2015. The firm was founded by Michael Auerbach, a modern-day Renaissance man who, in addition to serving as Subversive CIO, also performs the role of Head of Business Intelligence for Dentons Global Advisors as well as holding multiple directorships.

Looking to catch this new wave of gimmicky retail investment products, Subversive recently launched an offshoot called Subversive ETFs, which is “dedicated to investing in radical companies whose core missions subvert the status quo.”

The firm specializes in “mission-driven” ETFs, which is a creative way to describe thematic investment vehicles with no fundamental reason for being.

These products are off to smashing starts. KCAL and SANE were launched in December 2022 and declined -10% and -8%, respectively, from inception through 2023. This compared to respective gains of +23% and +40% for the S&P 500 and Nasdaq over the same period. These are tiny ETFs with barely $1 million between them, so I reckon they aren’t long for this world.

The firm’s latest product is a cannabis ETF launched in September (LGLZ), which came out of the gate with a loss of -20% against a +10% tape in its formative months.

Poor performance aside, one wonders why these products were developed in the first place. It’s hard to imagine many people sitting at their screens thinking, “My portfolio could really use some dedicated mental health exposure.”

NANC and KRUZ round out Subversive’s roster of poorly-conceived ideas, products whose shortcomings were obvious from the start:

In addition to the conceptual flaws inherent to these vehicles (again, there is no evidence that politicians outperform as a group), there are functional limitations as well. For example, the STOCK Act mandates that politicians report their personal trades within 45 days of their execution date. Some eager beavers file the same day, while others take advantage of the full 1.5-month runway. The resultant lag - however long - is clearly suboptimal for any replication program.

Then there’s the question of trading instruments involved. Consider the case of Congresswoman Nancy Pelosi, a focal point for many commentators on this topic. It’s worth noting that much of Mrs. Pelosi’s trading success stems from the use of options (her husband, Paul, does the actual trading, by the way). You can see it clearly in UW’s own database tracking Pelosi’s trades. But guess what? NANC doesn’t trade options.

The list of issues goes on, including the judgment exercised around portfolio construction that results in a book with nearly 800 positions(!). Not to mention, any notion of risk management is being ceded to folks whose investment objectives are quite divorced from the average investor.

These products were created on the back of social media poppycock, built on a foundation of confusion. Their entire Genesis story stems from a faulty premise. These funds may luck into a bull market and therefore deliver on their generic objectives of capital appreciation, but there is no reason to believe that investors will do any better than the market over time.

Shifting from concept to practice, let’s see how these funds have acquitted themselves thus far.

From its inception on February 7, 2023 through yearend 2023, NANC generated a total return of +21% while KRUZ gained +10%. This compared to returns of +15% and +25%, respectively, for the S&P 500 and Nasdaq.

So the Democratic version has done relatively well while the Republican version has underperformed. An equal allocation between the two ETFs - assuming most of us lack the foresight to know which party is comprised of better stockpickers - would have an expected return of about +16% versus a combined expected return of +20% for the indices.

This is an admittedly short time frame to render a full judgment. But I reckon we’re directionally correct in our assessment of these products, which is that they’re the investment equivalent of bubble gum cigarettes.

Interestingly, NANC’s strong performance can be attributed to a heavy bias towards large-cap technology stocks, which led the stock market rally in 2023. These are among the most well-covered names in the world - and there hasn’t been any focused legislation enacted in well over a year - so it’s hard to imagine these Democratic politicians benefiting from any insider knowledge.

Meanwhile, KRUZ seems to have lagged its Congressional counterpart thanks to a preference for other sectors like energy, which meaningfully underperformed in 2023. Are we meant to believe that Republicans are less privy to all this privileged information floating around?

Thankfully, these funds haven’t caught on and will hopefully find their way to the ETF graveyard soon enough. As of this writing, KRUZ and NANC had only $6 and $13 million in respective assets under management.

UW isn’t the only culprit here, as the account’s antics have led to copycats. For example, there’s an X account called Nancy Pelosi Stock Tracker that has amassed over 350,000 followers. The account’s stated goal is to “get them banned from trading”, on which I’m here to call bullshit.

Not only does stoking the populist flame serve as a primary source of this account’s followership, but it also links to a trading app called Autopilot, which is a service that helps people copy the trades of certain public figures. This appears to be achieved by following 13F and Congressional disclosure filings of said figures.

Naturally, Nancy Pelosi is the leading tracker featured on the company’s website.

A Combat request for information about the Pelosi pilot indicated that the program is among the company’s better performers. So color me skeptical that this account is actually interested in politicians getting banned from trading. Golden goose and all.

As an aside, Autopilot was founded by a couple of young guys who appear to be startup enthusiasts with zero investment experience. This would explain why they consider it a good idea to replicate the 13F filings of Michael Burry - whose claim to fame is an unreplicable trade from 15 years ago that had nothing to do with stocks - and Renaissance Technologies - a quant portfolio containing thousands of long and short positions with average holding periods of two days. Autopilot doesn’t copy shorts and RenTech’s long book would’ve turned over like 20x by the time its latest 13F filing dropped.

In any event, these guys are having fun stoking mistrust in service of their latest entrepreneurial pursuit. But similar to UW, it’s easy to see through the smoke.

Using data from Capitol Trades, we can see how the game is played by these accounts. Let’s take Senator Tom Carper as an example. The Pelosi Tracker dude (let’s call him PTD) thinks that Carper’s purchase of $45,000 worth of an inverse ETF is unusually bearish. This is disingenuous framing for several reasons.

First, HDGE is not an inverse ETF. Rather than being programmatically designed to generate inverse price action of a reference index, HDGE is a short-biased fund driven by fundamental stock selection.

Second, the size of these trades is reported as a range. In this case, Carper made three separate HDGE purchases of between $1,000 and $15,000 each. PTD uses the upper end of that range for dramatic effect since, well, Carper purchasing $3,000 of something would just hit different.

Also missing here is important context. Latest estimates suggest that Carper has a net worth of at least $6 million. Even assuming most of that is comprised of real estate, a $45,000 hedge is small beans (noting further that this appears to be replacement exposure for PSQ, making HDGE the extent of the senator’s hedges).

You’ll also notice that Carper’s been actively buying T-bills. Purchasing sovereign debt is typically associated with some degree of risk aversion, but such exposure is most definitely not a bet against the issuing country.

These are obviously ridiculous products and services that have no business staying in business. Their time will come. For now, we can join Mr. Market in greeting these abominations with a collective eye roll…and some Combat treatment to boot.

Stay tuned for the next installment in this series, which will focus on the entirely unnecessary injection of politics into ETF construction. This will be followed by a review of some of the more “reputable” names in the space…and maybe a little something more.

In the immortal words of retired Army Lieutenant Colonel Frank Slade:

A gentleman who goes by the name of Jay Singh runs a bespoke research and investment newsletter service called Special Situations Research (SSR). He can be found on Twitter at the handle @specialsitsnews, where he’s built a following of over 90,000 as one of the more popular financial Twitter (“FinTwit”) accounts. He also runs a Discord and routinely appears on Twitter Spaces and other platforms to wax philosophical on all topics finance and investing.

Jay’s claim to fame is that he once managed over $2 billion for Goldman Sachs. This used to be the gold standard when it came to a portfolio manager’s pedigree in professional investing circles. The path from Goldman PM to newsletter writer is not a well-trodden one, but it looks like Jay is blazing a nice little trail of his own.

SSR’s subscription service is a disjointed, multi-tiered one, with sixteen different options whose prices range from $20 per month to $60,000 per year. The company also offers off-the-shelf valuation models in addition to what sounds like on-demand research services.

I’ve reviewed about a dozen examples of SSR subscriber updates. They include very basic company models, abridged investment theses and what looks like copies of pages from an investment textbook. It’s all quite random and uninspiring, but that must be good enough for the hundreds of clients Jay claims to have.

SSR’s website is janky and surprisingly devoid of information. For example, its custom projects page includes a bunch of arbitrary price quotes and names of people with generically titled assignments. And the photo for each project is the same Excel snapshot of some SPAC directory. Here we learn that we could pay $746.25 for something called a Yonezu Project or $755 for a two-hour Polanksy Project. Or we could pay some dude named Justin $75 for 15 minutes of his time.

There is zero detail provided about any of these projects, so I’m not exactly sure what they’re meant to advertise. But I suppose they must be intriguing enough for some.

Things get funnier. Under the “More” tab, we see two options for “Our Story”. Clicking on the first one tells us nothing about the company’s story. All it does is basically say that its offerings are meant to be educational (which is totally inadequate for CYA purposes in the same way as saying Not Financial Advice is). Clicking on the second “Our Story” presents us with the most misleading “Full Story” headline ever:

This is followed by an 18-second Vimeo that has no sound, no video, no graphics.

Maybe I’m being too hard on the SSR website since a cursory check of its peers doesn’t impress much either. Take GLJ Research, which was founded by Gordon Johnson (@gordonjohnson19) - another one of those outspoken Tesla bears who has been fantastically wrong for years - and whose website makes a better aesthetic impression but still manages to strike some odd poses of its own.

For example, GLJ claims to identify “unique investment opportunities” and “targets relatively unresearched businesses” in its quest for alpha. Yet many of the names in its coverage universe are large and well-covered, including the likes of Rio Tinto, Fortescue, Cleveland Cliffs, and U.S. Steel in addition to Tesla. The home page claims that the company “covers 14 stocks” but it shows reports on 19 different companies as of this writing. Clicking on “Read More” under “Who We Are” takes us to an error page. And we’re told that the management team consists of Gordon and another gentleman named James Bardowski, who is listed as Chief Investment Officer and Managing Director (and whose name is funnily misspelled in the header).

I’ve no idea why an independent research provider would require the services of a CIO, especially from someone who appears to have exactly zero experience managing money professionally. Funnily, Bardowski’s LinkedIn profile describes his GLJ role as more of an analyst and programmer. Even funnier, it appears he left GLJ in July 2022. Yet there he remains as a member of the leadership team on the company’s website.

Back to SSR and its own strange website. The most important feature - for me at least - is the lack of detail about Jay’s background as well as that of his colleagues (vaguely referred to in various forums as a team of analysts). A Combat request for information about the team through the SSR website was rejected, with the company noting that it prefers to avoid online scrutiny and that its work speaks for itself.

Such secrecy strikes me as odd. The edge of any research consultancy is the pedigree of its people, making their collective experience a key part of the marketing collateral. For example, we know exactly who is behind research outfits like Hedgeye. And guys like Jim Bianco and Tommy Thornton pretty much have their names on the door.

Why doesn’t Jay advertise himself and his team in similar fashion?

Let’s back up a bit.

I first came across Jay several months ago while listening to a Twitter Space. He appeared to me a thoughtful guy with a solid grasp of the investing vernacular. But the more I listened to him, the more my curiosity was piqued.

What specifically struck me was his verbosity. The man demonstrated a remarkable tendency to talk a lot without saying anything. He would routinely branch off in random directions when posed with questions, oftentimes never returning to the original point.

Lucky for him, most of us couldn’t help but be impressed despite his meandering. He sounded awfully smart while delivering his soliloquies and it was clear he was speaking from experience.

But something didn’t sit right with me. Where I come from, the most effective investors have excellent signal-to-noise ratios; which is to say, they are good at cutting out the fluff and getting straight to the heart of a matter. The ability to simplify is an edge, especially in the cutthroat world of hedge funds where time is money.

Conversely, Jay was very good at making everything sound hard. I reckon he doth complicate too much, so much so that he must be compensating for something. As the French saying goes, la culture c'est comme la confiture, moins on en a et plus on l'étale. Hearing him speak just felt so overwrought.

I also began to detect an arrogance with Jay that seemed tinged with an air of grievance. I speculated privately that he was probably a smart but frustrated analyst at a larger shop and that his Twitter persona could be a way for him to seek the adulation that may have eluded him in his career. Since most FinTwit rooms are largely populated by amateur investors, it can be easy for a pro to sound smarter than everyone else.

I decided to test my hypothesis by engaging Jay on a Space hosted by Joe Fahmy (@jfahmy) back in November. The topic under discussion was an upcoming Fed meeting and participants were speculating about what might come next.

As usual, Jay was treated as the guest of honor, and he delivered for us a long, tortured assessment of all the various paths the Fed might take. The grandiloquence was strong that evening and nowhere in his rambling discourse was there a view expressed as to what Jay expected could play out.

I interjected by suggesting that Jay cut to the chase and tell us what he sees ahead. His reaction was fascinating and did well in confirming my suspicions about him. In the process of dropping several F-bombs, Jay informed me of the following:

• that he has more investment knowledge in his pinky than I’ll ever have;

• that I have no idea how hedge funds work because CIOs expect the kind of (pointless) analysis he provided just then;

• that I must be obsessed with him because I have a small Substack and might be looking to write a book about him or something (even though this was our second interaction ever on Twitter and the first verbal one);

• that he has clients who pay him $5,000 for the kind of wisdom he had just shared;

• that I piggybacked on his George Noble takes (a pretty rich accusation for fans of this Substack); and

• that we’re all lucky he’s talking to us because his girlfriend had come over and he should be spending time with her.

I was removed from that Space despite being subjected to multiple insults and never hurling one in return myself. God forbid the great Jay Singh be challenged by anyone.

(Editor’s note: Jay would go on to tweet another couple dozen times that evening, leaving said girlfriend thrilled I reckon.)

I admittedly came in hot to that discussion and suspect Jay is quite right to assume he knows much more than I do about investing. But something I know about the real ones is they don’t respond to challenges with insults and peacocking. That’s because they are secure in their status and feel no need to project. What we got from Jay was instead the exact opposite, which was evidence to me of a deep insecurity underpinning his online persona.

I made a mental note to return to Jay someday and moved on to other things.

Jay resurfaced for me while listening to one of those marathon Mario Spaces that jumps from crisis to crisis. This one dealt with the recent banking drama and featured the usual clown car of absurdity sprinkled with the occasional voice of reason. Jay was a regular participant in those sessions and I found his contributions reassuring. He brought a sense of realism and expertise that was sorely lacking otherwise.

I was growing content to just leave him be despite my incredulity. But then I came across a series of tweets from the great GuruLeaks that got my wheels turning again.

In those tweets, Guru shared multiple instances of Jay copying sentences - word for word - from the work of financial blogger Ayesha Tariq.

As is often the case, the coverup looked even worse than the crime, with Jay effectively admitting that he routinely copies what people send him. His reasoning apparently being that he’s smart enough to figure this stuff out anyway so why not just save some time and quote others without attribution.

It turns out this wasn’t Jay’s first run-in with accusations of plagiarism, as another FinTwit account caught him lifting a meme of theirs a month or so earlier:

(Editor’s note: It appears that the above tweet was deleted, hence the lack of images. The original version suggested that Jay copied a meme produced by someone else and passed it off as his own.)

This all got me thinking. If Jay can behave this shamelessly in full view of Twitter, what might that mean for the work he conducts beyond the public eye?

I then decided to conduct a deeper dive into the man himself.

But first, a quick note on anonymity. In short, I’m a fan of it. As an anon myself, I should be. I believe it facilitates a freer flow of ideas than complete transparency would otherwise allow.

In my way of thinking, there are several good reasons why folks desire anonymity on Twitter. They may be speaking truth to power in a politically or professionally sensitive context. They may enjoy cracking jokes, engaging in debate, testing ideas or just shooting the breeze but worry their offline lives may interfere with that exploration. They may be high profile individuals who just like to putz around for shits and giggles without causing a stir. Or they may simply enjoy the mystery of it all.

There are also plenty of bad reasons why some users remain anonymous. They could be trolls who desire only to wreak havoc as compensation for their otherwise unfulfilling lives. They could be professionals of a sort who use Twitter as a release for the darker side of their personalities. They could be shills pushing product through spam or some other fake engagement strategy.

Or they could have something to hide.

The original draft of this piece proceeded from here to detail all the sleuthing I did to uncover Jay’s real name. It took a decent amount of work and I’m pretty sure I was able to successfully identify him.1

When I reached out to Jay for comment, noting what I believe to be his real name, he initially responded by saying that the named individual did in fact assist SSR in its early days. When I pressed him to confirm or deny whether he was the individual in question, Jay responded with threats of legal action, specifically referencing slander.

Slander involves knowingly making a false spoken statement about someone that damages their reputation. Libel is the written equivalent of slander, which is what would theoretically apply here.

But I’m pretty sure I know who Jay is. And he knows I know. This would do away with the “knowingly making false statements” part of any accusation of defamation.

Interestingly, Jay momentarily took his Twitter account private after my outreach. And the gentleman I identified as being the real Jay coincidentally abbreviated his name on LinkedIn - perhaps in an attempt to be less conspicuous - and he put an end date of December 2022 for his latest employment stint with an asset management firm based on the East Coast. The plot thickened further when I noticed a few weeks later that the individual in question had re-edited his LinkedIn to show him as remaining employed by the aforementioned firm.

I ultimately decided to keep hidden what I theorize Jay’s identity to be not because of concerns regarding legal action but more so on ethical grounds. As much as I enjoy the discovery process, I feel uncomfortable with the act of publicly doxxing someone. It’s just not my place, even when certain other characters damn near beg for it.

You might be wondering why Jay’s true identity is relevant. Well, there are good reasons why his (theoretical) employer and subscribers might want to know about his extracurricular activities. But the more important objective in my mind is to better understand the chops of our FinTwit heroes, many of whom I believe are betas masquerading as alphas (in an investment sense, of course).

My working hypothesis is that Jay is a full-time analyst who has managed to turn himself into a FinTwit superstar with his SSR side hustle. If he is who I think he is - which I cannot state for certain - Jay appears to be a journeyman who’s held almost as many jobs as he’s spent years working (with an average stint lasting about 1.5 years).

I appreciate that the investment business can be a mercenary one and people move around. But I also know firms usually try hard to keep their top talent. And star fund managers typically end up launching their own funds rather than bouncing from firm-to-firm while failing to show up on the leadership page of their current shop.

To be sure, the person I believe to be Jay has a resume with some impressive names listed. It includes a dalliance with an offshoot of Goldman’s legacy proprietary trading business, formerly known as the Goldman Sachs Principal Strategies Group (GSPS). A number of respected fund managers grew up at GSPS, including some mentioned by Jay in prior interviews. GSPS was technically shuttered on the back of Dodd-Frank, which led to the spinout of a captive hedge fund of sorts.

It is my understanding that this business had somewhere between $5-$7 billion in assets under management during Jay’s purportedly brief tenure at the firm. I find it difficult to believe that the fund’s CIO would cede 20-25% of his book (assuming leverage) to someone with Jay’s experience at the time. And even if he did have discretion over such a meaningful chunk of the portfolio, we’re left to wonder about Jay’s performance given a stay that appears to have lasted less than two years.

I could be wrong, of course. But color me skeptical.

Jay wouldn’t be the first person to leverage the Goldman brand to give the impression of legitimacy. Nor would he be the first to pursue a form of title inflation. A great recent example of this is a kid who parlayed an eight-month stint as a junior analyst in Goldman’s wealth management group into pontifical tweets sharing wisdom he gleaned from “helping” to manage billions of dollars.

I’ve no doubt that Jay contributed to the management of a portfolio of some sort while at Goldman. My question is whether he actually had ownership of that P&L. Or would it be more accurate for Jay to claim that he “helped” manage that money instead?

Look, the individual I’ve identified is clearly an experienced, capable guy. Someone like him doesn’t get hired at the firms he’s been hired at for being a dummy. But he probably doesn’t last long for a reason.

Whether Jay operates within the bounds of his current employer’s policy on Outside Business Activities is between him and his employer (to the extent one in fact exists). And whether he is being fully transparent about any potential for conflict is between him and his subscribers.

But there’s a broader point to be made here that speaks to an aggravation I have with FinTwit. It involves a type of stolen valor that I’ve written about before, where the most popular accounts tend to be those of savvy salespeople rather than successful investors.

The primary determinant of a successful career in the investment management business is the generation of profits, typically through the act of trading and preferably via alpha (or skill). Yet many of FinTwit’s finest either have little-to-no experience managing money or have proven to be demonstrably poor at it.

So instead of providing actionable insights that translate to real world results, their objective is to appear smart ex ante and right ex post, oftentimes in order to gain followers who double as potential clients for one product or another. We are occasionally presented with a shot at accountability through the scoreboard of real world fund results. But more often than not their musings are lost to the dustbin of deleted tweets, poor collective memory or obfuscation.

As the author and scholar Jonathan Gottschall eloquently observed in The Storytelling Animal: How Stories Make Us Human:

Memories are often pruned and shaped by an ego-enhancing bias that blurs the edges of past events, softens culpability, and distorts what really happened.

Thanks to their oratory skills and our psychological affinity for complexity theater, we remain impressed with these individuals despite their track records (or lack thereof). It’s a bit like a teacher receiving praise for their enjoyable lectures but whose academic outcomes disappoint. Or a sports coach who knows the game cold but is incapable of fielding a competitive team.

Imagine seeking advice from someone who has never proven effective at doing the very thing you’re asking about. Seems kinda silly, right? But that can be observed everywhere on FinTwit.

George Noble (@gnoble79) is among the most blatant examples of this phenomenon. He rose to FinTwit fame by holding “the best Spaces with the best guests, the best listeners and the best moderation”. To this day, even in the midst of one of the most remarkable drawdowns ever witnessed, people remain convinced they derive value from his discussions. But if the man himself - with his four decades of experience - can’t take all those amazing insights and action them profitably, why should we expect his listeners to do so?

There are plenty of other examples. One that came to a bit of a head over the weekend involves Michael Kramer (@MichaelMOTTCM) of Mott Capital Management. Kramer is an execution trader turned financial journalist turned independent money manager. He writes a Substack called Reading the Markets to go along with his weekly MCM Market Commentary. He’s also active on Twitter, where his musings have attracted a large following and earned him the status of furu (short for FinTwit guru).

Kramer claims 30 years of market experience but I count closer to 20. It appears he includes his years spent as a Financial Writer as market experience, which to me is like Stephen A. Smith counting his time at ESPN as an athletic career.

Resume padding aside, Kramer does have an actual track record to point to, which is saying something when compared to many of his furu peers. His performance can be found over at the Interactive Advisors website, which includes summary statistics as well as a link to his last published investor update from July of last year. That piece includes a performance summary of its own (which runs through Q2 2022):

Using this and the latest statistics from Interactive Advisors, what I see is an investor who has put up respectable absolute numbers but poor relative and risk-adjusted ones. Specifically, Kramer appears to be annualizing at 9.3% net since inception with 20.3% vol and a Sharpe ratio of 0.27. This compares to an 11.3% annualized rate of return and slightly lower vol for the S&P 500. And it doesn’t appear that any diversification benefits are on offer. All of which begs the question of why folks invest with Kramer in the first place.

But mediocre performance hasn’t stopped him from accumulating a large following by pursuing his own form of cowbell. This was illustrated over the weekend when he threatened to quit Twitter after user @ChartingCycles dropped a tweet that included the following graphic:

This little episode gives credence to the notion that accountability is furu kryptonite. Giving the appearance of infallibility and infinite correctness is inherent to the furu business model. When held to account, they scream victim and throw Twitter tantrums. Rarely do they admit fault; that would be bad for business.

(Don’t worry folks: Our guy came right back. Because, you know, marketing.)

Moving on to other examples, Michael Green (@profplum99) of Simplify Asset Management can often be found on Twitter debating macro nuance ad nauseam or holding court on Spaces in the most condescending tone imaginable. To his credit, the man is very intelligent and articulate, which reminds me of another of his professorial brethren, Michael Gayed (@leadlagreport).

But as far as I can tell, there is scant evidence these guys can turn their myriad insights into trading success. Like many of their FinTwit peers, they epitomize for me the notion of theory being quite different from practice. Yet their popularity persists since, as Gottschall has noted, “we are, as a species, addicted to story”.

This all makes me wonder if these guys should change their CYA disclosures from “Not Financial Advice” or “For Educational Purposes Only” to “For Entertainment Purposes Only”. At least then we’d have some truth in advertising.

Which brings us back to Jay, who betrays his own amateurism quite often. Whether it’s offending large allocators on a Mario Space (which no real fund manager would ever do) or claiming to have 40 different bank accounts with $250,000 each for diversified FDIC coverage (which no real HNW individual would ever do), he provides glimpses into his true nature for those of us paying attention.

Yet Jay will maintain his furu status because he sounds so darn smart and most of us are so easily impressed. He’ll continue to grace us with his presence on Spaces and be celebrated for all of his stunning insight. Many listeners will emerge convinced that they’re being made better investors in the process. But it is my contention that the only real value most of us derive is of the entertainment variety.

A thought occurred to me over the holiday break as I was contemplating the motivations of a certain character on financial Twitter (FinTwit):

What are we all doing here?

The question struck me as an interesting one to consider for each of us, not just the person I found myself silently judging in the moment.

Each of us brings our own intentions and heuristics to everything we do. This is often done subconsciously but sometimes on purpose. So what is it exactly that motivates us to engage with this little corner of Twitter?

My brainstorm led to the following tweet:

The list doubles as a ranking in ascending order of virtue, with Charity naturally sitting atop my little totem pole of righteousness.

I’ve since rejiggered the list after taking in some feedback on my post.

1. Ego

2. Marketing

3. Fun

4. Growth

5. Charity

I also thought it might be fun to turn this into a scoring metric. We can arrive at an engagement score of sorts using a simple weighting methodology. For example, someone who is here 100% for marketing purposes would be assigned a score of 2.0. Someone who assigns equal motivations to each category would be scored a 3.0. The higher one scores on this scale of 5.0, the “better” their motivation for engaging with FinTwit.

I call this the Mackey Scale™.1

This is obviously a subjective exercise and entirely unscientific in approach. It’s based purely on my own interpretation of motivation and what qualifies as the good or bad variety.

With that as caveat, let’s explore each of the categories to learn more about my rationale.

Ego

Studies show that a prominent driver of our fascination with reality television is the superiority one may experience when watching others behave foolishly. Just as we derive feelings of self-importance when we watch reality TV train wrecks, the same dynamic applies when we shake our heads at how dumb someone might appear to us on Twitter.

This is one way that egoism informs a FinTwit user’s desire to engage, often in a passive, voyeuristic manner. The other is more direct and straightforward, which is the tendency for some folks to flex their intellectual muscles in the public square. They do this by lecturing us on Spaces or with sophisticated-sounding tweets. They also do it by engaging in a reply battle that will never see them give ground or admit fault. The more extreme version of the FinTwit ego sees users belittling and/or browbeating their counterparts and suggesting we’re all just lucky they’re here to engage with us.

This form of peacocking may have a marketing angle to it as a way to establish bonafides of a sort. Or it may simply be a reflection of someone’s personality, which is characterized by a desire to let everyone know how smart they are. I reckon it’s often a combination of the two.

Either way, ego is the enemy.

Marketing

I consider marketing to be the primary motivator for many of the largest accounts on FinTwit (oftentimes infused with plenty of ego to boot). I’ve got it listed as the second-least virtuous of motivators not because marketing is bad per se but because of the packaging that often comes with it.

One form of marketing is the furu who continuously posts their winning trades (never a losing one, of course) to demonstrate what amazing investors they are to their followers. This is sometimes purely a function of ego but more often it’s because the furu has a newsletter or private discord or some other service to sell.

Another type of marketing comes in the form of Spaces discussions. These typically feature experts sharing their hard-won wisdom with us plebs and are often framed as being held to help investors navigate the complex world of financial markets. But what they really seek to accomplish is to demonstrate competence, often in service of a covert sales pitch. The audience usually doesn’t realize it’s being sold to but it most certainly is in the vast majority of these Spaces.

My harsh assessment of this form of marketing stems from my belief that it is value destructive for the average investor. That’s because of the complexity theater that is often involved. So much shit is getting thrown against the wall that the average investor stands little chance of distilling it all down to some actionable and monetizable form. Professional investors are in a better position to separate the wheat from the chaff in these rooms whereas retail investors only think they know what’s going on.

Also, if you listen closely, you’ll notice that many of these furus aren’t really saying much at all. In many cases, they are simply regurgitating banal platitudes or inundating us with buzzwords to lull is into an awestruck state.

This is what Taleb has described as a noise bottleneck.

The winner-take-all effects of information space corresponds to more noise, less signal. In other words, the spurious dominates.

It’s not so much that we emerge smarter after consuming all the information being thrown at us. We just feel that way. Which is exactly what many of these purveyors want us to believe.

Rather than attempt to decipher the Fed or dissect Tesla inventory numbers, I’m of the mind that the average investor should pay most of this stuff very little mind. They should be less active, not more. But instead of following Kahneman’s advice of making fewer decisions, a lot of these accounts make investors think they should be constantly looking for an edge or retooling their portfolios. Oh and by the way that’s all really hard so subscribe to my newsletter so I can show you how to do it! 🤮

Fun

FinTwit is good fun for many of us. We sometimes come for a good laugh, whether at the expense of others or better yet ourselves. We may find certain individuals or situations humorous and delight in the chicanery. Continuing with the reality TV analogy, FinTwit provides many of us with an escape from the daily grind.

Fun ranks squarely in the middle of our motivational hierarchy. It’s of course highly encouraged to have some fun on the app, but the nature of that fun can sometimes be malevolent. There’s also the question of how much fun one contributes to the platform versus simply consuming what’s made available by others.

Growth

I called this Curiosity in my original tweet. But some feedback made me realize there are levels to this that deserve elucidation. The main thing I wanted to capture was education. This obviously represents a form of intellectual growth, which can be achieved by learning from the expertise of others or simply being made aware of various developments given the breadth of topics covered by FinTwit.

There’s also the notion of strategic growth, which comes from hearing what others have to say about certain topics that are near and dear to your heart. This can help challenge preconceived notions for the openminded among us or serve as insight into what other practitioners are thinking and doing in a related field.

Lastly is the idea of communal growth. Many of us have made friends on this app and look forward to our regular engagement with them. Whether crypto enthusiasts or members of the Canadian Oil Mafia, we all have a chance to find our people. The sense of community that can develop on FinTwit is impressive and I’ve no doubt that many of us have been made the better for it.

Related to this is the power of networking, which has assuredly brought value to many.

Charity

The cynic in me believes that almost nothing of what occurs on FinTwit is done with altruistic intent. That’s not to say everything is conducted with nefariousness in mind. Instead, what I’m suggesting is that very little is driven by a purely charitable impulse.

Some accounts are run by perfectly nice people who are genuine in their desire to educate others and help them make better financial choices. But more often than not you’ll find them marketing something at least tangentially related to those goals. Sometimes being good is simply a byproduct of the service being sold. That doesn’t make these users bad people, but we should consider marriage of the commercial and compassionate here.

Watching some users take victory laps when they receive a DM from a follower thanking them for their service often makes me want to scream. Again, let’s not pretend that any of us are primarily motivated by helping others. That’s just not the way the world works, especially the financial one. (Pro tip: Avoid at all cost any accounts referring to helping the “normies” in service of a some “family” of followers.)

And sure, some of these Spaces were proven correct over the course of 2022, leading followers to believe they’ve been helped. But sentiments born of recency bias will prove fleeting. Getting market calls right with any consistency is incredibly difficult, so to act as if a single data point is proof of anything is misguided.

I reckon an honest, look-through analysis of every FinTwit user would easily find that Charity ranks well below 10% as a blended motivator for what we see on this app.

A natural question to ask myself is where I might rank on the Mackey Scale. My attempt at intellectual honesty breaks down as follows:

1. Ego - 15%

2. Marketing - 15%

3. Fun - 30%

4. Growth - 35%

5. Charity - 5%

This scores me as a 3.0 on the Mackey Scale.

• Ego - As with all of us, I am driven by ego to a certain extent. I think I’m smarter than some on certain topics and enjoy laughing at what I perceive to be the stupid comments of others. But I’m also pretty upfront about my own limitations and have little desire to be right about everything.

• Marketing - As you can see, I write a Substack. Though I do not charge for the pleasure, I am happy to see more people read it. You probably even found your way to this post through a tweet.

• Fun - I derive great enjoyment from FinTwit. Some accounts make me laugh out loud and I often find myself giggling like a schoolboy when I partake in Spaces (especially the Degen ones).

• Growth - I’ve learned a great deal from other users on this platform and enjoy the little community of friends I’ve assembled over the past year.

• Charity - Part of me likes to think that my desire to call bullshit is a public service designed to help others. I believe there is some truth in that. However, if I’m being honest, my real motivation is selfish in that I’m afflicted with notions of inequity aversion, bullshit sensitivity and self-righteousness. Which means I must admit that I do this mostly for me, not you.

My little scoring system here is by no means perfect and I’m sure there are plenty of ways to improve upon it. I should also note that I appreciate there is nuance to how some folks engage with FinTwit. For example, here I suggest scoring users with a broad stroke on the basis of their observed behavior. But motivations can change and behaviors along with them, so scores can improve or decline over time. I also recognize that individual tweets themselves can be meant to serve purposes beyond what the account owner typically pursues.

In any event, I encourage readers to think about motivations when engaging with others on this app. You can even use the Mackey Scale when making your way through the FinTwit jungle. It’s free after all…for now. 😜

Radiohead is one of the best bands of all time. The group rose to popularity during the late 1990s / early 2000s and made its mark on millions of music lovers who came of age during that period. The 1997 release of its album OK Computer left a huge impression on me and served as the soundtrack of my younger adult years.

One of my favorite Radiohead songs - Paranoid Android - was on that album. It presented for me an entirely new sound that manages to feel current to this day. In keeping with the experimental nature of the band itself, Paranoid Android is a masterful demonstration of sectional arrangement, with the light droning of Thom Yorke’s angelic voice violently punctuated by one of the best offset guitar riffs ever.

(Note: I encourage readers to listen to this masterpiece often and at volume. Preferably under the influence of some foreign substance for maximum effect.)

The song is named after Marvin the Paranoid Android from The Hitchhiker’s Guide to the Galaxy. Marvin is the robot who services the starship that shuttles the story’s protagonist around the galaxy. Gifted with a “brain the size of a planet”, Marvin suffers from boredom and depression by being tasked with mundane chores that fail to utilize his intelligence.

When kidnapped by a warring group of robots and tied to their mainframe interface, Marvin manages to solve "all of the major mathematical, physical, chemical, biological, sociological, philosophical, etymological, meteorological and psychological problems of the Universe, except his own, three times over".

According to the band, Paranoid Android is a patchwork piece, so there isn’t a unifying concept to it. This allows us to bring our own interpretations to it. I’ve been thinking about the conspiratorial nature that dominates much of our online discourse today and found myself coming back to this song while contemplating a framework to tackle this phenomenon.

In my way of thinking, the swirling information vortex that is Twitter forms a metaphorical “brain the size of the planet”. Armed with the superficial knowledge we glean from the app, we don’t hesitate to flex our pseudo-intellectual muscles in solving mankind’s myriad dilemmas while often neglecting our own. And our society’s collective boredom and depression has given rise to all manner of conspiratorial thinking in pursuit of some combination of creative and inebriant escape.

Foul Whisperings are Abroad

One can be forgiven for thinking we live in a golden age for conspiracies. From QAnon to Russiagate to Pizzagate to the January 6 riots to COVID origins and vaccines, there’s been plenty of fodder for us to chew on.

It turns out this is a widely-studied phenomenon whose research suggests we are no more conspiratorial today than in years past. My own anecdotal contribution to the literature is that damn near every third tweet I see has the feel of absurdist theorizing.

But conspiratorial thinking has been with us forever. In fact, there are evolutionary reasons behind our desire to connect certain dots, real or otherwise. As a species, our brains have been hardwired for pattern recognition and circumspection about rival coalitions. This helps form part of our innate threat detection capabilities.

There’s also a narrative component, which appeals to another part of our animal brains. As skeptic Michael Shermer observed, “Humans are, by nature, pattern-seeking, storytelling animals, and we are quite adept at telling stories about patterns whether they exist or not.”

Our modern age brings new impetus for such thinking, including cognitive dissonance, anxiety and randomness. In what is known as proportionality bias, “Big effects need big causes”. Surely JFK, a towering figure of his time, couldn’t be killed by a nutty lone gunman! When people experience anxiety that comes with a loss of control, they often see “illusory patterns in random noise and look to conspiracies as explanations for ordinary events”. Then there’s the idea that our minds “abhor randomness” and struggle to accept that sometimes things occur simply out of chance. That indeed, when presented with a novel or fretful experience, “this is something that happens”.

Despite the apparent prevalence of conspiracies, it’s actually uncommon for people to believe them to be true. For example, only 13% of Americans believe that 9/11 was an inside job. The same percentage believe COVID vaccines do more harm than good. And only 36% believe that Donald Trump colluded with the Russians to win the 2016 presidential election.

But it certainly doesn’t feel that way. That’s because social media makes it easy for us to fall victim to availability bias. It’s not so much that more conspiratorial thinking is taking hold, it’s just we have such ready access to it today so we see it more often. “Rather than an explosion of new belief, technology may instead be driving greater awareness of fringe beliefs that have been with us all along.”

Social media cultivates a sort of tyranny of the minority, where an insignificant number of users have their voices amplified by the online bullhorn. Small voices can sometimes seem the loudest when reality is often quite different. While tens of thousands of users tune in for Spaces discussions featuring non-experts sharing anecdotal stories about the dangers of COVID vaccines, many more of us are paying the discussion no mind or listening with incredulity. That those sessions are being hosted by characters who profit from gullibility makes them all the more maddening to observe.

Conspiracies are of course sometimes proven true. It’s therefore understandable why their popularity persists with the occasional confirmation. And given the government’s long track record of deceit, it’s entirely logical to assign some degree of skepticism to its dealings. This is made all the more rational since the politicians in charge are among the most dishonest people on the planet. But the vast majority of conspiracies fail to materialize in the fantastical ways their adherents predict.

Which brings us to the story of Sam Bankman-Fried (SBF) and the failed cryptocurrency exchange he founded, FTX. I’ll assume readers are familiar with the state of affairs here so will refrain from rehashing the timeline of events surrounding the exchange’s failure and its purported mis-dealings with Alameda Research, whose CEO, Caroline Ellison, will feature later.

What’s more interesting to consider is the response from social media to the FTX implosion. Almost immediately following its bankruptcy announcement, speculation began to swirl about what really happened, which players were involved, who was responsible and whether anyone would be punished.

To be sure, suspicions regarding FTX existed even prior to its demise. For example, famed short-seller Marc Cohodes caught wind of something fishy in the months leading up to the exchange’s collapse. It appears his skepticism stemmed from questions about the company’s origins and confusion regarding its legal structure. I didn’t see much meat on the bone with Cohodes’ commentary - the FTX origin story is well-documented and most global financial institutions have complicated legal structures - but it’s certainly clear that his Spidey-sense was on point.

It’s easy to see why SBF/FTX makes for good material when it comes to manufactured storylines: Crypto was born of rebellion and has a checkered history of bad actors; the rise of FTX seemed inexplicably meteoric; and SBF did a great job of ingratiating himself with the popular psyche given his aggressive marketing initiatives (e.g., Tom Brady, FTX Arena, etc.). There were also the group’s heavy lobbying efforts that included large contributions to various political campaigns to go along with SBF’s tendency to rub elbows with the global elite.

This all combines to present multiple attack vectors for those looking to theorize about what is really happening here. Kinda like a choose your own adventure version of conspiratorial thinking. It couldn’t possibly be that this is a boring case of old-fashioned fraud that involved the misappropriation of client assets. And that the lead perpetrator will be prosecuted to the fullest extent of the law despite his attempts to curry favor in DC. No, no. Surely it’s not that!

Instead, we are presented with a mess of conspiratorial hogwash that I reckon is instigated by a psychological concept known as motivated reasoning. This is the “tendency to find arguments in favor of conclusions we want to believe to be stronger than arguments for conclusions we do not want to believe.” It’s similar to how anti-vaxxers view any “premature” death these days with suspicion, despite the fact that people die unexpectedly all the time regardless of their vaccination status.

For crypto advocates, the FTX collapse is of course not a sign of depravation within the broader ecosystem but more a function of the rot that sometimes grows within centralized entities. This is among the more reasonable takes I’ve seen. It is certainly true that fraudulent activities occur within all sorts of groups, crypto and otherwise.

Less reasonable are assertions involving a secretive cabal of politicians, journalists, financiers and professors who conspired to create FTX out of thin air as a trojan horse for the crypto industry. It’s not us, it’s “them”. Them being the global elite, the powers that be who wish to destroy crypto from within so an era of central bank digital currencies (CBDC) can be ushered in.

I recently participated in a Spaces discussion where a woman spoke at length about this idea. In her imagining of things, this is a conspiracy that reaches as far back as the Clintons. She had a hodgepodge of circumstantial evidence to support her claims and got so worked up in her retelling that she was shaking as she spoke.

Her ramblings included the usual game of relational six degrees as well as the fulcrum role played by Ukraine as a laundering center for American politicians. This is not surprising given the partisan flashpoint that Ukraine has become and the largesse that SBF and his colleagues demonstrated by contributing to politicians on both sides of the aisle (nearly $65 million in total).

But this all falls to pieces with even the lightest application of basic logic. For starters, it all assumes that the global elite actually care about crypto. At its peak, the asset class totaled just shy of $3 trillion in total market capitalization, about $1 trillion of which was represented by bitcoin. Set against total global wealth of over $450 trillion, crypto was a pimple on the ass of financial markets even at its strongest.

At its current market capitalization of $325 billion, bitcoin is about half the size of the value that Meta has shed this year. So while far from representing any systemic threat, bitcoin isn’t much of a functional threat either, which is largely a product of authoritarian design. Governments already make things hard enough on bitcoin by constraining one’s ability to transact in it, notably through taxation, which is one reason why it’s rarely used beyond purposes of speculation.

The reality is that governments require no excuse whatsoever to introduce a CBDC. They can literally do anything they want when it comes to their money supply and financial infrastructure. The idea that they would incur unnecessary brain damage by orchestrating a sophisticated crypto conspiracy for CBDC cover only makes sense to those who believe “big effects require big causes”.

“Yeah but SBF graduated from MIT, which is where Caroline’s father teaches - and where the U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler once taught about blockchain - and SBF’s parents are law professors at Stanford, and they are known to support liberal causes - and don’t forget all those political donations - so of course the Democrats are in cahoots to save him!”

This game can be played with every single successful business enterprise on the planet. Birds of a feather tend to flock together, so key executives will often share common educational and professional DNA. And there isn’t a successful business in existence that hasn’t leveraged connections to gain some advantage. Conducting a similar exercise with Blackstone or Apple would likely stoke similar curiosities.

And, of course, there is zero evidence that Ukraine factors into any of this.

Then we have the anti-crypto crowd. These folks have always objected to the idea of this new asset class and the FTX fiasco is the cherry on top of what has already been a fun year for those who cheer crypto’s downfall. Unsurprisingly, watching the space’s self-engineered collapse has been met with copious amounts of schadenfreude. And the more sensationalist the theory behind it all, the more delightful it is to entertain.

The conspiratorial strain that appears to unite the two camps is the idea that SBF’s political connections will enable him to avoid not just prosecution but any investigation altogether. This idea is clearly premature but that hasn’t stopped such theorizing from a lot of people who should know better.

Even Elon has gotten into the mix:

The commonality we see in such thinking derives from the crypto camp’s desire to place blame at the feet of institutional power structures and the anti-crypto camp’s more general distrust of all things establishment. It certainly doesn’t help that this is all occurring at a moment of vulnerability for public trust, with flames of suspicion being fanned by the slow drip of Twitterfile releases.

So rather than do the responsible thing and let this all play out before rendering judgment, some feel compelled to make conspiratorial claims out of real ignorance about how the world works or - even worse - through disingenuous attempts at engagement farming. Sometimes it’s a serendipitous combination of the two.

Twitter power user and Spaces cohost extraordinaire TaraBull (@TaraBull808) captures well the dissonance and/or opportunism on display throughout this episode.

Tara has been a regular participant on a series of marathon Spaces sessions started by Mario Nawfal (@MarioNawfal) soon after the FTX collapse. Mario brings his own baggage to these proceedings but that hasn’t stopped him from hosting extraordinarily popular discussions that have included guests as high profile as Elon Musk and…Hunter Biden(?).

His regular lineup features a murderer’s row of charlatans, grifters and criminals, all of whom are here to help us navigate FTX, COVID, the Deep State, Twitterfiles, etc. No conspiracy goes untouched in these Spaces and thank goodness we have international fugitive Kim Dotcom to help guide us on this precarious journey.

Mario is clearly engaged in a form of engagement farming with these Spaces, and quite successfully so. In reviewing her timeline, it would appear Tara’s embrace of conspiratorial thinking has been with her for a while. This in my mind is quite fortunate as it allows her to remain intellectually honest while also engaging in a savvy marketing campaign of her own.

Indeed, her follower count has exploded since joining Mario’s Spaces and, to her credit, she doesn’t hide her desire to mine this group for followers.

Make sure to follow!

As an aside, I got a kick out of a poll Tara recently conducted about trustworthiness in the government:

“Hey Google - Provide an example of a social media echo chamber.”

This would be like if Dallas Mavericks season ticket holders were asked if Luka Doncic should be a frontrunner for NBA MVP (which he should, to be clear).

Do you see it yet?

We’re All Mad Here

In Alice in Wonderland, the Cheshire Cat warns Alice of the madness that awaits as she begins her journey down the rabbit hole. A similar thing occurs when one begins to objectively investigate the FTX situation, and the madness one encounters applies to both temper as well as lunacy.

Just like Alice’s queen settled every dispute with the knee-jerk refrain, “Off with his head!”, many on Twitter worked themselves into a tizzy at the idea that SBF was allowed to remain free in the weeks immediately following the FTX collapse. This was, of course, made possible because he had bought himself powerful friends. Not because, you know, these things take time, especially when they involve complex assets and multiple jurisdictions.

Even professional investors and FinTwit talking heads have gotten into the conspiratorial mix. It’s as if some sort of mass psychosis has afflicted Twitter that causes everyone to adopt mob rule and abandon any notion of due process.

Some context is required when contemplating all of this. First, the losses associated with FTX are relatively small in the grand scheme. I’ve seen estimates range from $4 billion to $10 billion in customer assets lost. In comparison, the Bernie Madoff ponzi scheme resulted in $20 billion worth of cash losses and $65 billion in paper losses. The Enron fraud resulted in shareholders losing $74 billion to go along with billions worth of losses for the company’s pensioners.

Second, FTX was mostly an international entity that had limited direct impact on American users (where much of the handwringing occurs on Twitter). Its business largely operated beyond the purview of American regulators, which is interesting to consider given all the heat the SEC and Commodities Futures Trading Commission (CFTC) have taken during this ordeal.

To be fair, crypto prices did collapse about 25% amid the FTX fallout. So plenty of investors lost money indirectly as a result of the exchange’s failure. This would speak to the anxiety that might motivate some to embrace conspiratorial views on the topic.

Some have speculated that shenanigans are afoot since the CFTC met with SBF nearly a dozen times in the past year. But that makes total sense when you consider SBF’s objectives. FTX stands for “futures exchange”. Nearly $13 billion of its $15 billion average daily trading volume was driven by crypto derivatives (specifically in a pioneering product called a perpetual swap, also referred to as perps). Trading of such instruments was not open to U.S. citizens, hence the need for FTX to block American users from its site while operating as an offshore entity.

The U.S. arm of FTX was a spot exchange and averaged just $300 million in average daily trading volume prior to the group’s bankruptcy. As part of his expansion plans, SBF wanted the U.S. to allow for more substantial trading of perps onshore, hence his desire to repeatedly meet with the CFTC to convince them of such wisdom. The important thing to note here is that the CFTC never acquiesced to his requests.

Let’s now return to the notion that investigations and prosecutions take time.

Enron went bankrupt on December 2, 2001, which at the time was the largest corporate insolvency in U.S. history. The DOJ began a criminal investigation on January 9, 2002. A cadre of executives was hauled before Congress two months later, with most invoking their Fifth Amendment rights.

Enron’s auditor, Arthur Andersen, was indicted for obstruction of justice on March 14, 2002 and eventually convicted on June 15th. Former Enron CFO, Andrew Fastow, was charged with 98 counts of fraud and conspiracy on October 2, 2002 and fought those charges for sixteen months before agreeing a plea deal.

Former Enron CEO Jeff Skilling pleaded not guilty to a 35-count indictment on February 19, 2004, which was followed by former Chairman Ken Lay pleading the same to a 15-count indictment on July 8th. Their trials did not begin until January 30, 2006 - over five years after Enron declared Chapter 11 and two years after they were formally charged.

Both executives were found guilty on multiple charges on May 25, 2006 (meaning their trial lasted four months) and Skilling was sentenced that July to 24 years in jail (Lay passed away prior to his sentencing). Noting further that Lay and Skilling were free on bail the entire time up until their sentencing. That’s because it is standard procedure for those accused of committing white collar crimes to be granted bail since they do not represent a risk to the public.

Madoff is a different bird given how quickly he rolled over. He confessed to his sons on December 10, 2008 that his business was “one big lie”. He surrendered to authorities the very next day, saying “there is no innocent explanation.” Madoff was granted bail and confined to his Manhattan apartment on December 17th. He was arraigned on March 18, 2009, where he pleaded guilty to all eleven counts of fraud and conspiracy. A jail sentence of 150 years was handed down on June 29th.

The Madoff affair unfolded in rapid fashion given his willingness to come clean on everything and therefore avoid a drawn-out legal fight. The evidence thus far seems to suggest that SBF’s timeline will track closer to Enron than Madoff.

Happiness is a Warm Gun

After an excruciating wait of five whole weeks, the U.S. Department of Justice (DOJ) threw the proverbial kitchen sink at SBF. The unsealed indictment includes eight counts of financial and election fraud. SBF was quickly arrested by Bahamian authorities at the request of the DOJ, where days later his team negotiated his extradition to the U.S. for prosecution.

Rather than rejoice at the development, some couldn’t help but wonder why he wasn’t first allowed to testify before Congress. Rather than the usual political grandstanding one typically witnesses during such affairs, surely we were going to be treated to groundbreaking insight into the inner-workings of FTX. SBF was instead let off the hook by Congressional committee members trying to help him avoid prosecution…which was already happening at the behest of the DOJ.

But everything is a nail to those only armed with a hammer. Conspiracists among us will continue to find things to hyperventilate about as this ordeal unfolds. We’ve now moved on to misunderstanding and questioning the $250 million bond SBF posted at his arraignment as well as complaining about where he was sitting and what he was drinking while on the flight to his parents’ home (where he’ll serve out his house arrest under strict electronic surveillance). And instead of viewing the plea deal struck by Caroline as evidence the walls are closing in, she is instead just a scapegoat.

This is all completely absurd. “The wheels of justice turn slowly but grind exceedingly fine.” Everything that is happening procedurally with SBF is entirely normal. Nothing about the process thus far is in the least bit controversial.

For those of us not infected by any conspiratorial mind virus, what we see is a man in the midst of a comeuppance. Instead of getting away with anything, SBF is beginning a long walk down the plank of justice. And rather than see politicians and other power brokers come rushing to his aid, what he’s experiencing instead is a quick turning of the worm. SBF is completely fucked. And he’s going to face this music alone. A sad reminder that one is indeed the loneliest number.

There was a fun series of Holiday Inn Express commercials a few years ago that featured characters performing functions beyond their core competencies. A nerdy white dude with unexpected rapping chops. Some random guy performing surgery. A birthday party clown masquerading as the rodeo variety. Each character manages to pull off their improvisation because they “stayed at a Holiday Inn Express last night".

These commercials came to mind when a reader introduced me to something called Fund Launch. Formerly known as Investment Fund Secrets (IFS), Fund Launch is an online course designed “to help others start their own funds in a world where people believe you need Ivy League credentials or Wall Street experience to break into.”

You may have heard of Fund Launch already given its aggressive marketing campaign. For example, the following ad was in heavy rotation leading up to the World Cup.

The Fund Launch offering can be summarized as follows:

This nicely sets the tone for the comedy that ensues when one begins to peel the Fund Launch onion. A ridiculous and unverifiable statement (beats Ivy Leaguers 90% of the time?!?!?) followed by sensationalistic verbiage (HERO TEAM!), value anchoring (EASILY worth some arbitrary price) and horrific copy editing (If you want to…making easily avoidable mistakes).

Allow me to establish some bonafides before proceeding. I come to the topic of private investment funds with a fair amount of expertise. I’ve analyzed, invested in, and launched private funds of my own over the course of my two-decade career. This makes me intimately familiar with the investment fund life cycle. I’ve also rubbed elbows with some of the most successful hedge fund, venture capital and private equity managers in the world. And I’ve been associated with the rare multi-billion dollar success story as well as the more typical emerging manager failure.

I can therefore speak with some authority when I say that the Fund Launch premise - that anyone can and should start their own fund - is completely absurd.

Look, starting a private investment fund is a costly and laborious process. There is certainly room for a service that makes the fund launch experience cheaper and easier. However, to suggest that the logistics of it all is the primary gating mechanism for aspiring fund managers is naive at best and disingenuous at worst.

Call me crazy, but it’s my belief that a 25-year old personal trainer-cum-Robinhood day-trader probably shouldn’t start their own long-short equity hedge fund. And no, a 35-year old medical equipment sales rep probably shouldn’t launch their own real estate debt fund.

I don’t mean to shit on the dreams of others. There is certainly nothing wrong with being aspirational and optimistic about the future. But some things are best attempted when armed with the requisite know-how and resources.

What’s remarkable about the world today is our increased willingness to believe that expertise can be won so easily. With hundreds of millions of Twitter users, blogs and podcasts, the democratization of information dissemination and consumption has formed a gestalt that gives rise to a collective false bravado. Despite an obvious lack of knowledge or experience, we’re suddenly all experts on pandemics, geopolitics, China, crypto, military strategy and oil prices. The steady stream of information we are subjected to forms a cacophony of hot takes that leaves us feeling smarter than we actually are about a range of topics.

To paraphrase Andrew Keen from his book The Cult of the Amateur, “what the [social media] revolution is really delivering is superficial observations of the world around us rather than deep analysis, shrill opinion rather than considered judgment.”

Investment management is particularly susceptible to manufactured hubris. The free money era that followed the Global Financial Crisis made it seem like investing was easy. It’s hard to look dumb amidst an everything bubble when it’s all a one-way beta trade. This surely informed the rise of the retail trader and punchy new asset classes like crypto. The resultant gamification of investing made it seem like anyone could be a winner, especially when housing-related wealth effects made us feel even flusher.

This environment has cultivated all manner of get rich easy schemes. Paid Substacks and Discord channels offering generic investment advice. FinTwit trading gurus who are somehow always right and lack any accountability. Bespoke research services from “former hedge fund managers”. All promising to help subscribers and followers make it big in the investment game. This can all be accomplished “even though you don’t know what you’re doing”.

Here’s my take. If you’re a good investor or fund manager, you’re probably not creating an online course to teach others how to do what it is that you’re doing. You might write a Substack for shits and giggles as a creative release or maybe have a Twitter account to troll and poke fun. But you are certainly not giving away any of your secret sauce for subscription fees. That’s because you’re too busy making real money doing things like actually investing. But if you’re not actually making money investing, you might be inclined to push another “related” product that can generate fees. Sadly, the consumers of such products often fail to detect sophistry.

The best place to start on our Fund Launch journey is to learn about the people behind this whole production.

The company was founded in late 2019 by two young BYU graduates: Bridger Pennington and Mason Vranes. Bridger is the CEO and face of the firm. In his telling, he’s the one who came up with the original idea after brainstorming with his father about his future. As fate would have it, Bridger’s father is John Pennington, cofounder of a successful real estate investment firm called Bridge Investment Group.

In an interview with the gullible and easily impressed Caleb Guilliams - who describes himself as a financial prodigy and the New Face of Finance - Bridger talked about the Fund Launch genesis story in some detail.

It all started for Bridger after a fateful meeting with his father’s business partner, who was kind enough to impart the secrets of the wealthy. Turns out that secret is managing investment funds.

We’re told that Bridger has long had an entrepreneurial itch to scratch. He apparently started six businesses in his first two years of university, which included selling essential oils, real estate, and online marketing services. The Fund Launch epiphany was therefore a welcome one for a young guy trying to make his way in the world.

So Bridger set about learning as much as he could about the fund management business, presumably guided along by his father and mentor. He even managed to launch a couple of funds of his own in the process. His first two funds appear to have been called Bridge Grow Fund I and Bridge Grow Fund II that operate under the banner of Black Bridge Holdings. Per the latest regulatory filings, all I could confirm is that Fund II had raised $652,000 as of June 2020.

Bridger more recently launched a small crypto fund called Ugly Unicorn. I could go on for pages about what a ridiculous proposition this fund appears to be, but for now trust me when I say it includes one of the worst pitch decks I’ve ever seen.

What Bridger appears to have taken away from his learnings is that anyone can launch a fund, all they need is a little help in navigating the whole setup process. No prior experience is required and god forbid anyone come to Fund Launch with an Ivy League degree. Bridger in fact notes that those possessing fancy degrees are prohibited from coming on his show or participating in the Fund Launch journey.

Instead, Bridger only works with entrepreneurs who have taken the “unconventional route” to fund management. He even goes so far as to suggest that he’s heard from Ivy Leaguers who went the conventional route (investment banking or working at other funds) and regretted their decisions once they learned of the Fund Launch offering.

A cynic might doubt the truthfulness of this story while speculating that Bridger avoids more experienced practitioners because they’re able to call bullshit on the Fund Launch value proposition.

But Caleb is no cynic. He’s instead enamored by the pitch and thinks Bridger is “literally giving people machines to print money”. Oh young Caleb, my sweet summer child.

It’s easy to see why Bridger plays the role of hypeman. He’s handsome, articulate and energetic. And he speaks with his hands like most showmen do. As Catherine Jinks once noted on the topic of charlatans, “he is perhaps too voluble and demonstrative in his gesticulations.”

Bridger’s cofounder, Mason, is a marketing specialist who appears to play a more behind-the-scenes role. This makes sense once we get to know him, as he presents a more socially-awkward version of motivational speaker and coach.

It looks like Mason got his entrepreneurial start a few years ago with a marketing brand named EMVI that was followed by something called onepercenter. At the core of the onepercenter offering appears to be some sort of coaching regimen that offers up a handful of secrets to help athletes maximize their potential.

Mason has a video about secret number one that was filmed in 2018, which was followed by a couple more videos revealing additional “secrets” to performance. The impetus for onepercenter seems to have been Mason’s own lack of basketball prowess. While growing frustrated with his inability to progress on the basketball court, Mason discovered a formula for success that involved mastering the mental side of the game and then sought to monetize that breakthrough.

He reportedly trained players for $8,000+ to be their personal mentor, all of whom we’re told ascended to become division one collegiate athletes. Mason suggests that, without the oncepercenter, not only will we never become division one athletes but we will also have unsatisfying careers. Thankfully, Mason can help us 10x our game without any extra physical training.

It’s safe to assume our guy Mason is full of shit here. For starters, we’re left to wonder why Mason himself never became a division one athlete since he managed to master the mental side of his game. And I’m willing to bet if he had 75 athletes sign up for his program - all of whom were guaranteed to 10x their game within six months - his YouTube videos would garner more than 25 views and the onepercenter would still, you know, be a thing.

But we can nonetheless learn a little bit about the Fund Launch playbook with Mason’s early efforts. The below screenshot does a decent bit of work in this regard.

A few things worth noting here. First are the obvious sales tactics. His “cheatsheet” appears to be a double-sided laminated piece of paper that includes some mumbo jumbo with four “secrets” attached. All we need to do is pay $4.95 for shipping.

It obviously doesn’t cost that much to mail a light, letter-sized envelope, so he’s capturing the spread as profit. Moreover, this is a well-known marketing tactic used to gather contact details that extend beyond email addresses to include phone numbers and home addresses (since his cheatsheet could easily be shared over email).

We also have the little trick of charm pricing. For example, members get early access to the trademarked 1%er Mentality course (no such trademark ever existed, by the way), which we’re told is valued at $995 rather than the bigger round number of $1000.

And, of course, we have more terrible copy editing: “The #OnePercent will help you to…show you how to train your mind to a world class level.”

This framing looks familiar when we explore pricing options for Fund Launch:

Per his personal website, Mason is a “marketer chasing mastery” and he’s got a number of videos that describe his journey. Signing up for Mason’s intro video earns you a free “non-pitch” consultation (another marketing trick), which we’re told is valued at $997. That’s funny because an annual subscription to Narrative Combat is also valued at $997, but lucky for you I’m nice enough to give this all away for free.

Accessing Mason’s video requires that you input your email and he thankfully promises no spam. I haven’t given my email address to any other website so figured I’d give Mason a try. It’s been one week since I gave him my email and my spam folder has grown from zero to 173 messages. This could be a coincidence…or maybe not.

Mason’s intro video is a 20-minute soliloquy about his struggle with entrepreneurial failure. It feels like confessional catharsis presented in teenage angst form. The revelation for Mason - set against dramatic music - came in discovering that he could rewire consumer brains to make them more willing to buy his product. He “started mastering how the brain works…the codes and sequences” to arrive at a form of neural rewiring that not only worked for his onepercenter clients but would also presumably work on his Fund Launch prospects. Mason realized he’s “gotta give people new stories to believe in”, so why not partner with Bridger to convince people they should be launching their own funds?

Another guy that pops up a lot in Fund Launch videos is Lincoln Archibald. Like his colleagues, Lincoln is a couple years out of school with a bit of a random background. Per his LinkedIn profile, he looks to have graduated from product development manager at Fund Launch to now partner and CFO (with zero apparent experience in finance or accounting).

It’s fascinating to watch Lincoln hold court on topics with which he has little experience. There are many examples of such ridiculousness, ranging from videos that mis-explain hedge fund incubators (no fund manager in their right mind would give away 80% of their economics to a seeder) to comically amateur descriptions of what a pitch deck should look like.

In another video, Lincoln discusses how establishing a fund can be a solution for an entrepreneur looking to raise money without giving up equity.

You can start a separate entity, like a business, you can raise money in that business - from investors - then you can invest that capital into whatever means you see necessary. Right. The method of a fund is turning $1 into $2, by taking capital, investing it and getting a return. That’s a business! Businesses are about taking money, providing a good or service and getting a return back to your investors.

The logic here is fascinating to consider. I don’t want to give up equity in my used pogo stick business and I’m allergic to any form of debt financing. So what I’ll do instead is start a fund - which I’ve never done before - and convince some people to invest in that fund, which in turn will only invest in my pogo stick business.

As owner of this fledgling pogo stick empire, I’ll be able to benefit from capital infusion into a business that will spin off profits for me. And my fund investors will benefit because…um…uh…they own a piece of the profits in my business? Hold on a second, that kinda sounds like I gave away equity in my business!

Adding: I’m no securities lawyer, but this sounds an awful lot like an affiliated transaction, against which I’m pretty sure there are rules. The pitch really goes off the rails at about the 4:30 mark but I encourage readers to watch the whole thing for maximum effect.

There is no evidence that Lincoln has any practical experience with the issues he discusses. As far as I can tell, he’s never actually done any of this before. Maybe it’s just me, but I’d rather solicit this type of advice from someone who has actually invested in or launched, managed and grown funds of meaningful size.

Lincoln is also serving as Chief Investment Officer of a firm called Black Card Capital Partners. Given that the company’s LinkedIn page describes itself as “connecting emerging managers with qualified investors”, it sounds like this is a third-party marketing firm. There is no website for the company and Lincoln appears to be the only person affiliated with it (though he lists himself as cofounder). Why a placement agent would require a CIO is beyond me (since it’s a marketing business rather than an investment one), so I suspect some title inflation is occurring here. More interesting is the fact that neither Black Card nor Lincoln is registered, which is strange since receiving compensation for capital introductions is a regulated activity.

The below video provides a good general introduction to what was then called Investment Fund Secrets. It also provides plenty of quotable commentary upon which to opine, which follows the clip.

Pretty much any business that wants to scale can use a fund to do this.

The notion of scaling one’s business with a fund comes up repeatedly throughout Fund Launch videos. This might make sense in some very specific niche use cases but it has nothing to do with the vast majority of funds in operation today. For example, Ray Dalio, Stephen Schwarzman and Ken Griffin didn’t start their funds to scale an existing business. Their funds instead became businesses that required scaling of their own. This is true for the overwhelming majority of funds in existence today.

Starting a fund is one of the most lucrative vehicles on the planet to make money.

It is true that successful fund managers can make obscene amounts of money. But it is also true that 99% of those attempting to achieve similar success will fail miserably. In fact, it is MUCH more likely that aspiring fund managers will ultimately make nothing. Most of them will actually lose money, both for their investors as well as themselves. The reality is that for every Blackstone there are thousands of fund management businesses that never amount to anything.

This is like saying becoming an actor is one of the most lucrative jobs on the planet. Sure, Brad Pitt makes a shit ton of money as an actor. But for every Brad Pitt there are thousands of careers that never advanced beyond the extras stage.

There’s a reason why almost every wealthy family on the planet uses a fund to scale their investments.

Family offices often utilize fund structures for their investments. But their decision to do so typically has nothing to do with “scale”. Instead, there are regulatory and tax considerations that serve as the primary motivation for managing their investments in fund structures.

If there’s one thing true about funds, it allows you to scale.

Again, this is an odd statement to make. There’s a separate video short of Bridger explaining how car washes are exploding around him and that his students could go to any of those owners with the idea of starting a fund to help them expand. This is an extremely rare use case for funds in the real world and makes zero sense for the bulk of fund management businesses.

You might be asking yourself, “Well, Bridger: What is a fund?…I don’t know what to start a fund for.”

If you’re asking yourself these questions, you should not be starting a fund. Period.

You don’t need to have it all figured out before you get started. I would actually argue the first step is learning about funds before you ever go start your own.

Always a good idea to actually understand what it is that you’re trying to do when starting any business. But even more important than having a good sense for what a fund is actual experience and expertise in managing said fund.

One of our students even called this the best investment he ever made.

In related news, one of my readers called Narrative Combat the best Substack he’s ever read.

Tony Robbins talks about this process in your brain that recognizes things you know about.

As aspiring motivational salesmen, of course we have a reference to Tony Robbins here. Bridger talks about how his business partner (Mason?) just bought a new Audi and how that caused Bridger to see Audis everywhere he went. This is a take on a psychological phenomenon called the frequency illusion and also a form of peacocking (showing the world how his business is making money). I’m not sure why someone would learn about starting a fund then see funds everywhere, but who am I to ruin the kid’s amateur attempt at framing.

Let’s now check out the success stories listed on the IFS website. Best I can tell, these stories were told back in 2020, so we have the benefit of time to judge their respective outcomes.

The testimonials start with the most interesting one from a gentleman named Gopalla C. This is a fun way to kick things off because Gopala is actually spelled with one “l” and his last name is Krishnan with a “K”.

Gopala (or GK) is the CEO of something called Nanban Enterprise, which we’re told is “one of the fastest-growing companies in the hedge fund space.” A visit to the company’s website finds a collection of different verticals and focuses that represent some combination of registered investment advisor, hedge fund, venture fund and philanthropy.

Judging by his background, Gopala appears to be a career enterprise technology executive who two years ago said fuck it, I’m gonna build an investment empire. For his hedge fund, Nanban Investments (Nanban), he describes his investment thesis as being about investing in broad U.S. market indices, which he says is the “safest way to invest in the stock market”. And on top of that, he uses “advanced derivatives to deliver superior returns, upper double digit every year on a consistent basis”.

The Chief Investment Officer for Nanban Investments is Sakthi Palani Gounder. A career IT consultant, Sakthi brings precisely zero investment experience to the table as CIO (which, to be clear, is totally fine so long as he lives at a Holiday Inn Express).

GK met Sakthi at a free seminar hosted at his house (as one does), shortly after which the two decided to launch a fund because “people are still stuck getting 8-10% returns”.

In a Fund Launch testimonial, Sakthi described the investment strategy that GK formulated as working “100% of the time in all market conditions” (insert massive red flag emoji). We’re again told they do this by investing in indices with “advanced strategies” to generate a superior return. We’re also told that downside is protected by buying portfolio insurance of some sort, so “your portfolio value will not go down at all” (insert larger red flag emoji).

Speaking of Sakthi, he was kind enough to provide an endorsement blurb on the IFS website:

Interestingly, some guy named Ed W. had the exact same sentiment to share:

How serendipitous!

GK says their hedge fund has an “asymmetrical risk profile” and “generates cash flow of 10% every quarter”. “We don’t make too much profit. Less risk but little more reward than the market. If the market makes 20%, we make 40-50%. So that’s why it’s a very good investment thesis that is resonating well.”

In his telling, GK started his “trading career” back in 1997. Per his LinkedIn, this would’ve been around the time that he was a Systems Developer at Mahindra Satyam. After a few years of experimentation, GK developed his world-beating investment approach in 2001. Tagged “GK Strategies”, the approach includes five strategies that he claims have been copyrighted under his name.

A cursory search of government records revealed no such copyright protection, probably because “copyright does not protect ideas, concepts, systems, or methods of doing something.” There appears to be a pending trademark application for “GK Strategies”, which only covers the name and not the secret sauce approach. Which means I could find a way to mirror his approach and call it FTJM Strategies with no repercussions.

GK says he has given away levels one and two of GK Strategies to friends and family at no cost (it was “charity-oriented”). But in order to do levels 3-5, “you need a minimum $2 million account”. No explanation is provided as to why someone would require $2 million to punt equity indices.

GK claims to have had 7,500 people following his strategies, which enabled him to raise $100 million for his hedge fund in just seven months (with, of course, much more in the pipeline). He also claims that demand is so high that he’s launching two 3c7 funds, each of which will have 1999 qualified purchasers.

A later video (on the same testimonial page) shows Bridger awarding GK the IFS 2020 MVP award, given to the program’s most outstanding student result. At this point, GK claimed to have raised $320 million for his hedge fund and $180 million for a real estate fund. He also noted that Nanban had a further $1.2 billion in soft commitments. He complained that he couldn’t take it all because of 3c1 limitations on the number of investors allowed in each fund (99), hence the desire to launch 3c7 versions in the future. At this point, he claimed to be running five funds in total.

Our gullible friend Caleb also interviewed GK and in the process ate up everything the world’s greatest fund manager had to say. The date of the interview was December 2, 2020, at which point GK claimed to have over $950 million in AUM. Young Caleb was impressed that GK “has a passion for investing in the market the right way…and doing the right thing”.

When describing his famous investment approach to Caleb, GK noted that “this works 100% of the time now”. Levels 1 & 2 allow people to generate returns of 18-30% on their own while levels 3-5 “take it to a completely different level…we consistently generate more than 100%”. We’re also told that “15,000 people have been following” GK and “have put their entire wealth into this.” GK also informed Caleb that his worst year since 2001 was +21%. And Caleb loves it all!

These are obviously ridiculous assertions but they’re nonetheless met with nodding agreement by the Future Face of Finance. Turns out there is a business angle here because GK claims to be encouraging his clients to invest into Caleb’s offering. (Caleb pushes something he calls The AND Asset, which appears to involve selling over-funded life insurance policies.)

GK went on to claim that he generated a 58% annualized return in his hedge fund, which for some reason is paid quarterly. To his credit, Caleb asked for a worst case scenario in a limp effort to build a bear case. GK answered that 3.5% is the maximum drawdown he’s ever incurred.

Fast forward to today and the rhetoric doesn’t quite map with public records. GK was previously registered with Nanban Capital, but that entity’s registration was terminated in July 2021. A visit to the FINRA Broker Check website reveals GK as “currently not registered” (CRD 7272906).

A visit to the Basic website seems to indicate that Nanban opts for exemptions to avoid NFA registration. This strikes me as surprising given the firm’s focus on “advanced derivatives strategies”.

Nanban Investments is currently registered as an Exempt Reporting Advisor with the SEC, which is what private fund managers do when their AUM falls below a de minimis threshold of $150 million. But I thought these guys were a $1 billion success story?

It turns out there are only two funds registered under the Nanban Investments name - the Nanban 2020 Perpetual Income Fund and the Nanban 2020 Oct Perpetual Income Fund - which as of March 2022 listed regulatory assets of about $40 million and $36 million, respectively.

The relatively low AUM is surprising enough, but also interesting is the fact that internal capital is listed at just 1% of fund assets. For someone who perfected a strategy that never loses money way back in 2001, I’d expect GK to have more than $750,000 to invest in his own funds.

GK also noted in several of his interviews that the minimum investment in his hedge fund was $500,000, yet his latest ADV put that number at $100,000.

The best part is that the funds have no independent auditor or administrator. This means there is no third-party verification when it comes to pricing the portfolio. GK could make up whatever he wants when it comes to performance and nobody would be there to correct him. I’m not suggesting that to be the case here. It’s entirely possible that Nanban performance reporting is totally legit. But if you told me someone prone to hyperbole has an over-subscribed strategy that never loses money and lacks any sort of independent oversight, then my spidey sense would be tingling.

Lastly, GK regularly makes mention of the charitable impact he seeks to make through his affiliated non-profit, Nanban Foundation, even claiming some percentage of fund profits are donated to it. A visit to the foundation website prominently features the GK Strategies as a core charitable offering for “fellow Nanbans”, with the next educational sessions scheduled for February 2023. Unfortunately, there are no records to confirm the foundation’s activities since it is not registered with Charity Navigator and no tax returns have been filed with the IRS.

It’s possible that the records I was able to access represent only a partial picture of the firm and its activities. I wrote into Nanban seeking information about its funds to conduct my own due diligence but never heard back.

I trust you’ll forgive me if I’m a bit skeptical about Fund Launch’s MVP student.

Next are the young fellas of Arrived Partners. They came to IFS fresh out of college looking for something “more”. We’re told that these whippersnappers were able to raise $10 million for their real estate investment project thanks to the secrets conveyed to them by Bridger and his dad. But their website now appears to be dead and LinkedIn shows only one of the three guys pictured to still be associated with the apparently defunct business. Again, no sign of any fund or business being registered with the SEC.

A testimonial from Jake G. follows. Jake is described as the founder of an opportunity zone fund out of St. George. Some light sleuthing revealed him to be Jake Gardner of the St. George Opportunity Zone Fund. The fund’s website is no longer active and its Facebook page (with only seven followers) was last updated in January 2021. It’s unclear what became of Jake since I couldn’t find a LinkedIn for him. There is a real estate agent of the same name in his neck of the woods but I’m not sure whether it’s the same person.

Then we have Eric Slaugh and Chase Kelly of Converge Capital Partners. It’s unclear whether a fund was ever launched by these guys given a lack of regulatory filings. But judging by their LinkedIn profiles, it would appear that Converge didn’t quite achieve liftoff. Eric is now in a sales role at a homebuilder and Chase is a Business Loan Champion at an SME loan originator, making Converge at best a side hustle of some sort. Hilariously, the website link included on the Converge LinkedIn profile now takes you to an Asian porn splash page.

Lastly, there’s Brent Mott. According to his LinkedIn profile, he is Director of Business Development for a firm called Bow Tie Capital. We’re told that his story “will only grow like crazy”. I have no idea how a story grows like crazy or why his brief testimonial is all that inspirational. But a visit to his website seems to suggest he’s doing OK, claiming to be on his way to $100 million in assets under management. It’s unclear what structure those assets sit in since there are no regulatory filings to confirm for either the firm or any fund it manages.

What I find remarkable about the Fund Launch offering is how flippant the team is when it comes to the fund management business. The idea that anyone can start a fund regardless of experience is like saying that anyone can perform surgery without proper education and training. Suggesting that all people need is some help with the setup piece is a little bit like saying to someone with no training or background in law, “Here’s all the paperwork you need to open your own law firm, now get out there and lawyer.”

That’s not to say that investment knowledge is as hard to come by as the medical or legal variety. But actually understanding what you are doing is of critical importance, especially when performing the function of fiduciary.

A good example of such flippancy is a podcast in which Bridger answers the question of how much to pay a capital raiser. In it, he describes the three circles of a fund being “investor expert person” - who is a “geek that sits in the basement trading options all day” - then the fund manager and a capital raiser.

Even more absurd than the equity split proposed (no chance 1/3 each works in the real world) is how dismissive he is of the engine that drives most investment firms, which is the investment piece. The majority of fund management businesses are started by an investor, someone with a perceived skill in stock-picking, trading or dealmaking. To describe the “investor expert person” as some geek in the basement doing “all that good stuff” is to demonstrate clear disrespect for the primary skill required to engage in fund management, which is the ability to actually manage money.

We have another example from Bridger’s chat with Caleb, in which he suggested that a $100 million fund can simply “write off” $100,000 a month in accounting software fees because “that’s an expense for the fund”. For the uninitiated, that’s an exorbitant amount to spend on such fees. Part of being a fiduciary is ensuring that reasonable efforts are made to keep a lid on fund expenses. In fact, many funds cap their expenses below a certain threshold, often well south of 1%. The idea of treating your fund as a piggybank and shelling out 1.2% a year on accounting software is equal parts irresponsible and naive.

What Fund Launch really is at the end of the day is one big sales job. These guys are pushing a product that, statistically speaking, is very likely to fail. This is true even if those launching a fund have a phenomenal pedigree, and certainly more so for those who come to the business with no experience at all. As the Fund Launch website disclaimer notes, “you should assume you will not have…any success at all.”

Much of the sales job lies in convincing ordinary folks that of course they can start a fund because anything is possible. This framing is in league with televangelists preaching the prosperity gospel and motivational speakers assuring listeners of the great potential that lies dormant within all of us. All we need to do is pay up for the inspiration and be on our way.

It’s therefore no surprise that Fund Launch events feature much pomp and circumstance. Bridger and his crew try to take the mundane practice of setting up an investment fund and dress it up all pretty like. One showman after another is trotted on stage to deliver motivational speeches to convince the inexperienced that a lack of expertise should not hold them back from chasing their fund manager dreams. Per Bridger, “If Pete Davidson can date Kim Kardashian, you can start a freaking fund!”.

Look, if someone needs to sell you on the idea of starting your own fund, you probably shouldn’t be starting your own fund. I’d be willing to bet that not a single success story will begin with the premise, “You know, I had never thought of starting my own fund - I mean, I didn’t even know what a fund was - but this guy Bridger convinced me that anything is possible and I’ve since built a $10 billion hedge fund empire.”

Like an electric baguette feeder, Fund Launch is a largely useless product destined to add way more value to its creators than its users.

I’m sure these Fund Launch guys are good kids at heart who are just trying to make it in life. I’m sure they mean well even if their company is likely to destroy value for clients. But I can’t help but think about the following anytime a Fund Launch ad pops up on my screen:

A charlatan is “a person practicing quackery or a similar confidence trick in order to obtain money, power, fame, or other advantages through pretense or deception. Synonyms for charlatan include shyster, quack, or faker. Quack is a reference to quackery or the practice of dubious medicine, including the sale of snake oil, or a person who does not have medical training who purports to provide medical services…The word comes from French charlatan, a seller of medicines who might advertise his presence with music and an outdoor stage show.”

There’s a classic Saturday Night Live skit that stars Will Ferrell, Horatio Sands, Jimmy Fallon, Chris Parnell and Chris Kattan as members of Blue Oyster Cult. The sketch features the band working on its hit song (Don’t Fear) the Reaper with music producer Bruce Dickinson, played by the incomparable Christopher Walken.

Entitled More Cowbell, the segment elevates Ferrell’s cowbell to a hilariously annoying centerpiece of the song, with Walken comically pleading for “more cowbell” throughout. The theatrics of Ferrell’s cowbell grow with each take as both he and the instrument eventually dominate the proceedings.

The phrase “more cowbell” has come to mean different things in pop culture. For me, it analogizes an engagement strategy often seen on Financial Twitter (FinTwit), which involves promulgating all manner of fear porn in order to harness paranoia for clicks.

The analogy thusly works as follows: the cowbell is the fear porn; Will Ferrell’s character represents social media personalities propagating that fear; the rest of the band is everyone else engaged in normal discourse; and Christopher Walken’s character is the FinTwitdiot crowd pining for more doomer content.

We all know fear sells. Appealing to it is an effective form of marketing for many businesses (and religions). Fear forms the bedrock of the insurance, gun, pharmaceutical, defense, and security industries, to name just a few. Turn on your local evening news and the headline story will surely be a horrific accident, violent act or some other misdeed. Cable news outlets thrive on fear and division, just like the politicians who grace their airwaves.

A similar sort of doomer echo chamber has emerged on FinTwit. Many of the most popular accounts tend to feature variations on common doomsday themes. These doomers play on the paranoid style that Richard Hofstadter eloquently wrote about when describing the nature of American politics:

It is the use of paranoid modes of expression by more or less normal people that makes the phenomenon significant…no other word adequately evokes the sense of heated exaggeration, suspiciousness, and conspiratorial fantasy.

Research shows that negative content is three times more likely to be clicked than the positive variety. The reason this happens is because we’ve been hardwired for such entrancement dating back to our caveman days. The psychological concept that underpins the modern version of this is called negativity bias, which:

refers to the fact that humans focus on negative events, information, or emotions more than their positive counterparts. In more dangerous times, this bias may have provided an evolutionary benefit (e.g., we were more likely to notice potential threats to our safety). But in the modern world, our preference for the negative has been harnessed to keep our attention.

This helps explain why the news consistently emphasizes stories on the worst things happening in the world, both on the global (wars) and the local levels (robberies). So not only are we seeking out the negative, but media outlets are actively trying to give us more of it. It’s a double dose.

FinTwit is well-suited to capitalize on this phenomenon since the subject matter is inherently complex. This evokes a related concept called negative differentiation, which states that:

since negative events are by nature more complicated than their positive counterparts, we require a more significant mobilization of cognitive resources to minimize the consequences of the event and deal with the experience, making it a more memorable and intense experience.

Combine this negativity dynamic with good storytelling and you’ve got a powerful formula for FinTwit success. Accuracy has little bearing on whether someone can achieve popularity as a FintTwit bear, for the cowbell exists more for entertainment than as a source of wisdom. As Hofstadter noted, “style has more to do with the way in which ideas are believed than with the truth or falsity of their content.”

This speaks nicely to the appeal of the FinTwit doomsayer. These gurus regularly hold court on Twitter to push a narrative that our financial world is collapsing. They sound smart and savvily play to emotions as they weave stories that make logical sense to minds attracted to negative complexity. And because the listener can connect the dots, they get to enjoy the endorphins that come with understanding.

This helps explain the doomer idolatry that has fueled the popularity of untold numbers of FinTwit personalities. Cursory reviews of the most popular accounts will find them littered with gloomy projections. The titles of their Spaces discussions are usually some derivative of “Everything is Fucked”. Even Substack sweetheart Doomberg has doom in their name.

A Washington Post OpEd on the topic of fear has a quote apropos the moment:

What distinguishes the present age is the widespread and lucrative focus on the apocalyptic: the magnification of threats and minimizing of opportunities; the exaggeration of differences; the desire to see things as worse than they are. We invent ever-more-outlandish conspiracies, impute ever-baser motives, foretell ever-bleaker futures.

There is of course nothing fundamentally wrong with being bearish, at least episodically so. Bear markets occur with some frequency and of course should be discussed. The problem arises when bearishness is ever-present and comes to define one’s persona - aka the permabear - or when one completely loses their shit anytime an actual bear market rolls around. Of particular concern is when one’s supposed bearishness - however temporary or permanent - is exploited for clicks.

Let’s review some examples.

The quintessential permabear is also one of the most infamous ones, Peter Schiff. While correct in warning against risks that gave way to the Global Financial Crisis (GFC), the man has been wrong about almost everything else since. Same with contemporaries such as Nouriel Roubini, a professor turned pundit who also came to fame for his supposed prescient calls around the GFC. He too has been dead wrong about most things ever since but that hasn’t dented his media popularity. As it turns out, Roubini has a new book coming out called Megathreats, which sounds like an uplifting read.

Schiff’s fund management capabilities can best be described as mediocre and he has become a laughingstock across the internet for how consistently wrong he has been. Yet he lives on as a FinTwit favorite with over 800,000 followers. He’s done this by incessantly preaching about the impending death of the U.S. dollar and collapse of the global financial system along with it. Everything is a bubble according to Schiff, except of course gold, which he’s been championing since the start. Examples of his wrongness would easily fill this page. I instead encourage readers to simply Google “Peter Schiff wrong” and enjoy the show.

Notwithstanding his clownishness, Schiff’s media playbook has proven a successful one, at least in terms of notoriety. He’s constantly featured as a foil on podcasts, including ones as big as Joe Rogan. And a whole cottage industry of doomer copycats has followed in his wake.

Someone else who did well in the GFC but hasn’t done much since is Michael Burry, he of The Big Short fame. Fittingly named Cassandra on Twitter, reading his feed is a study in pessimism. Everything sucks everywhere all the time. He predicted a global financial meltdown and the onset of WWIII in 2017 (he may finally be proven correct this year!). His on again, off again relationship with Twitter has him neurotic about his tweets. But an archival account goes back to 2020 to give us a flavor for his particular style of bear porn. Burry has 1.1 million followers lining up to consume his steady stream of cowbell.

Marc Faber is the grizzled veteran doomer, a thoughtful man whose monthly commentary makes for interesting (and sometimes controversial) reading. But with an earned nickname like Dr. Doom as author of his Gloom, Boom and Doom Report, one can easily discern the tone of his missives. A simple Google search will return a lot of headlines like this one:

The enduring appeal of these doomers is curious given their track records, which brings to mind a recent tweet that captured well this phenomenon:

The sentiment expressed here is spot on. But it equally applies to those who manage capital, as evidenced by Schiff and others.

For example, there are nervous nellies like Mark Yusko, the loquacious founder of Morgan Creek Capital Management and former partner of disgraced crypto promoter, Anthony Pompliano. Yusko resembles a permabear in so far that his bitcoin maximalism has him seeing central bankers as the sum of all evil. But his ultimate sin lies in his overreactive bear state. This is a man who manages billions of dollars yet was busy warning us about a “GFCII” during the COVID selloff while also suggesting that we “STFR” (sell the fucking rip) literally at the market lows.

And here he is now warning yet again about a GFCII amidst another bear market:

Here’s what I’d be looking for from a money manager in times of stress: A calm, level-headed assessment regarding the current state of play and what opportunities may be presenting. I would not be looking for someone prone to hyperbole on Twitter. Whether his theatrics are calibrated for attention or because he is pissing down his leg in real life, the shame applies either way. Nonetheless, Yusko enjoys a Twitter following of nearly 150,000 and is a mainstay on the conference speaking circuit.

Unusual Whales (UW) is a good example of the bad news bear who disingenuously mines fear and bias for clicks. With over 800,000 followers, this account is among the most manipulative on FinTwit. Evidence for this lies in the superficiality of its options reporting and in the constant misrepresentation of congressional trading data. I suspect UW understands well the calculus involved to maximize attention while doing its best short-form Zerohedge impression. This can be seen in a casual review of its Twitter feed, where negative headlines outweigh the positive ones by at least 5:1. A selection from yesterday’s feed provides a good example:

The grand papa bear these days is infamous stock-picker turned FinTwit ragelord and ETF day trader, George Noble. With the temperament of an aging wombat, it’s easy to imagine his emotional bear state. Noble’s bearishness has proven correct this year, which he’s happily flaunted on his way to social media stardom - which in turn has been parlayed into an ETF launch. Combined with his cantankerous demeanor and the regular bear orgies that he hosts on his Spaces, Noble is among the more entertaining and outspoken doomers of this cycle. True to form, his newly-launched NOPE ETF was initially structured as an end-of-the-world portfolio that was long gold/Treasuries and short growth.

What’s striking about Noble and his bear ilk is the masochism they display when cheering for something to break. He believes the underbrush built up over years of monetary excess needs to be cleared, collateral damage be damned. He has “no sympathy for anyone who loses money being long in this market”, tossing aside the millions of pensioners and average buy-and-hold retail investors who would be crushed by any systemic collapse through no fault of their own. When the inhumanity of such a stance was pointed out on a recent Spaces, Noble of course went apoplectic on the brave guest who dared to challenge his thinking.

The hyperactive bear is best exemplified by Michael Gayed, publisher of the Lead-Lag Report and portfolio manager of the ATAC fund family. He has built a nice following on the back of his own brand of bear porn to go along with a constant stream of written and verbal content. A good example of his fearmongering is his go-to marketing tweet, which appeals directly to the fear of loss among investors.

Ironically, his funds are getting killed this year thanks to the naivete of applying a static, rules-based approach to complex, dynamic markets. The ATAC funds are based on models that reference the historical behavior of various assets to form a risk-on/risk-off approach theoretically designed to weather all markets. Notwithstanding the mediocre performance of his strategies prior 2022, this year has been particularly difficult with his funds down 30-50%.

Gayed is naturally perplexed by what is happening today and is greeting that confusion with cowbell tears. Rather than acknowledge the limitations of backtesting, he continues to worship at its alter and begs understanding while constantly whining about the anomalous nature of today’s market. And instead of doing what every successful quant in history has done - which is continuously refine and adapt their models - Gayed claims slave to the prospectus while employing the Norman Dale approach to systematic investing.

As an aside, it’s pretty funny how enamored Gayed is with backtesting. He’s claimed that “you don’t know a damn thing about what’s real and what’s not” if you haven’t done a backtest. And he’s actually tweeted the following generic insult to anyone who questions his bearishness - “Bro - you’ve never done a single backtest and you’re 16 STFU” - which may qualify as the nerdiest imaginary takedown of all time.

Watching Gayed self-immolate in front of his 700,000 followers is fascinating. The man appears to be in the midst of a nervous breakdown and is airing it for the world to see. In his explanation of things, the financial world is collapsing because the behavior of risk assets doesn’t make sense to him. It’s not his models at fault, it’s the market to blame. At least that’s what he spends most of his time telling his followers these days. Instead of acknowledging the reality of stock-bond correlations, he’d rather scare the bejeezus out of everyone by suggesting the end of the world is nigh.

The following interview gives us a glimpse of the hyperactive bear in peak form.

What Gayed says here is patently absurd. It’s fear porn at its finest. He’s literally suggesting that America is at risk of anarchy and despotism because Treasuries are not performing the way he expects. This is obviously ridiculous. But he looks serious when saying it so we must take him seriously.

In actuality, Gayed is Taleb’s Intellectual Yet Idiot come to life. He’s the academico-investor who just can’t comprehend that models work until they don’t. He gets “the first order logic right but not second-order (or higher) effects, making him totally incompetent in complex domains.” This has been an expensive lesson for him to learn as his funds are estimated to have vaporized ~$100 million of investor capital this year.

Gayed’s example joins with that of Schiff’s to remind everyone that sounding smart on Twitter is entirely different from being a moneymaker in real life. Unfortunately, many on FinTwit conflate the two, or look past implementation and go straight to the prognostication. I suppose popularity has become a business model for these characters in the same way that Paris Hilton is famous for being famous.

Speaking of idiots, what got me thinking about all this was a recent introduction to the work of Chris Irons, a podcaster and blogger who publishes under the name Quoth the Raven.

Irons is a sort of self-fashioned, everyman pundit. His formative experience has been described as growing up in a household with low bullshit tolerance that espoused living within one’s means. He loves telling the story about how he is a former bartender who stumbled his way into the investing world, first through teaching himself how to trade then as an analyst at micro-cap specialist, GeoInvesting. He also had a random stint as the head of investor relations for a company that was eventually found the be fraudulent.

Irons has no formal training in economics or finance but that hasn’t stopped him from waxing philosophical on these topics. He seems to have met with some success in doing so, garnering over 200,000 followers on Twitter and enough Substack subscriptions to quit his day job.

He appears to have gotten his writing start over at Seeking Alpha, where he would provide penetrating insight like the below:

This is one of the great things about the internet. Democratization of content creation, distribution and consumption allows folks like Irons to build an audience with armchair takes on investing, just like it allows a technology product manager to build a strong following by fashioning himself a macro expert. And here I am, an amateur writer attempting to…write.

Irons is a Schiff fanboy who came to FinTwit fame doing his best mini-me impersonation of his hero. Like his idol, the gist of Irons’ world view is that the government and associated organizing bodies basically suck at everything. This is especially true when it comes to monetary policy and most things macroeconomics. The aforementioned OpEd has a quote that sums up nicely Irons’ general take: “Our problems are too large for our leaders, who are too small for their jobs.”

Philosophically, Irons places himself squarely in the Austrian school of economics and rarely misses an opportunity to shit on his Keynesian counterparts, especially those of the MMT variety. Naturally, he wrote a piece about how MMT is destroying America.

Irreverence seems to be Irons’ defining feature. He’s positioned himself as an average bloke with normal friends who likes to drink beer and often swears and oh yeah check out his cool tattoos. He’s kind of like the Barstool Sports version of Schiff, so I guess it sounds cooler when he tells us everything sucks.

I was introduced to Irons’ work through a piece that he made free to everyone entitled “A Broken Clock Cries Wolf Twice A Day”. A disastrous collection of mixed metaphors, it was just too important to stay behind his paywall. The post is basically a high school essay about how Keynesianism sucks and what a shame it is that its proponents “think they have it all figured out.” The implication here is that Irons and his Austrian friends are the ones who have it all figured out, an irony clearly lost on the author.

Irons goes on to feature all types of fear porn in the piece, the most comical of which involves Russia and China exploring their own (gold-backed?!) reserve currency to challenge the U.S. dollar. This is a ridiculous concern to anyone familiar with how geopolitics and foreign exchange markets work in real life. But it’s kind of cute to see Irons reveal his rudimentary understanding of things while warning against a “shit sandwich the likes of which this country has never seen before.”

I could continue ad nauseam about how silly his piece is but instead encourage readers to give it a look themselves. A review of his other free pieces as well as his Twitter feed will reveal similar levels of comedy.

Just as Maajid Nawaz sprung from the bowels of extremist ideology and now peddles insane conspiracy theories, Irons was born of fraud and now sees it everywhere. He holds authority in deep contempt and has a special distaste for experts and their academic jargon. He’s managed to channel that spite into a nice little niche for himself but that doesn’t mean he has the slightest clue what he’s talking about.

For me, Irons is the FinTwit equivalent of comedian Dane Cook. I was always amazed at how the latter achieved such extraordinary success despite lacking any semblance of insight or humor in his standup. I’m equally amazed at how Irons has managed to build an audience for analysis that is as unoriginal as it is vapid. The man simply regurgitates Austrian school tropes with a dash of conspiratorial nonsense to boot. His writing is as tortured as his thinking, both in content as well as style. His output is the literary and audible equivalent of wasted calories. Yet his popularity persists thanks to the enormous amount of cowbell he pushes out.

The below speech provides a good sense for the man’s style and overall take on things:

What stood out to me here was how uninteresting his speech was, how so proud of himself he was for giving it and how immature he behaved. I’m not one to stand on formality. But for fuck’s sake if George Noble invited me to give the keynote at NOPE’s investor conference next year - to celebrate his triumph over the haters, of course - I’d have the decency to at least wear pants. Instead, Irons is just so fucking cool that he strolls into a professional investment conference wearing a tank top, shorts and flip-flops while sipping a beer to regale us with such remarkable thoughts as, “If you have something where the supply is limited, it retains its value, for the most part.” Oh and look at his sweet tattoos.

We were also treated to more of his standard tone deafness in this speech: “We don’t know where this unprecedented experiment in monetary policy is going to go…Anybody that tells you that they know exactly where this whole thing is going…That’s really the most arrogant thing you can do in finance.”

Alas, he knows where it’s all going. And he’s here to write and make speeches about it.

The zero fucks given schtick appears to be working for him, as disingenuous as the act might be. For someone who flippantly claims he doesn’t care if anyone reads his Substack, he seems awfully happy to advertise subscription discounts, conduct frequent giveaways and encourage people to subscribe to his various outlets otherwise. He also often claims that he doesn’t want to go on anyone’s podcasts yet routinely pops up on them to enlighten us with his meandering streams of consciousness (he’s the press play and listen kind of guest).

I do find it funny how he gets away with making fun of the suits in this speech. It’s kind of like how Robin DiAngelo, controversial author of White Fragility, gets paid to tell a room of white people that they’re all inherently racist. I can just imagine how many times Irons pulled this video clip while showing off to his buddies at the bar how awesome he is because he just doesn’t give a fuck.

Speaking of DiAngelo, a review of her book can be paraphrased to describe Irons:

[Irons] does not offer profound insight into [markets]. Rather, [his bear porn] is religion masquerading as knowledge. [Irons’] conception of [Austrian economics] isn’t hard won wisdom. It’s an unprovable and unfalsifiable theory, deceptively framed to convince readers of their own guilt. [Irons] relies on rhetorical tricks and skewed interpretations of ambiguous events to deceive readers, in the same way a zealot tries to gain converts.

Irons gave another breathless speech on gold at the Kase Learning conference in 2018, during which he made fun of analysts and economists for being wrong all the time. The speech was terrible for plenty of other reasons (e.g., less is more when it comes to words on a slide), but the hypocrisy was just another level for me. Similar to Schiff, it’s too easy to point out all the ways that Irons himself has been wrong. But suffice to say it happens a lot, especially when it comes to his obsession with gold, which has annualized at a whopping 2.5% over the past decade.

Irons puts on a show of self-deprecation but I call bullshit. His disclaimer is cleverly worded to point out that he’s wrong all the time. He says the same thing on his various podcast appearances. It reminds me of how Jon Stewart used to hide behind the cloak of comedy whenever challenged on his political commentary. Just like we’re not supposed to take Stewart seriously because he’s a comedian, nor should we take Irons seriously because he calls himself an idiot.

But that betrays the seriousness with which he obviously takes himself through his writing and speaking. He’s trying to have it both ways here, which may work on some but certainly not on all of us.

By way of disclaimer, I have no special love for Keynesians myself. I grew up in the Chicago school and have read plenty of Mises, Rothbard and Hayek. I actually sympathize with a lot of the views our doomer friends have. I just have no patience for the way they go about propagating them.

And to be fair, there are permabulls that are equally egregious in their commentary and approach. Tom Lee of FundStrat is one that springs to mind and I’m sure there are many more. And I tend to agree that Keynesian cheerleaders like Paul Krugman have become caricatures of a different sort.

But being bearish all the time is not only a bore but also unproductive. It’s like a basketball player who only shoots half-court shots. Sure, you’ll nail a shot here and there that’ll be met with oohs and ahhs, but you’ll annoy the shit out of your teammates and fall afoul of all analytics in the process. Similarly, these doomers will be right on occasion and I suppose right at the very end. As Keynes famously said, “In the long run, we are all dead.” But the average run of markets will find these bears consistently on the wrong side of reality.

The fact is that bear markets happen all the time. There have now been 27 of them since 1929, averaging one every 3.5 years. Bear markets tend to last about 10 months and bring average declines of approximately 35%. It could be that this time is different and that the permabears are finally vindicated amidst a paradigm-shifting meltdown of epic proportion. It could be that all those panic bears are finally justified in their hysteria as the system indeed resets.

Or it could be that this is just another bear market and we recover from this one just as we’ve done the 26 prior ones. The long-term march of our species is one of progress just like the long-term trend of markets is upward. Which reminds me of a little investing secret that I often share: The greatest macro trade of all time is betting against the end of the world.

I reckon there are only three ways to combat the FinTwit doomsayer.

1. Ignore them, though admittedly hard to do in the way that it’s difficult to avert one’s eyes from a train wreck.

2. Respond to their tweets with the following GIF:

3. Reply to their posts with this coopted response: “OK doomer”.

Yours in pragmatism,

FTJM

Hedge fund old-timer turned FinTwit personality George Noble launched his long anticipated exchange-traded fund (ETF) today. Offered under the ticker NOPE, the fund targets absolute returns over an investment cycle by pursuing a global long-short equity mandate.

NOPE is advised by Toroso Investments and sub-advised by Mr. Noble’s newly-formed investment advisor, Noble-Impact Capital (NIC). The fund appears designed to bring traditional hedge fund strategies to the masses in a more affordable and approachable form.

Narrative Combat subscribers will not be surprised that I have thoughts about this new development. Since Mr. Noble has not been presented with any real questions given his retail focus and carefully curated followership, here are some things I would be thinking about as a prospective investor.

Structure

The obvious place to start is why an ETF instead of a hedge fund?

Indeed, the path from hedgie to ETF manager is not a well lit one. Mr. Noble may even be a pioneer in this sense. Granted, a third go at a hedge fund would’ve been equally as rare, so I suppose his emergence from retirement would be breaking new ground either way.

Best I can tell, Mr. Noble’s foray into the ETF space appears opportunistically designed to capitalize on his growing online influence. As I’ve previously written, the former Peter Lynch protege has craftily navigated his way from relative obscurity to FinTwit superstar thanks to a savvy social media strategy that is all dish and no take.

I’m of the view that an ETF makes great sense for Mr. Noble. It represents the path of least resistance for an old school investor looking for one last bite at the fund management apple. The ETF launch process is largely boilerplate with many functions easily outsourced to experienced service providers. Conversely, starting a hedge fund is a more idiosyncratic and laborious pursuit. And raising money for one can be a highly intrusive experience given the nature of its more professional investor base.

Therein may lie the rub. Though far from perfect and subject to their own limitations (cognitive and otherwise), professional investors are a scrupulous bunch. This is especially true of institutional ones motivated by career risk. When the objective is to first keep one’s job and second to avoid any potential for embarrassment, allocators tend to steer clear of anything that looks remotely risky.

If I were a professional allocator conducting due diligence on a Noble hedge fund, I’d certainly be requesting details about Mr. Noble’s prior performance. This would include the past decade’s worth of returns at the helm of his own family office. I would also be calling as many former colleagues and investors as I could to get a read on him as a person, partner and investor.

Mr. Noble will not be subject to that level of due diligence when dealing with retail investors, which I imagine factored into his calculus with NOPE.

He could combat such skepticism by publishing his prior returns. But he’s been reluctant to do so, claiming in various discussions that he is limited in what he can provide. I'd be curious to know what is holding him back from a regulatory perspective here. This information is entirely relevant to his current pursuit and can presumably be presented in audited form.

And since he founded his prior firms, surely he owns their track records and therefore only requires permission from himself to publish them. NOPE is a public rather than private offering that requires no investor accreditation to access, so my understanding is that marketing rules are looser when compared to Mr. Noble's old world. So long as properly disclaimed, I struggle to understand the hangup here. This would be helpful information to parse, especially now that NOPE has gone live.1

All we can do for now is go off of publicly-available data, the last of which suggested that his relative performance during Gyrfalcon’s final months was worse than that generated by his favorite punching bag, ARKK, during its latest drawdown.

Unlike with (another) hedge fund, I reckon an ETF gives Mr. Noble a much better chance to catch lightning in a bottle. But to paraphrase a friend of his, I can’t help but wonder if “there’s a reason why this is being marketed to retail investors.”

Strategy

I believe we are entering a period that could prove conducive to actively-managed strategies. The long overdue repricing of risk assets that we are witnessing today should make old school stock selection cool again. Whereas the past 12-13 years was basically one big liquidity-fueled beta play, we may be embarking upon a period where fundamentals matter and alpha returns to the vernacular.

I thusly think that Mr. Noble’s re-entry into the world of fund management could be well timed. However, something that strikes me as worth considering is that NOPE’s strategy seems to deviate from Mr. Noble’s stock-picking roots. As Mr. Noble mentioned in a recent Spaces discussion, NOPE will rely less on the relative performance of individual stocks within sectors and more on the relative performance across the sectors themselves.

Which is to say, NOPE’s edge will not necessarily derive from Mr. Noble’s many decades as a fundamental, bottom-up stock-picker. Instead, it will come from his ability to read the tea leaves of the macro and geopolitical backdrop to determine how that might impact flows and sentiment. Per his own admission, the resultant factor-based approach will overweight the importance of sector and country allocations and underweight the importance of individual stock selection. While I’m sure he’s always incorporated some degree of macro and factor analysis into his work, the approach he’s taking with NOPE appears quite different from what he has described himself as being in the past.

This sort of top-down orientation would surely make Mr. Noble’s old boss blush. Indeed, Mr. Lynch espoused bottom-up over all things top-down. He warned investors against the fearmongering that results from watching the news, reading magazines and talking to the same economists (I’m sure he disapproves of the macro-centric, doomer echo chamber Mr. Noble has created for himself these days). Twitter has now come to represent those things in the collective, and Mr. Noble has been outspoken about the importance of the medium to his own process (admitting it’s the first thing he checks in the morning and claiming it somehow gives him an edge over the likes of Goldman Sachs).

I should note that I see nothing particularly wrong with Mr. Noble adopting a differentiated approach with NOPE. But this is a string worth pulling to better understand how new this approach may be for him relative to what he’s done before. For all I know, he may have been implementing this strategy for the past decade at his family office, which is all good and well.

Temperament

Warren Buffett has said that “the most important quality of an investor is temperament, not intellect.” Mr. Lynch talked about “the stomach being the most important organ for investors, not the brain.” Benjamin Graham wrote that “individuals who cannot master their emotions are ill-suited to profit from the investment process.” Charlie Munger has noted that, “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” John Maynard Keynes said that “personality is more important than logical thinking” when it comes to investing. Charles Ellis once observed that “whether investors can control their temperament determines their ultimate investment performance.”

Mr. Noble’s volatile personality has been well documented. He has used Twitter as a bully pulpit and has gone apoplectic on several occasions during Spaces sessions. This is a defining feature of his public persona and has no doubt informed much of the popularity he has won amongst his followers.

He also demonstrates a striking lack of self-awareness in his public dealings. For a man who is no stranger to insult and bouts of bravado, he curiously calls for civility and asks “why the hate?” when people dare to push back. Such dissonance can be interesting to consider for a fund manager, as I’m of the mind that the zeroth rule of investing is that an investor should know thyself.

In fairness, Mr. Noble has been on better behavior in recent months. This may be a function of feedback he’s received from folks like me or simply a byproduct of being in marketing mode. But his reputation for temper is well-established, which is surely something I would be thinking about as a prospective investor. Has he turned over a new leaf that might give skeptics like me some comfort? I suppose time will tell. But I reckon the man is who he is at this point. As the saying goes, you can’t teach an old dog new tricks.

Commitment

When someone launches their own hedge fund, a standard question asked of them is how much of their personal net worth they’ll be investing in their new venture. The question is designed to test the commitment of the fund manager to their new pursuit. Surely these great investors must be willing to eat their own cooking, the thinking goes.

I’m personally not a fan of this question as I believe new fund managers are risking a lot by reputation alone in setting up their new businesses as well as spending plenty of money on it otherwise.

But this is a relevant question in the context of NOPE. For a fund launched by someone whose family office reportedly manages $56 million, I find it interesting that NOPE’s day one assets appear to be just $500,000. Given the limited marketing that occurred prior to launch, one has to imagine that Mr. Noble’s personal capital was used to stand the fund up. Frankly, there doesn’t appear to be much of it there. By way of disclaimer, I must admit unfamiliarity with the ETF game, so I could be missing something here. But this strikes me as odd on its face.

Along these lines, I’d also be keen to understand what involvement Mr. Noble maintains with his family office, how he views the ultimate split in assets between it and NOPE, and what compliance measures have been implemented to guard against any potential for conflict across his funds (e.g., the family office is prohibited from owning anything held by NOPE).

I also find it interesting that NOPE appears to be managed by a skeleton crew. The NOPE deck and NIC website mention only three team members: Mr. Noble as Chief Investment Officer (also occupying the clearly conflicted role of Chief Compliance Officer per the prospectus); a Chief Impact Officer; and a Chief Media Officer.

The impact officer appears to be a philanthropy consultant. Though I’m sure she’s highly intelligent and capable, it seems a stretch to mention her 30+ years of investment management experience when her LinkedIn profile doesn’t nearly foot to that assertion. Even her own “About” summary makes zero mention of investment management, noting instead “30+ years of legal, philanthropic, & curatorial experience”. This also begs the question of what exactly the “impact” in the firm’s name stands for. There is precisely zero explanation of what that could mean outside of a blurb that mentions the past generosity of Mr. Noble’s online followers. I presume there’s some sort of plan to donate a portion of the management fee each year?

The media officer may as well work for the CIA given his lack of online footprint and eerily-pixelated headshot. The guy’s name, Jack Crow, is straight out of a Tom Clancy novel. Most troubling of all, he appears willing to commit the sartorial crime of buttoning the top button while not wearing a tie!

A LinkedIn search reveals no other people associated with Noble-Impact Capital.

Not only is this team small but it’s also oddly-assembled. An asset manager with two of its three people focused on things that have nothing to do with asset management? I’d naturally expect any Noble-led venture to be Noble-centric, but he’s taking the “one guy and a Bloomberg” trope to an extreme here. He must think his name is enough to trade on by itself, which may well be the case for the retail crowd.

This approach is straight from the Rick James school of ETF marketing.

By the way, the NIC website is sloppy, anachronistic and sparse. There are misspellings, weird fonts and colors, and what little text there is includes four separate references to Mr. Noble's 40+ years of investment experience. It’s also one of the few websites I visit these days where my browser warns me that the connection is “Not Secure” (I’m on to you, Jack).

The strangest thing is the inclusion of a Wall Street Week interview that Mr. Noble conducted with Louis Rukeyser in 1990. It looks like it was clipped from an Adam Curtis documentary and has a sort of Zapruder feel to it. I guess the objective is to stress the fact that Mr. Noble has been investing for a long time. (Did you know that?! FOR OVER 40 YEARS!) But it all just feels weird and overwrought to me.

I assume our guy Jack was left in charge of the website, the quality of which further underscores my theory about him being a spy (noting his LinkedIn button on the website rather conveniently doesn't work).2

I appreciate there are kinks to work out in the early days of every business. But a website is table stakes, especially when NOPE has been in the works for several months.

The deck leaves much to be desired as well. The setup seems to be that most ETFs are passive and that hedge funds are expensive (though they’re cheaper today than what the deck suggests). The rest of it forms the most generic description of a strategy and opportunity set that I’ve ever seen. The gist is that NOPE looks to buy good stocks and short bad stocks across all sectors and geographies and can basically be as net long or short as it wants.

Other questions that I would have: How many positions will the book typically have? While the prospectus provides a wide berth, what gross and net exposure ranges can typically be expected? What sort of risk management protocols, if any, exist? What sort of drawdowns should investors be willing to stomach? What constitutes an investment cycle? Are shorts treated as hedges or profit centers? What amount of options and derivatives usage can be expected? Will the fund only invest in equity and equity-linked securities? What is the fund really seeking by way of risk-return? How systematic versus discretionary is the approach, as surely one person cannot be expected to cover every stock across the entire globe?

This all makes me wonder if NOPE could be a cheap call option for Mr. Noble. Rally the flock for some easy fundraising to inexpensively give an ETF a punt and see how we go. If he succeeds, that’s more money and notoriety for Mr. Noble. If the product fails, well, he’s doing fine anyway. And I reckon his social media popularity would persist even if he flames out again. As has been demonstrated by folks like Michael Gayed, one does not need to be a moneymaker - or even make much sense at all - in order to remain FinTwit popular.

Transparency

Mr. Noble has committed to daily transparency of NOPE’s holdings and we can be sure that enemies old and new will be watching closely. It’ll thusly be smart for NOPE to focus on the more liquid side of the spectrum so as to mitigate any potential for coordinated runs at its names. But they can still happen. I reckon Mr. Noble has amassed a collection of deep-pocketed adversaries over the course of his career that could decide to push him around just for shits and giggles. Watch this space.

This also means his performance will be heavily scrutinized. As someone who has struggled with adversity in the past, it will be interesting to see how he handles the bright lights of today’s ETF world.

NOPE should be an interesting experiment. It could represent a remarkable comeback story or become another meme for FinTwit to feast upon.

Despite my own skepticism, I commend Mr. Noble’s willingness to expose himself like this. He’s putting his money where his mouth is and opening himself up to judgment from a crowd that has been conditioned to root against him. He’s brought this upon himself, but the courage required to put up or shut up is not lost on me.

Price action aside, the biggest risk I see for NOPE is longevity. As Mr. Lynch has said, “most people do really well because they just hang in there.” Given his wealth, track record of strong starts followed by weak finishes, and the heightened scrutiny he’ll be under, I reckon the question of staying power is a relevant one for Mr. Noble’s new venture.

There is an anonymous account on Twitter called Unusual Whales (UW). It’s associated with an options analytics website by the same name.

UW mostly posts about option trades and general market commentary. But what caught my attention is what I suspect did for many of its 745,000 followers, which is analysis of the personal trading activities among American politicians. UW’s website has a page dedicated to articles on the topic, which leverages a proprietary database built on information gleaned from mandatory filings.

Presumably, the intent of such work is to bring transparency and accountability to those who hold public office. This has a nice populist undertone to it and foots well with a 2020 yearend tweet where UW stated his purpose as being “…to help the smaller, retail trader against the world.”

I’m personally of the view that UW is providing a great service by tracking congressional trading practices. I have a deep suspicion of politicians and would not be surprised to learn that some trade on privileged information.

I therefore believe that personal trading among politicians should be subject to similar oversight seen in the asset management industry. This would involve either an outright ban on such trading (limiting equity exposure to mutual funds and ETFs) or compliance protocols like restricted lists and/or pre-clearance of all trades.

However, when it comes to commentary involving the issue of trading among politicians, I find evidence of abuse to be lacking. What I see instead is a lot of unjustified provocation that leverages popular mistrust and discontent for clicks.

My wheels originally got turning on this topic a year ago when I read a Substack piece published by Glenn Greenwald. It was entitled “Nancy and Paul Pelosi Making Millions in Stock Trades in Companies She Actively Regulates”.

This sounded compelling given my general distrust of politicians. But I was left unconvinced by Mr. Greenwald’s interpretation of things.

The trouble started for me with the opening paragraph:

House Speaker Nancy Pelosi (D-CA) is the sixth-richest member of Congress, according to the most recent financial disclosure statements filed in 2019. As the California Democrat has risen through party ranks and obtained more and more political power, her personal wealth has risen right along with it. Pelosi “has seen her wealth increase to nearly $115 million from $41 million in 2004,” reports the transparency non-profit group Open Secrets.

The insinuation here (and elsewhere) is that Speaker Pelosi has parlayed her power and influence into outsized trading gains. Absent a full accounting of her trades, we’re left to make summary observations from which we can extrapolate conclusions. In this case, simple math suggests the growth in her wealth was unspectacular. In fact, it was well within expectations given the market backdrop.

(Aside #1: There seems to be some confusion around the Pelosis’ total net worth. Most reporting that I’ve seen puts it in the neighborhood of $115 million. I’ve seen other articles suggest the number could be upwards of $300 million, including some of UW’s own work. To keep things simple, we’ll just run with the $115 million estimate.)

(Aside #2: It’s understood that Speaker Pelosi’s investments are managed by her husband, Paul Pelosi. Mr. Pelosi is a successful businessman and investor whose career exploits serve as the primary source of the family’s wealth. For the sake of simplicity, we’ll refer to Speaker Pelosi’s portfolio as the Pelosi Portfolio or PP.)

For the relevant period 2004-2019, the S&P 500 Index (SPX) generated an annualized rate of return (ROR) of approximately 7% (note: all performance statistics are per Koyfin). The Nasdaq Composite (NDX) generated an annualized ROR of about 10%.

This compares to an implied annualized ROR for PP of 7%. Given that PP’s private holdings (real estate, partnership interests) likely outperformed its liquid ones, we can infer that its equity trades either underperformed or matched the market during this period (depending upon cash and bond allocations along the way).

Far from being sensational, anyone applying a basic sense of compounding to those numbers should emerge unmoved.

Mr. Greenwald spent the rest of his piece highlighting the fact that the Pelosis have been especially active in trading technology stocks. This is problematic to him because Speaker Pelosi “exercises enormous and direct influence” over the tech industry. Of particular concern is that Mr. Pelosi is trading these stocks while “major legislation is pending before the House, controlled by the Committees [Speaker] Pelosi oversees, which could radically reshape the industry…”.

I believe the legislation he is referring to is the Ending Platform Monopolies Act (H.R. 3825), which seeks to limit the reach of powerful tech companies. Included among the firms potentially impacted is Apple, which Mr. Greenwald notes is the most heavily-traded stock in the Pelosi Portfolio. He wrote with dismay about Apple CEO Tim Cook placing a personal call to Speaker Pelosi to lobby against the bill.

But this is not an unusual act on the part of Mr. Cook. CEOs in fact lobby congressional leaders all the time. And given her district’s proximity to Silicon Valley, it makes sense that Speaker Pelosi might join with other California representatives to weigh legislation that might impact one of her state’s most important industries.

Despite whatever protestations Speaker Pelosi may have made, the bill nonetheless advanced through the Judiciary Committee. It’s possible that she may be helping slow its progress through the political process. But this could be the result of good-faith negotiations. And she certainly isn’t alone in pursuing what might be in the best interests of her constituents (if she’s against) or the average consumer (if she’s for).

The point being that Speaker Pelosi has strong political motivations when it comes to technology legislation that may supersede any financial incentives that might exist. Evidence of this is that she recently endorsed bipartisan efforts to rewrite antitrust laws that take direct aim at those technology stalwarts populating her portfolio.

Besides, the Pelosis have been trading tech stocks for years, very often in the absence of any material pending legislation. There is in fact nothing abnormal about PP’s focus on these stocks. Instead, it’s entirely logical given the market’s own focus.

It is well known that the FAANGs (Facebook, Apple, Amazon, Netflix and Google) have propelled equity markets over the past several years. These are some of the most liquid and closely followed companies in the market. With a $2.7 trillion market capitalization, Apple is the largest company in the world and routinely ranks among the most heavily traded stocks on any given day and, indeed, year. So the Pelosis’ focus on these stocks is completely rational given broader market dynamics.

Mr. Greenwald then shifted his attention more specifically to Google:

Beyond that, Google — one of the companies in which the Pelosis’ stock trades have made millions — is one of the top five donors to the House Speaker. The wealthy couple buys and sells in Google stock, making millions. She works on bills that directly affect the future trajectory of Google. And they lavish her campaign coffers with cash, a key source of her entrenched power.

The page Mr. Greenwald links to no longer shows Google as a top five donor to Speaker Pelosi since it has been updated to reflect 2022 contributions (Google now ranks #9). The company’s combined donations to Speaker Pelosi now rank #67 among its list of political contributions for the 2022 election cycle. And at $14,459 of combined individual and company contributions, I’m not sure this qualifies as “lavish[ing] her campaign coffers with cash”, particularly when juxtaposed against the nearly $34 million she has raised thus far.

Google did rank #3 for Speaker Pelosi in the 2020 cycle, but at a grand total of $66,000 out of $39 million, it’s hard to imagine much sway resulting from the company’s contributions.

Even expanding the donation net to include the Nancy Pelosi Victory Fund (a joint fund that primarily benefits the Democratic Congressional Campaign Committee), Google/Alphabet doesn’t show up anywhere among the fund’s top donors. In fact, there is no mention of the company going back to 2012.

I could be missing something here, so I did additional searches on the topic. Several pieces have been written about Silicon Valley businesses and executives contributing to political campaigns. But I didn’t come across a single one that mentioned Google/Alphabet and Speaker Pelosi.

Also, pedantic as it may be, nobody buys and sells in a stock. This is odd verbiage evidentiary of journalistic tourism. People just buy and sell stocks, period. And Mr. Greenwald makes it sound like the Pelosis routinely trade Google stock when in reality there were only two such transactions reported over the reference period.

Similar to the Gell-Mann amnesia I often encounter whenever Matt Taibbi comments on finance or asset management, Mr. Greenwald provided a taste of his own for me.

Multiple times over the last several years, serious questions have been raised about stock positions taken by the Pelosis that turned out to be immensely profitable under suspicious circumstances. Perhaps the most disturbing was a report from Bloomberg News last Wednesday and another from days earlier by Fox Business that documented how Pelosi's husband purchased highly risky options in Google, Apple and other tech companies back in February, 2020, right before the market began plunging due to the COVID epidemic and right before the House, led by his wife, was set to introduce new legislation to regulate those same tech companies.

What Mr. Greenwald is referencing here is the purchase of call options by the Pelosis. There is nothing particularly risky about buying calls. In fact, doing so is among the least risky ways to play options. One of the benefits of buying calls (or puts) is that one’s downside is capped to the amount of premium spent. It’s the writing (or selling) of options (particularly naked ones) that could be considered highly risky.

And the Pelosis tend to buy calls that are in-the-money (ITM), which is among the more conservative ways to play options. This is because there is a higher likelihood that these options finish ITM at expiration (a luxury afforded by higher premiums).

Also important to note about the Pelosi options strategy is the preponderance of LEAPS (Long-term Equity Appreciation Securities) transactions. These are options that are typically at least one year in duration. LEAPS are intended to give investors exposure to prolonged price movements and are thusly poorly-designed for event-driven situations where near-term clarity is typically required (e.g., trading on product development, earnings, legislation, etc.).

There’s also nothing remotely suspicious about these purchases, with Mr. Greenwald really stepping in it when he added emphasis to that final part.

Firstly, the Pelosis only purchased options in two tech companies - Google (GOOG) and Microsoft (MSFT) - in February 2020. Per the Fox Business article he linked to, Apple (AAPL) and Amazon (AMZN) calls were purchased in December 2020 and May 2021.

When someone purchases a call option, they are betting on prices to rally, not fall. Inside knowledge of an emerging global pandemic and impending regulation would not typically bode well for one’s thesis on call buying unless prices were already reflecting all the bad news. But GOOG and MSFT were only down 3.5% and 1.5%, respectively, on the year up to the point of PP’s purchase of those options. I’m not sure how the options were priced but the Pelosis likely would’ve achieved an even better outcome had they waited a month for those stocks to fall another 15-20% to their COVID lows. The point being that it is better to time call buys after a market rout, not just prior to one.

Mr. Greenwald included a Bloomberg headline about the Pelosis locking in $5.3 million from Alphabet options, noting that they were able to net over $5 million from the transaction. But the Pelosis didn’t “net” themselves $5.3 million in that GOOG trade. Indeed, they exercised options that gave them the ability to spend $4.8 million for about $10.2 million in exposure. However, this does not take into account the total premium paid on the position. Per the Pelosis’ filing on the initial buy, we can safely assume the net gain was south of $5 million. Still a great trade, no doubt. But details.

It’s also important to note that the calls were expiring, so Mr. Pelosi had to exercise them. And they were purchased a full 15 months before he locked in his gains.

Mr. Greenwald then linked to two of the “most disturbing incidents” involving MSFT and Tesla (TSLA).

Paul Pelosi in March exercised $1.95 million worth of Microsoft call options less than two weeks before the tech stalwart secured a $22 billion contract to supply U.S. Army combat troops with augmented reality headsets. 

In January, he purchased up to $1 million of Tesla calls before the Biden administration delivered its plans to provide incentives to promote the shift away from traditional automobiles and toward electric vehicles.

Mr. Pelosi’s purchase of MSFT stock was the result of call options being exercised near expiration. Those calls were purchased over one year prior. One would have to be remarkably prescient to nail the timing of notoriously slow military procurement with such precision.

The article notes how MSFT rallied 11% in the two weeks following the announcement of that Army contract, which is an arbitrary timeline. If the author had waited two weeks - or even a month - MSFT would’ve only been up about 5% (in line with the broader market).

MSFT is now 25% off its highs. Importantly, the Pelosis have yet to sell any of their MSFT stock. One would think they’d be a bit more opportunistic in taking profits if their trade had been deliberately (and brilliantly) timed in the manner suggested.

Regarding Mr. Pelosi’s purchase of those TSLA calls, the article noted that Speaker Pelosi “likely has insights into Biden’s plans for the [electric car] industry”. Funnily, that comment was immediately followed by “…which are expected to include tax credits and other incentives to promote the shift away from traditional automobiles.” Amazingly, the article’s conspiracy theorizing was established then discredited in the same sentence. Quite the editorial accomplishment, I must say.

In fact, everyone knew that a Biden presidency would be accommodative to the electric car industry. That was part of his climate plan, which clearly discussed “accelerating the deployment of electric vehicles” by building charging stations and restoring tax incentives. President Biden published that plan on June 4, 2019. Mr. Pelosi purchased his TSLA calls a full 18 months later, just as Biden was set to assume office. A Biden presidency being friendly to the electric car industry has got to be one of the least surprising developments in the history of capital markets.

There is nothing “disturbing” about any of this.

Mr. Greenwald’s piece ended with a judgmental flourish:

One would think that one of the richest people in America would be satisfied with that level of wealth — more than anyone could spend in a lifetime — and would decide that she and her husband simply refrain from trading stocks and trying to get richer while she occupies one of the most powerful political positions in the country.

Making value judgments about what constitutes a sufficient level of wealth is very socialist of Mr. Greenwald. I suppose this is a good reminder of his liberal roots, which is helpful given all the dumping he does on Democrats these days and the alliance he’s struck with Fox News and Tucker Carlson.

This comment speaks to the larger issue that I think he and others have with Speaker Pelosi. It’s not so much that she cheats; it’s that she’s fabulously rich. Extraordinary wealth is her ultimate sin and what surely drives much the vitriol directed her way, even on the basis of the most superficial of claims.

By the way, forget about spending Speaker Pelosi’s money in a lifetime: I can think of at least one way to spend her entire net worth in one fail swoop!

Now back to UW.

What caught my attention was a tweet regarding the recent passage of the Chips and Science Act (CHIPS), in which UW summarized congressional returns on semiconductor stock purchases while noting “huge gains” and “unusual trades”.

This garnered over 5,000 likes and elicited a chorus of boos among UW’s followers:

Traders of our generation.

It’s insane this is somehow legal.

This is inside trading and corruption.

Insanely criminal.

This is so crazy.

Let’s investigate.

Tweets are naturally short on detail. Thankfully this one linked to a UW blog post on the topic, which stated the following:

After numerous iterations and lengthy debates, the Senate passed the Chips and Science Act (aka CHIPS Plus) on July 27, 2022. The House quickly followed by passing the bill on July 28. The CHIPS Plus Act provides up to $280 billion in subsidies and funding to the semiconductor industry. The hope is to bolster domestic manufacturing, offer incentives, and increase innovation and R&D in order to compete with global powerhouses like China.

Couple of things here. First, China is not a semiconductor powerhouse. The country is investing heavily in its capabilities - which may have partly informed passage of this act - but it remains far behind the US and others when it comes to most parts of the semiconductor supply chain. This is especially true for the largest value-added segments (per Anysilicon.com).

Second, that performance chart means nothing on a standalone basis. Beyond investigating individual trades for signs of suspicious activity, pulling buy/sell transactions over a constrained period is wholly inadequate on two levels:

1. We have no idea what constitutes the rest of a subject’s portfolio, how it performed and how the semiconductor piece fits within it; and

2. The performance of the broader market serves as important context when looking at summary returns. Some of those gains may look big in absolute terms when in actuality they are unremarkable in relative terms (on balance).

Which brings me to my next point. There are 435 members of the House of Representatives. Only 35 of them traded semiconductor stocks. And only seven of the 50-member Senate did the same.

Since UW doesn’t specify dates in his charts (likely because they’re so disparate), let’s assume for simplicity that the numbers capture the period January 1, 2020 through the date of UW’s publication on July 27, 2022. (I appreciate that much of this is an inexact science given the nature of these filings, which UW acknowledges himself.)

During this period, the largest semiconductor ETF - the $7.5 billion Van Eck Semiconductor ETF (SMH) - gained approximately 63%. This compares to an average gain of 30% for those House traders and 24% for Senate traders, making the average congressional return 29%. The median return is even lower at 23% given the skewness of the distribution (i.e., returns are unlimited to the upside but limited on the downside; and we tend to cut our losers faster than our winners).

This also compares to gains of 34% and 24% for the NDX and SPX, respectively.

Of the 42 Congressional traders active in semiconductor stocks, only seven of them outperformed SMH. So less than 10% of Congress traded semiconductor stocks and only 16% of them managed to outperform their benchmark. And only 40% managed to outperform the broader market (as measured by NDX).

Even those who outperformed might be explained by timely profit-taking. SMH was up 122% at its peak over the referenced time period. Stands to reason some folks might look to harvest gains along the way there.

What we should really focus on is the small handful of outlier returns. In the case of the top two performers - Messrs. Wyden and Beyer - not a single semiconductor trade was executed between them over the observation period. Their returns instead apply to positions that were taken well in advance of relevant legislation.

These results suggest that either:

1. Little trading on privileged information actually occurred since insider trading tends to be of the excessively profitable sort; or

2. Congress is just like the rest of us: bad at trading.

But that hasn’t stopped UW from suggesting that something’s afoot. And like Mr. Greenwald, he seems particularly concerned with Speaker Pelosi’s investment activities.

By far, Speaker Nancy Pelosi (via her husband) disclosed picking up the most semiconductor stocks since 2020 with approximately $1.5M in Apple (AAPL) and at one point owning about $4.5M in Nvidia stocks (NVDA).

Far from “picking up the most semiconductor stocks”, the Pelosis were active in trading only one of them (compared to seven for Marjorie Taylor-Greene). That’s because Apple is not a semiconductor stock. It’s a consumer electronics company. Yes, Apple designs some of its own semiconductors but that’s not a revenue center for the company. And none of the main semiconductor ETFs include Apple among its holdings.

UW appears more focused on the absolute dollar amount of the Pelosis’ investment in NVDA. But it’s a reasonably-sized position in the context of a $115 million portfolio.

Precisely zero evidence of suspicious activity was provided in UW’s blog post. That’s because there isn’t much to report beyond the circumstantial fact that PP invested in NVDA while semiconductor legislation was making its way through Congress. But PP in effect gained its NVDA exposure nearly a year after CHIPS was introduced in the House and a year before the bill was eventually passed.

Look, it’s entirely possible Mr. Pelosi took his position in NVDA because he developed special confidence that CHIPS would eventually pass and be bullish for the stock. But here again, there is no evidence in UW’s tweets or posts that he was privy to inside information when forming his thesis.

It’s also entirely possible that NVDA was simply a bad trade. Indeed, the Pelosis sold their entire position in NVDA on July 26, 2022 at a reported loss of $341,365. Of course, being a bad trade doesn’t mean rules weren’t broken somewhere along the way. But there is no reason to make such an assumption based on the limited information UW provides in his posts.

This begs the larger question of to what degree legislation actually impacts the stocks of associated industries. NVDA is a good case in point. As an American semiconductor company, one would assume that the momentum and eventual passage of CHIPS would be bullish for the stock. Instead, NVDA has been a dog in 2022. The stock was down 50% on the year through August, which compared to 25% and 32% declines for the NDX and SMH, respectively. Even on the day Biden signed the bill, August 9th, the stock declined 4% as fallout continued from an earnings warning. Seems fundamentals trumped legislation in this instance.

Now back to UW’s conspiracy theorizing.

What’s incredible about this tweet is how misleading it is.

As discussed, PP’s purchase of those NVDA shares was the result of calls that were purchased almost a full year prior. Those calls expired on June 17th, hence the need to exercise them. Exercising a call option involves purchasing shares at a contractually agreed strike price. In this case, the strike price for Mr. Pelosi’s NVDA calls was $100. So in fact, Mr. Pelosi purchased 20,000 NVDA shares on June 17 for $2 million, not $5 million.

Here UW would appear to have either been lazy or deceptive in his presentation of the dollars at play. Disclosure forms usually provide a range of the investment amounts involved in each transaction. PP’s NVDA purchase was listed in the $1,000,000 - $5,000,000 range. But details of the trade were also provided in his disclosure (i.e., Mr. Pelosi exercised 200 NVDA calls at a strike price of $100). UW seems to have just gone with the upper band of the provided range in the disclosure. Intentional or not, this is poor journalism.

Mark-to-market, this appeared a profitable trade since NVDA shares closed at $158.80 that day, which means Mr. Pelosi paid $2,000,000 for $3,176,000 worth of exposure. The trade was unprofitable in the end once costs were accounted for.

Second, NVDA did not rally 12% between the time of PP’s purchase and UW’s tweet. It gained about 7% (from June 16 close through July 19 close), which was a period when markets were rallying in general with respective gains of 8% and 7% for the NDX and SPX.

Moreover, the end date chosen by UW is arbitrary. Had UW published his tweet on July 1st instead of July 19th, NVDA would’ve been down nearly 9% since the exercise of PP’s options (versus a gain of 3-4% for SPX and NDX). Had he sent his tweet on July 15th, NVDA would’ve been down about 1% (versus gains of 5-6% for the SPX and NDX).

UW published other tweets that insinuated nefarious NVDA activity.

The Pelosis owned 25,000 shares of NVDA at that point, not 20,000. And CHIPS breezed through the House with voting predictably broken down along partisan lines. The bill was sponsored by the Democrats, so it’s not like the market was waiting with bated breath to see which way Speaker Pelosi would fall on the issue. Removing the mystery of Speaker Pelosi’s support - and that of the House for that matter - also removes the potential for any secret insight to be shared.

While NVDA played a key role in UW’s Pelosi semiconductor assertions, he later implied potential for conflict involving PP’s AllianceBernstein (AB) investment in a separate tweet.

This again strains credulity. AB has $650 billion in assets under management (AUM). Suggesting that Speaker Pelosi would use her office to affect the outcome of a stock that represents 0.02% of AB’s AUM is quite the stretch. And UW’s use of the word “heavily” is doing a lot of work here. $3.5 million is big money to most people. But for a portfolio on the order of $115 million, it’s a rather pedestrian 3% position. TSM could quintuple from here and still be a rounding error for AB.

The reality is that Taiwan Semiconductor is a critical asset that sits at the heart of an emerging geopolitical conflict between China and the United States. To not visit the company on the Speaker’s trip to Taiwan would’ve been a dereliction of duty.

But that doesn’t stop UW from tweeting about it and letting the imagination of his followers run wild.

Disappointed with the case made by UW in his semiconductor post, I moved on to others that focused on Speaker Pelosi (assuming she’d make for the easiest lightning rod). There are other pieces that I hope to get to eventually. I just can’t boil the ocean all at once here.

One post simply pointed out how the Pelosis had a good year of trading. As far as I know, this is not a crime. The only specific mention of “unusual” trades was the below:

Most of Pelosi's gains are quite interesting, given the timing of her plays. For example, she was able to get into TSLA, DIS around stimulus news, NVDA before American Semiconductor funding was announced, among a long list of interesting picks. Mr. Whale leaves it to the reader to check her transactions and the news around her purchases (all available for free on the platform). She also timed the NFLX buys on June 18th perfectly. It was released on July 14th that NFLX is entering the videogame space, causing the stock to rally significantly.

This also falls apart when subjected to light interrogation. Since we’ve already addressed NVDA, let’s look at the others.

The Pelosis purchased Tesla (TSLA) and Disney (DIS) calls on December 22, 2020, both of which were longer dated with expiry 13-15 months out. Importantly, these calls were purchased one day after a $900 billion COVID relief package was passed by Congress.

So sure, UW is technically correct that the Pelosis managed to “get into” TSLA and DIS “around stimulus news”. But their trades were executed after the news, not before. That seems a pertinent detail when it comes to suggestion of front-running.

Even so, passage of that bill was long anticipated as it won a huge majority in both the House and Senate. The bill’s imminent passage had surely been priced in, as evidenced by the market’s collective yawn at the news (with the SPX down small each of the three trading days surrounding it).

Even by his own math, the Pelosis were basically flat between the two trades as of the date of his blog post. Through today, I reckon they’re meaningfully underwater on both. Not particularly “interesting” trades to highlight if you want to build an insider trading case.

With regard to PP’s Netflix (NFLX) buys being “timed” perfectly, UW couldn’t be more incorrect in his framing. PP’s NFLX buys were initiated almost two years in advance of its video games announcement.

On July 5, 2019, the Pelosis purchased 20 NFLX call options with a strike price of $250 (when the stock was trading at $380 so ITM) and expiration on June 19, 2020. Those calls were exercised on June 18, 2020 when the stock was trading around $450.

It was reported that NFLX intended to enter the video game market over one year later on July 14, 2021. From the date of exercise through announcement, NFLX gained 21% compared to 47% for the NDX.

The stock actually declined 9% in the week following its video game announcement versus a 1% loss for the NDX. The stock fell 7% through month-end July versus a 2% gain for the NDX. It gained 1% through month-end August versus a 12% gain in NDX. It fell 4% through month-end September versus a 6% gain in the NDX.

As of this writing, the Pelosis have held on to their NFLX position, which too is underwater with the stock price now down ~50% (to $223) since their calls were exercised.

Nothing about PP’s NFLX trade should strike anyone as perfectly timed.

UW wrote another post that took a deeper look at the Pelosi Portfolio, providing cursory analysis of the family’s investments and income sources. In doing so, he confirmed something important for me: His primary complaint is that Speaker Pelosi is rich, not necessarily that she cheats.

He did this early in his post when the first bullet point in his TLDR summary was that Speaker Pelosi is “RICH, RICH”. He then flippantly noted that he wished he “could sell grapes for $1 million too”, made in reference to a vineyard owned by the Pelosis. Managing a winery is a difficult business that is minimized by reducing it to just “selling grapes”. He betrayed a deep jealousy with this comment that I suspect informs a lot of his work. I suppose I wish I could make UW money by “punching buttons on a keyboard”.

Further down the post, UW notes that Speaker Pelosi has been in office since 1987 and only makes $223,500 per year, followed by a breakdown of her income that measures in the millions. The dichotomy he is going for here is obvious. How could she become so rich on that salary? Left out of course is the critical fact that Mr. Pelosi is himself a successful businessman and the source of much of the family’s wealth.

The rest of the piece summarizes PP’s trades over the last several years. I must admit I had a tough time following everything, but the gist seems to be that the Pelosis have been profitable on balance. The key to their success per UW? Buy tech stocks or deep ITM LEAPS, hold on to the position, see that the economy runs smoothly, and profit.

So basically buy and hold while ensuring the country and economy remain strong. Sounds sketchy to me!

The foregoing has fueled a belief that Congress is suspiciously full of incredible traders who manage to consistently beat the market. Basic analysis of the facts - as presented by UW and Mr. Greenwald - suggests nothing of the sort.

But social media is built on bias-confirming hot takes rather than open-minded consideration of nuance. The popular narrative of insider trading among politicians therefore persists, even among those I’d like to think should know better.

A good example is the following clip, in which Krystal Ball and Saagar Enjeti of Breaking Points highlight their friend Mr. Greenwald’s piece, which they say conducts a “deep dive” into “specific examples” of corrupt congressional trading practices. Ha!

It just seems like they’re incredible at picking stocks. They always beat the market somehow…just geniuses running the country.

This is a red meat talking point for “anti-establishment” media personalities like Krystal and Saagar, who often take sound bites and run with loose interpretations that fit their own preconceived notions of the world. Naturally, they took the bait with Mr. Greenwald’s piece and echoed his sentiments at every turn, facts be damned.

The clip is a troubling watch for anyone interested in accuracy in reporting. Sadly comical to me is the palpable discomfort with which Saager speaks about these topics. The poor guy is out of his depth, which is painfully obvious to his informed audience.

$5.3 million in options! That’s not a joke. Options have a much higher propensity in order to go to zero. It’s much more akin to a casino level bet than it is just buying and selling a security that may or go up by 5, 10, 15 percent. The payouts are huge and the downside is big…My guess is, somebody worth this type of money, knew something which caused them to put so many millions of dollars on the line.

Saagar’s garbled mess of an explanation is as much a disaster in diction as it is in content. I won’t belabor points already made but suffice to say Saagar hasn’t a clue what he’s talking about. And he too reveals the tension that underlies much of the consternation surrounding Speaker Pelosi: She is rich.

By the way, I’d put Krystal’s ending comment back to her and Saagar: It’s not too much to ask that, given your platform and reach, you conduct at least a modicum of analysis before perpetuating falsities to the general public.

Information presented on social media is often a function of what we want to see, both in terms of our consumption (interpretive bias) as well as its presentation (audience capture).

Folks like UW and Mr. Greenwald - who have 2.5 million Twitter followers between them - are playing to the crowd with their work, capitalizing on the insecurities and gullibility of a fandom where the mere suggestion of congressional impropriety is taken as evidence of such.

All of this handwaving works in an era characterized by institutional and generational betrayal, where confirmation bias allows the myth of congressional insider trading to propagate despite little evidence supporting such accusations.

It’s thusly not so much that we should believe politicians cheat when they trade; it’s more so that we just want to believe it.

Would it surprise me in the slightest to learn that members of Congress regularly abuse their office for personal financial gain? Absolutely not. But it’s going to take more than loosely gathered circumstantial evidence to convince me that any such violation is occurring en masse.

The same should go for all of us.

This is the second in a two-part series responding to Matt Taibbi’s recent Substack articles about crypto. He wrote two pieces on the topic: One that focuses on concerns regarding Circle - issuer of the popular stablecoin USDC - and another that discusses how crypto’s purportedly failed effort at decentralization makes it just another “great American bubble machine”.

These are both subjects worthy of discussion. But I found Mr. Taibbi’s treatment of them to be lacking and ultimately demonstrative of the limitations of journalistic tourism (i.e., when a non-expert attempts to understand complex topics and reports on conclusions derived from superficial knowledge).

The first piece in this series took on Mr. Taibbi’s post entitled “Return of the Great American Bubble Machine”. This one will focus on his other piece entitled “The Financial Bubble Era Comes Full Circle”.

Having convinced himself that CeFi entities are destroying crypto’s DeFi ethos, Mr. Taibbi took aim at Circle as being worthy of suspicion. As mentioned, Circle is the issuer of USDC, today the second-largest stablecoin in circulation.

Stablecoins are designed to be pegged 1:1 to a stable asset. Their aim is to give crypto users a native “reserve” asset that couples price stability with on-chain operability to facilitate transactions across the digital asset ecosystem.

There are three main types of stablecoins: 1) fiat-backed (collateralized by USD, EUR, etc.); 2) crypto-backed (collateralized by BTC, ETH, etc.); and 3) algorithmic (whereby a peg is maintained through a decentralized arbitrage mechanism). The crypto highway is littered with the corpses of failed stablecoin projects, the most recent and spectacular being TerraUSD (UST), which was discussed in part one of this series.

Virtually all stablecoin failures have been of the algorithmic variety. The goal of these projects is admirable in that they attempt to make their functioning as decentralized as possible. The impetus for this was brought into stark relief last week when Circle froze over 75,000 worth of USDC linked to the recently-sanctioned privacy coin Tornado Cash. But despite their noble intentions, algorithmic stablecoins have proven inadequate to the task with death spirals proving more an inevitability than possibility.

The two largest stablecoins - Tether (USDT) and USDC - are fiat-backed. These issuers basically take $1 from a user in exchange for an equivalent stablecoin unit and strive to ensure that their coins can always be redeemed by that user for $1.

The primary way that groups like Circle and Tether make money is through investment income generated by their reserves. Put simplistically, if there are 100 USDC in circulation, Circle has $100 in reserves upon which it can earn interest.

Given this arrangement, groups like Tether and Circle leave themselves open to the potential for asset-liability mismatches. This is somewhat similar to what we saw with Celsius et al, so it’s understandable why Mr. Taibbi might be concerned.

But there is a meaningful difference in business models that should be noted. In the case of a shadow bank like Celsius, the business involves taking customer deposits in exchange for yields that sometimes approached 20%. One can imagine the risk involved in achieving such high yields, which came home to roost in recent months.

In the case of stablecoins, users are offered 0% returns. This means stablecoin issuers are not incentivized to assume outsized risk in a reach for yield. They just need to ensure they can take $1 and return that $1 anytime thereafter.

Also interesting is that Mr. Taibbi chose to focus on USDC rather than the much-maligned USDT, which is no stranger to controversy. I respect his willingness to bypass the low-hanging fruit of stablecoin qualms, though I wonder if his decision to cut against the grain forced some manufactured beefs.

For Mr. Taibbi, the trouble started with the revelation that BlackRock would join Fidelity and others investing $400 million as part of Circle’s latest funding round. Most problematic to Mr. Taibbi was the announcement that BlackRock would become the primary manager of USDC reserves in what is called the Circle Reserve Fund.

Sources called with concerns. The fund’s registration statement says “shares are only available for purchase by Circle Internet Financial, LLC.” Not only is this unusual — one legal expert I spoke with said he’d “never seen such a fund… available for sale solely to a single entity”

Despite the apprehension of Mr. Taibbi’s sources, it’s become increasingly common for asset managers to launch funds with a single investor. These products typically come in the form of a separately managed account or a Fund of One. Investors in these vehicles tend to be big enough to dictate their own terms and mandates. It strikes me as reasonable that Circle - with a $40 billion-plus reserve management mandate - would be able to command such accommodation.

Mr. Taibbi’s primary concern appears to be the issue of bankruptcy remoteness. This relates to the potential that USDC reserves could be forfeited should Circle ever go bankrupt. This ties back to his other piece, which highlighted the perceived risk that user assets could be confiscated in the event of a Coinbase bankruptcy.

It’s at the core of the whole dilemma of the cryptocurrency markets. Certainly the question of who actually owns and controls reserve assets exists, or seems to exist. Here Circle is unlike some competitors, whose user agreements specifically spell out that reserves are, say, “fully backed by US dollars held by Paxos Trust Company, LLC,” or “custodied pursuant to the Custody Agreement entered into by and between you and Gemini Trust Company, LLC.” Those describe trust agreements, which are truly bankruptcy remote.

A couple of things here. First, crypto has many worries and dilemmas; I reckon the financial stability of Coinbase and Circle does not sit at the core of any of them.

Second, Gemini is in the custody business…of digital assets. The company does not custody fiat for the purposes of its own stablecoin, Gemini Dollar (GUSD). It instead outsources that function, just as Circle uses BNY Mellon for such services in relation to USDC. Thusly, the custody agreement Mr. Taibbi highlighted here has nothing to do with GUSD reserves. (Noting further that Gemini outsources the money market portion of its reserve management to Goldman Sachs Asset Management.)

Below is the custody section of Gemini’s user agreement that Mr. Taibbi referenced, noting it specifically relates to digital assets rather than fiat.

Further down the agreement comes the fiat custody portion, whereby Gemini specifies that fiat is held in omnibus bank accounts in its name and under its control. Gemini further notes that each GUSD “corresponds to one U.S. dollar held across one or more omnibus accounts.”

So similar to USDC being the sole beneficiary of the Circle Reserve Fund, so too is Gemini the sole owner of these various omnibus accounts established to manage its GUSD reserves (and presumably the beneficiary of that Goldman money market fund). Some cover is achieved when Gemini specifies that those accounts are established for the “benefit of Gemini customers”. But Circle’s user agreement says the same thing.

Third - while admitting I’m no expert on bankruptcy remoteness - my understanding is that trust agreements are not in and of themselves evidence of such. Bankruptcy remoteness addresses the segregation of one entity’s assets from those of other entities within the same group to limit the reach of creditors. In the case of Paxos, it appears that the issuer of its stablecoins also acts as the custodian of its reserves (i.e., both functions look to be performed by the same legal entity, Paxos Trust Company, LLC).

Elsewhere on its website, Paxos states that its reserves are held in fully segregated, bankruptcy remote accounts. No further clarification is provided as far as I can tell, which appears good enough for Mr. Taibbi. I have no reason to dispute the company’s claim - especially given its strong reputation and focus on regulation - but the quote Mr. Taibbi included here fell short of providing evidence that anything was “truly bankruptcy remote”.

Lastly, the referenced quote from Paxos is incomplete. The company’s statement actually reads that its stablecoins are “fully backed by U.S. dollars…or by debt instruments that are expressly guaranteed by the full faith and credit of the United States Government and/or money-market funds composed of such debt instruments.”

Circle happens to say pretty much the same thing: “The USDC reserve is held entirely in cash and short-dated U.S. government obligations, consisting of U.S. Treasuries with maturities of 3 months or less.”

Mr. Taibbi also expressed concern that Circle’s reserve fund could invest up to a third of its assets in reverse repurchase agreements (reverse repos).

Also, the new fund would be “permitted to invest up to one-third of its total assets in reverse repurchase agreements.” Would Circle be making use of that provision?

Regarding the BlackRock fund’s provision allowing them to borrow up to a third of the reserves, I learned that government money market funds typically do not borrow, but also that the company would enjoy access to the Fed and its repo borrowing program.

Repurchase (repo) agreements basically involve one party selling securities to another with an agreement to repurchase those assets shortly thereafter at a predetermined, higher price. Repos and reverse repos are basically opposite sides of the same borrowing and lending coin. These are typically overnight and overcollateralized arrangements, making them low risk in nature.

It’s unclear why Mr. Taibbi is concerned here as repos are common short-term liquidity and investment instruments. They are in fact a mainstay of money market investment programs. Per Barclays, “repo allocations from government money market funds have increased to nearly 40% of their assets currently.” The SEC even released a primer last year discussing the outsized role money market funds play in the repo market.

Paxos, which is among the most regulated crypto firms, already makes regular use of these instruments for its own stablecoin reserves. In fact, roughly a third of the reserves associated with Binance USD (BUSD) - which at $18 billion is by far the company’s largest stablecoin offering - is invested in reverse repos.

The company explains its reverse repo activities in some detail on its website:

Investing in reverse repos is thusly far from a controversial practice. Granted, Circle could theoretically be on the borrowing end of these agreements, which I’m guessing is the concern for Mr. Taibbi. But it stands to reason that stablecoin issuers would avail themselves of all manner of short-term liquidity instruments to manage their reserve flows.

We see such flexibility afforded to traditional money market funds as well. For example, Fidelity manages one of the largest government money market funds in the world, the $250 billion Fidelity Government Money Market Fund (SPAXX). Its prospectus specifies that the fund may enter into reverse repurchase agreements, even to “satisfy redemption requests”. These funds may not “typically” make use of such provisions, but the ability to do so is there, same as with the Circle Reserve Fund.

Mr. Taibbi later asked Circle where its reserves were held, to which the company responded with a list of banks holding its cash reserves and the custodian responsible for its Treasury purchases. That answer was not good enough for Mr. Taibbi:

This is a non-answer. Circle discloses where some of its reserves are, but not all, and not how much of what is where. Now, Circle separately features a Yield program, which offers guaranteed returns. These were never as high as Terra’s preposterous and obviously Ponzoid 20% guaranteed returns, which quickly attracted $60 billion that vanished even more quickly, but the program exists nonetheless, at one time offering 12-month yields as high as 10.75%…In the time it’s taken to write this piece the guaranteed return has dropped from 6% to 1% to 0.5%.

This response is some combination of unfair and uninformed. Circle answered the question that was posed to it. No stablecoin issuer provides an exact breakdown of its counterparty arrangements, likely in an effort to protect its partners and users. As of its latest attestation - which predates Mr. Taibbi’s post - Circle’s reserves are currently 100% cash and Treasurys, so the company answered where all - not some - of its reserves were held.

Mr. Taibbi also demonstrated misunderstanding of crypto markets when mentioning Terra, the blockchain responsible for the failed stablecoin UST and home to a number of other projects. One of those projects was a savings and lending protocol called Anchor, which at one point offered yields as high as 20%. At its peak, Anchor had about $20 billion in total deposits. Terra’s native token, Luna, had a peak market capitalization of roughly $40 billion prior to the depegging of UST.

So yes, roughly $40 billion in user capital “vanished” amidst the UST meltdown as the price of Luna fell from about $100 to nearly $0. But only $20 billion of user capital was related to the “ponzoid” Anchor product. And not all of that was lost since plenty of the drawdown in Anchor assets simply involved users removing their deposits from from the protocol as UST depegged. Real money was certainly forfeited in that process but nowhere near the full $20 billion worth.

And use of the term “guaranteed” here is bogus. Nowhere on the Circle or Anchor websites is that word used in relation to their offered yields.

When Circle announced that it would allow its Circle Yield (CY) customers to withdraw funds penalty-free as crypto markets plummeted, Mr. Taibbi responded skeptically with, “make of that what you will.” Huh? The only thing to make of such a move is that Circle was operating from a position of strength by offering its customers early liquidity in a period when such liquidity was evaporating elsewhere.

Mr. Taibbi commits a fallacy of composition by mentioning CY in the same breath as Anchor, like all yield is bad yield in crypto. To do so is wildly off base as these are entirely different products. Anyone could deposit any amount in Anchor whereas CY is built more for institutional accredited investors with a minimum investment of $100,000. And the yields on offer with Circle are much more rational in a market context whereas the Anchor yields were clearly artificially manufactured.

Mr. Taibbi then made the following statement in response to Circle stating that it does not use USDC holders’ money to run its business or pay its debts:

If Circle does not and will not use USDC holders’ money to run its business, how is it projecting to earn $438 million in revenues from its USDC reserves this year, and over $2.188 billion next year? Again, is USDC a utility-like product content to earn little caring for giant piles of money, or more like a profiteering financial firm that earns money creatively leveraging up its assets? This raises another question that first came up last year. If Circle is holding its reserves in segregated accounts strictly for the benefit of customers, why was it, at least at one time, keeping a not-insignificant portion of its reserves in commercial paper and instruments like Yankee CDs?

Mr. Taibbi demonstrates a fundamental misunderstanding of the stablecoin business here. The primary economic objective of a fiat-backed stablecoin is similar to that of a money market fund. With the latter, investors can earn yields in excess of interest-bearing bank accounts by allocating to a fund that invests in relatively safe, short-term debt instruments to generate some extra yield. Circle effectively does the same with its USDC reserves.

However, instead of any incremental yield going to investors like with a money market fund, that spread is instead captured by Circle. This is possible because holders of USDC are not expecting any gains to accrue to them. They simply want to know they can redeem their USDC at any time for $1.

So what Circle is saying here is that it doesn’t take the $1 that someone uses to purchase USDC and deploy that $1 to pay its own bills. It instead tries to turn that $1 into something like $1.0075 and keep the incremental $.0075 as revenue.

Circle’s revenue projections on USDC reserves therefore make sense. USDC market capitalization has exploded over the past year. If we extrapolate that growth through yearend and assume a blended yield of 0.75% on its USDC reserves, we get to the revenue Circle has projected for 2022. The company has obviously taken some liberties with expected growth in USDC demand as well as interest rates with its 2023 projections, but it wouldn’t be the first company with listing aspirations to get aggressive with its financial models. Besides, with 3-month T-bills currently yielding 2.4%, its assumptions might not be that aggressive after all.

So yes, Circle is quite content to “earn little caring for giant piles of money”. That’s because this a volume business in the same way Vanguard is happy to charge bargain basement fees on its trillions in assets under management. In this type of setup, there really is no need to “creatively” leverage up its assets. Nor is there evidence of the company doing so. In reality, the bigger USDC gets, the less incentivized it is to reach for yield. This is especially true in a rising interest rate environment where the ball can do the running for you (to steal a soccer phrase).

Mr. Taibbi then focused on Circle’s July 2021 reserve attestation, noting “a surprisingly high amount held in riskier or less liquid investments like corporate bonds and commercial paper.”

Firstly, the chart Mr. Taibbi references is from Circle’s May 2021 attestation, not July 2021. Second, risk is a spectrum. Everything listed here outside of cash and Treasurys is relatively risky when compared to risk-free but not necessarily risky in absolute terms. Yankee CDs are similar to regular certificates of deposit, which are among the least risky investments one can find outside of Treasurys. The main difference is that they are issued by the US branch of a foreign bank. Think of names like Barclays, Santander, Scotia Bank - not exactly fly-by-night enterprises.

Commercial paper is generally considered low risk given its short-term nature and corporate bonds are only as risky as the credit ratings attached to them. The footnotes Mr. Taibbi excluded note that Circle’s corporate bond portfolio was comprised of credits rated a minimum of BBB+. This qualifies as investment grade per S&P’s ratings guide (i.e., low risk of default), which contrasts with the quality of paper rumored to plague the likes of USDT.

More to the point is that most of this handwringing is moot. Per a July statement, 80% of USDC reserves are in US Treasury instruments of durations of three months or less with the remaining 20% held in cash. This makes total sense. With due respect to the Circle management team, USDC has morphed into a cash cow business that should be on cruise control and involve little brain damage as it relates to its reserve management. Throw the yieldy stuff BlackRock’s way then put the rest in the bank and call it a day. Set it and forget it while generating hundreds of millions of dollars in revenue thanks to a growing numerator and denominator. This is a fantastic business that is far from rocket science. You’d have to be an idiot to screw it up.

Mr. Taibbi went on to lament the fact that Grant Thornton (GT), the accountant who conducts regular attestations of USDC reserves, tweaked some language in its attestation reports from “correctly stated” to “fairly stated”. The insinuation being that GT is making the language more equivocal - presumably due to concerns it may have with Circle’s assertions - when in reality GT was simply adopting verbiage more conventional to the industry.

He then complained that the most recent attestation used “the word ‘opinion’ four times and ‘audit’ zero times.” This is a strange complaint since an attestation is technically a type of audit whereby a professional accounting firm provides an opinion as to the reasonableness of presented data. Paxos also conducts regular attestations of its stablecoin reserves, with the most recent mentioning “audit” just once (to effectively say the attestation was not an audit) and “opinion” seven times.

He also made the following odd comment: “Grant Thornton did not respond to requests for clarification as to whether or not they consider these reports audits, though the company, Circle, considers itself audited.”

Of course GT doesn’t consider those reports to be formal audits. Because they’re not. They’re attestations. And Circle doesn’t consider itself audited. It is audited, having engaged one of the top IPO audit firms, Marcum LLP, for such services. This is a critical step for any company seeking to list on a public stock exchange.

Mr. Taibbi went on to question Circle’s status as the “good crypto” by first noting its delay in securing a bank license and then rehashing its CEO’s questionable past.

Four years after it first declared its intention to be the first coin with a bank license we’re still reading headlines like, “Circle Will Apply for U.S. Crypto Bank Charter in ‘Near Future,’” in the hopes now of becoming the fourth stablecoin to get licensed. The company does not believe current law allows it to become a bank, but similar companies didn’t seem to have had a problem.

Mr. Taibbi is again confusing things here. Coins don’t get bank licenses, companies do. There are three other crypto companies that have been provisionally approved for bank charters - Paxos Trust Company, Protego Trust Bank and Anchorage Digital - but only one of them has issued a stablecoin (Paxos).

What he may be referring to instead is the fact that there are three stablecoins that are subject to oversight from the New York Department of Financial Services: Gemini’s GUSD and Paxos’ USDP and BUSD.

Mr. Taibbi finished his piece by putting Circle Cofounder and CEO Jeremy Allaire under the microscope, drawing attention to a fraud allegation that he settled 20 years ago relating to a previous company of his, Allaire Corporation. Though no wrongdoing was admitted, one can only assume the implication here is that Circle is not to be trusted given the checkered past of its leader. The involvement of former Barclays chief executive, Bob Diamond, in Circle’s upcoming SPAC only exacerbates the issue for Mr. Taibbi.

I have no idea whether Circle is full of shit when it comes to its attestations or whether USDC reserves are held in truly bankruptcy remote accounts. I don’t know if Circle might have been - or could be in the future - negligent when it comes to managing its reserves. And I have no insight into Mr. Allaire’s character or the manner in which he runs his firm.

What I do know is that Mr. Taibbi has built the flimsiest of cases with this piece, which I’m afraid will be read by his less discerning readers and taken as gospel as it relates to Circle’s guilt. Mr. Taibbi may ultimately be proven correct to have casted a wary eye towards the likes of Circle, but that won’t make his post any more accurate in its treatment of the firm and the broader stablecoin business.

In what is becoming a regular encounter with Gell-Mann amnesia for me, this is the second piece about one of my favorite writers misunderstanding things. The first one discussed how Matt Taibbi misexplained hedge funds and other financial topics to Joe Rogan during a podcast discussion earlier this year. And here I am again to highlight confusion Mr. Taibbi recently demonstrated while writing about crypto.

He wrote two pieces on the topic: One that focuses on concerns regarding Circle - issuer of the popular stablecoin USDC - and another that talks about how crypto’s purportedly failed effort at decentralization makes it just another “great American bubble machine”.

These are both topics worthy of discussion. But I found Mr. Taibbi’s treatment of them to be lacking and ultimately demonstrative of the limitations of journalistic tourism (i.e., when a non-expert attempts to understand complex topics and reports on conclusions derived from superficial knowledge).

By way of disclaimer, I don’t consider myself an expert when it comes to crypto, which may seem counterintuitive. However, I’ve invested in several parts of the ecosystem so am dangerous enough when it comes to knowing how it actually works. I am not technically proficient in the underlying technology but I understand very well how the space trades. When it comes to crypto, speculation is the primary use case for me. While I’m by no means a diehard on the asset class, I remain openminded about its potential. I therefore suffer maximalists and denialists alike.

What I’m more interested in is accuracy in reporting. And even with my admittedly moderate knowledge of crypto, I found multiple instances of misunderstanding with Mr. Taibbi’s posts on the topic.

Since this became way too long for a single post, I’m splitting it into two parts that treat each of his pieces individually. We’ll start by taking on the one entitled “Return of the Great American Bubble Machine”.

Mr. Taibbi led the bubble piece by marveling at the amount of wealth destruction that has occurred within the digital asset market in recent months. He framed the devastation by noting an “astonishing” $700 billion in losses from early May through June. This is a pet peeve of mine because absolute numbers don’t mean much without context. I mean, sure, $700 billion sounds like an awful lot. But it pales in comparison to the trillions in stock market losses incurred during the same period. A more effective way of describing the abysmal performance of an asset is to state its total rate of return. In the case of crypto, being down in the neighborhood of 65% on the year would’ve been descriptive enough, which of course could be punctuated by total dollar amounts.

He then highlighted the collapse of algorithmic stablecoin TerraUSD (UST) as a key triggering event of the crypto selloff. At roughly $20 billion in market capitalization, UST had grown to become one of the largest stablecoins and underpinned a broader ecosystem that was bursting with promise. The collapse of UST - which basically involved loss of its 1:1 peg with the U.S. dollar (USD) - revealed a massive web of leverage and cross-collateralization that took down a number of major industry players. More on this later.

Mr. Taibbi attributed further “market mayhem” to a disclosure that Coinbase made in a regulatory filing which seemingly suggested that customer assets could be confiscated in the event of the company’s bankruptcy.

$200 billion vanished from the valuation of crypto companies within 24 hours as, among other things, the share price of Bitcoin, the leading crypto product, fell on the news.

This is an oddly worded sentence for anyone familiar with markets in general and the crypto one in particular. Putting aside the strange use of the term “valuation” in this context, Mr. Taibbi appears to be confusing traditional finance (TradFi) and decentralized finance (DeFi) concepts.

By referring to companies, one might assume he means publicly-listed crypto entities like Coinbase (COIN), Galaxy Digital (BRPHF), RIOT Blockchain (RIOT), etc. But that cannot be the case since the combined market capitalization of these companies peaked at roughly $100 billion last year.

He must therefore be referring to the total value (not valuation) that was shed across the entire crypto asset class, which includes the thousands of coins and tokens comprising the ecosystem. This would indeed appear to be the case since, per CoinGecko, the total market capitalization of crypto declined approximately $165 billion from end-of-day May 10 to end-of-day May 11.

But to refer to all those coins and tokens as companies is misplaced. These are not companies issuing shares of equity on a stock exchange. They are instead projects and protocols with tokens attached to them. These tokens aim to - among other things - facilitate usage, promote uptake and accrue value to holders. In some cases, these digital assets attempt to perform the function of a currency (as with bitcoin) but most of them offer some other utility.

For example, FTT is the native token for the popular FTX exchange. Holders of FTT receive various perks like discounted trading fees on the FTX platform. But FTT is no more a company than individual shares of Apple stock represent companies in and of themselves.

Also, there is no “share price” of bitcoin as there are no shares in any related company to be purchased. Bitcoin simply trades at a price relative to a reference asset and is most often nominally quoted in U.S. dollar (USD) terms. It’s the same way one does not buy shares of euros; they instead just buy euros.

And conventional definitions of bitcoin consider it to be some combination of commodity and currency, so referring to it as a “product” feels strange, especially since there is no central organizing entity producing and distributing it. Are copper or the USD ever described as such?

Lastly, a semantic note: The capitalized spelling of Bitcoin refers to the network. The lower case spelling of bitcoin refers to the cryptocurrency (BTC).

More importantly, Mr. Taibbi incorrectly suggested that one event was the cause of another. The reality is that Coinbase’s disclosure had little to do with crypto performance in the days surrounding it. In fact, BTC (a good barometer for general price action) was actually up about 3% on the day of the Coinbase news. Also up on the day was the Nasdaq Composite Index, which advanced about 1%. BTC did fall (-6%) the day following the announcement, but so too did the Nasdaq (-3%).

Generally speaking, crypto price action this year is more a function of broader macro dynamics than idiosyncratic developments within the industry (one exception being the Terra debacle and resultant carnage). As many have long observed, crypto has been the beneficiary of easy monetary policy for most of its existence. And now that the U.S. Federal Reserve has embarked upon an aggressive rate hiking cycle, the era of easy money is coming to an end. This has resulted in a massive repricing of all risk assets. It’s therefore no surprise that crypto’s correlation with the Nasdaq has spiked these past several months. And as a beta play on growth, we typically see crypto shadow the Nasdaq in punchier fashion.

In tying crypto price action to that Coinbase disclosure, Mr. Taibbi not only tried to force a false narrative but also revealed his own naivete on the subject. Putting aside the low probability of a Coinbase bankruptcy in the near term - and whether user coins would actually be at risk anyway - most crypto users understand very well the risks associated with keeping their coins on exchange. There’s a popular saying within the community that nicely captures this sentiment: Not your keys, not your coins. This effectively means that those choosing to entrust custody of their crypto assets to a third party - like an exchange - are knowingly sacrificing some degree of ownership and control in the process.

So if anyone actually grew concerned about the viability of Coinbase, their (rational) instinct would not be to sell everything but instead to simply move their coins to another exchange or - better yet - to a self-custodied wallet. The latter is something that Coinbase itself has encouraged, having rolled out its own self-custody wallet called Coinbase Wallet. A self-custody wallet transfers ownership of one’s private keys to that wallet, leaving its contents beyond the reach of any third-party entity.

Coinbase volumes did spike in the days surrounding the disclosure but remained well below historical highs. And there was another event occurring around the same time - the de-pegging of UST - which may explain at least some of the heightened activity.

Interestingly, the bitcoin balance on Coinbase was relatively steady during the days surrounding its disclosure, suggesting investors weren’t particularly concerned about it. A bigger dip came later on May 13 as the demise of UST progressed.

Source: Coinglass.

The fact is that coins have been fleeing exchanges for a while now. This used to indicate intention to hold crypto for the long term (noting coins moving back to exchange typically portends sell pressure). But wariness of counterparty risk is undoubtedly playing an increasing role.

This gets to what I perceive to be the heart of these two pieces for Mr. Taibbi. My guess is that he looked around at all the madness playing out in cryptoland and began to pattern match by looking for historical corollaries. What he saw was a fledgling industry succumbing to many of the same problems of the very industry it seeks to disrupt. Coinbase could go bankrupt and take its customers coins with it? Some groups basically operated as illiquid, leveraged hedge funds that could become insolvent? And one of the biggest stablecoin projects could lose its peg and a bunch of money for its users in the process? What is decentralized and better about any of this?

There is merit to this argument and it speaks to a longstanding tension within the crypto community between CeFi and DeFi entities. The problem though is that crypto appears to form a synecdoche in Mr. Taibbi’s mind whereas it is instead comprised of wildly disparate but interconnected parts.

Crypto purists eschew all manner of CeFi as best they can. But the reality is that some CeFi elements are required in order for the system to function. For example, exchanges like Coinbase and FTX are centralized entities. Though they ostensibly exist to facilitate things like DeFi, they nonetheless operate in conflict with crypto’s core operating ethos that espouses decentralization. But in order to make an initial purchase of crypto, one typically needs to have fiat (USD, EUR, JPY, etc.) on hand to do so. These exchanges are the only fiat on/offramps available to most crypto users, which forces engagement with these centralized entities at entry and exit.

Once a user converts their fiat to BTC, ETH, USDC, etc. on exchange, they are free to take their crypto and traverse the growing landscape of DeFi outside of the exchange. But if they ever want to take liquidity along the way, they’ll be required to return to a centralized exchange and convert their crypto back into fiat for transfer to their TradFi bank account.

So centralized exchanges act as a necessary evil for much of the crypto community. There are of course decentralized exchanges that populate the world of DeFi. But they require possession of other coins in order to transact, which takes us back to the initial requirement to use centralized exchanges as onramps.

Less necessary are shadow banking businesses like Celsius, BlockFi, Voyager Digital and Vauld, groups forming the epicenter of today’s crypto storm and sharing similarities with the leveraged asset-liability mismatch machines that characterized the GFC. These are each CeFi entities that take deposits from customers looking to earn yield on their crypto holdings and use those deposits to earn excess yield of their own. They do this through extending loans to other crypto entities, yield farming and proprietary trading (among other things).

There have been other culprits too, including the now infamous hedge fund Three Arrows Capital (TAC). The fund reportedly had $18 billion in assets under management at its peak but was recently forced into liquidation thanks to the souring of a number of leveraged bets.

As witnessed over the past few months, this is all a dangerous game to play in crypto. The nature of the digital asset class reminds me of the geopolitical acronym VUCA: Volatility, Uncertainty, Complexity, Ambiguity. Simmering under the surface of an already volatile space was a mountain of self-contained but illiquid debt that left the space on a razor’s edge. So when UST collapsed and took the broader Terra ecosystem down with it, a cascade of margin calls and forced liquidations was triggered. Related selling directly impacted crypto prices and also influenced a lot of selling among those looking to front-run the forced unwind. This created a vicious cycle of selling that saw June become the worst month in history in terms of crypto price action.

To hear Mr. Taibbi tell it, this all means that crypto has failed as just another American bubble. Two things here.

First, bubbles routinely inflate and deflate in crypto. BTC has experienced peak-to-trough drawdowns of 50%+ at least half a dozen times before, so this sort of price action is par for the course.

Second, Mr. Taibbi conflates notions of transparency and governance within blockchain technology itself with these various CeFi entities causing all the trouble. Outside of the Terra debacle, most crypto projects have been operating just fine amidst all the stress. Bitcoin continues to churn out block-after-block and DeFi performed admirably despite the adversity. Transparency may have gone to die with some of these CeFi entities but it remains standard operating procedure within most native projects themselves.

Importantly, these CeFi entities cannot entirely escape the forced transparency of the blockchain that Mr. Taibbi thinks has been betrayed. This is because they all have wallets attached to them whose transactions are easily traceable. For example, we can watch in real time as Celsius reclaims collateral from DeFi lending platforms in order to buttress its liquidity position.

So it’s not so much that crypto has failed at its objective as it’s been bastardized by groups looking to capitalize on the industry’s growth. Mr. Taibbi’s claim is a little like saying mortgages failed because the GFC happened. The problem obviously wasn’t the concept of mortgages. Sure, there were plenty of mortgages that were poorly structured, just like there are plenty of crypto projects guilty of the same. But it was largely the repackaging and securitization of mortgages by investment banks that led to the whole mess. We’ve seen a similar dynamic play out in cryptoland with centralized entities developing their own witches’ brews of complexity. But just as mortgages continue to perform a legitimate function, so too does the underlying technology of blockchain.

Mr. Taibbi spent the rest of the bubble piece drawing parallels between the shenanigans seen in TradFi during the 2008 Global Financial Crisis (GFC) and what is taking place today in cryptoland. In doing so, he made a number of questionable claims.

Firstly, pointing to increased lobbying efforts by the industry as evidence of it “buying all the questions” is disingenuous to me. As a nascent industry that has grown from nothing to several trillion dollars in just over a decade, it stands to reason that it would mature in its political savviness along the way. And a lot of the activity thus far has involved certain industry leaders testifying before Congress via Q&A sessions designed to educate America’s political class on a topic about which they know very little.

The fact of the matter is that most of crypto’s CeFi players welcome regulation. The more clarity there is on this front, the more comfortable large traditional players will feel to engage with the space. The hope, of course, is that any regulation is of the “smart” variety, hence the desire for certain actors to grow more engaged with the powers that be.

As the saying goes: don’t hate the player, hate the game.

Second was this quote:

On January 3, 2009, an anonymous computer developer going by the name Satoshi Nakamoto created the first “Bitcoin,” a form of digitized currency designed as a technological solution to the problems posed by companies like Lehman Brothers. In fact, the “genesis block” of Bitcoin, i.e. the first-ever unique unit of digital currency…

Bitcoin’s genesis block was not “the first-ever unique unit of digital currency”. That first block instead formed the foundation of the immutable database that became the Bitcoin blockchain. Blocks are basically discrete data sets of recorded transactions on a network. The information contained within is verified by a process called mining, which is a computationally intensive effort to guess a random number. Miners are incentivized with rewards for correctly solving that number. The rewards associated with mining that genesis block came in the form of the very first bitcoin (50 to be exact). So to correct Mr. Taibbi, that first block was not itself the first unit of digital currency; rather, it precipitated the issuance of those first bitcoins as a reward.

Third was this quote:

Even the ultimate symbols of upper-class financial respectability, the auction houses Sotheby’s and Christies, got in on the act. These companies, whose very names imply frumpy establishment legitimacy, not only began accepting cryptocurrency as payment for properties like an untitled $5.4 million Keith Haring painting, but held auctions for NFTs, or non-fungible tokens, a kind of digital currency that at the time was having success as a speculative investment.

An NFT is not a kind of digital currency. The reason for this is in the name: non-fungible. This means each NFT is unique. Conversely, fungibility is a critical feature of any currency. For example, one BTC can be exchanged for one BTC in a transaction of equals, just like one $10 bill can be exchanged for another $10 bill. The entire point of NFTs is that they are not fungible and instead represent ownership of a singular, unique thing. So it would be better to refer to NFTs as a digital asset rather than a digital currency.

Fourth was this quote:

Wells Fargo and Chase launched Bitcoin funds in August of 2021, while both the NASDAQ and the NYSE began listing crypto-based exchange-traded funds, and in yet another stone cold repeat of 2008, pension funds began plunging their money into crypto properties, with the Houston firefighters’ fund in October of 2021 being among the first.

Mr. Taibbi’s mention of the NASDAQ and NYSE listing crypto-based ETFs requires some explanation. U.S. regulators have yet to approve a “physically-backed” crypto ETF despite repeated efforts by industry to get one to market. The reluctance of regulators to approve a bitcoin spot ETF has in fact contributed to some of the problems plaguing the space today, namely involving the travails of the Grayscale Bitcoin Trust. There are a handful of ETFs that trade bitcoin futures but none of them are allowed to hold crypto directly. The biggest related ETFs are instead those investing in stocks of companies active in blockchain or crypto. So the ETFs Mr. Taibbi is referencing here would be better described as crypto-related rather than crypto-based.

And assuming by “properties” he means “investments”, Mr. Taibbi makes it sound like there’s been a rush into digital assets among U.S. pension funds. But I’ve only heard of a small handful allocating to the space. In addition to Houston firefighters, a couple of Fairfax county pensions allocated to a crypto venture capital fund as well as a crypto hedge fund. But that’s pretty much it. And these allocations have been tiny. Houston firefighters invested 0.5% of its pension directly in BTC and ETH while the Fairfax allocations amounted to about 1.7% of combined pension assets. The reality is that pensions are only just beginning to explore the space and are far from “plunging” into it.

Lastly, looking at crypto as a “great American bubble” isn’t quite right. While some of the problem children of this latest cycle are U.S.-based, crypto is very much a global phenomenon. The largest crypto exchange in the world by a country mile, Binance, is based in Malta by way of China. Terra was headquartered in South Korea. TAC was relocating to Dubai by way of Singapore. And as Sam Bankman-Fried (SBF) has testified before Congress, 95% of all crypto trading occurs offshore. (SBF is the founder of FTX, itself based in the Bahamas by way of Hong Kong).

A primary reason for this is the generally antagonistic treatment of crypto by U.S. regulators. So instead of Mr. Taibbi’s assertion that crypto has been allowed to run rampant because of acquiescent regulators and politicians, the U.S. is actually an inhospitable jurisdiction for digital assets. This might be the result of concerted efforts by regulators to protect a legacy financial system by squelching innovation, or it could derive from a genuine desire to look after retail investors.

I reckon it’s more a function of an ossified regulatory bureaucracy that doesn’t know how to deal with the birthing of an entirely new asset class. Similar to how the FBI and CIA didn’t know how to talk to each other prior to 9/11, confusion reigns amongst the SEC, CFTC, etc. in understanding exactly what should be done to bring oversight to a space as dynamic and confusing as crypto.

I’ll soon be publishing part two of this post, which focuses on Mr. Taibbi’s run at stablecoin issuer Circle.

The game of history is usually played by the best and the worst over the heads of the majority in the middle. - Eric Hoffer

George Noble is an investment industry veteran in the midst of a career renaissance. After years spent in relative quietude managing his own money, he recently burst onto the Financial Twitter (FinTwit) scene as an outspoken critic of certain Wall Street characters and behaviors. A man mostly known in veteran hedge fund circles is increasingly becoming a household name, and his small Twitter account with limited engagement a short six months ago has since ballooned to over 35,000 followers.

Mr. Noble got here by capitalizing on today’s populist moment and reinventing himself as a righteous crusader looking out for the little guy. Making savvy use of social media, he is now the self-appointed arbiter of all that is good and bad in the investment world. Those who fall afoul of him incur his wrath in writing as well as video…and lots of people are watching.

In his crosshairs are the supposed stars of this latest everything bubble, which can generally be described as the bull market for risk assets that has prevailed since the 2008 Global Financial Crisis but especially so following the COVID crash of March 2020. Mr. Noble has publicly identified a handful of individuals whom he believes have been behaving irresponsibly. He takes every opportunity to heap scorn upon them for their perceived misdeeds, even creating his own Hall of Shame for their names to grace.

In addition to those named above, Mr. Noble’s hit list has grown to include RealVision cofounder Raoul Pal, crypto investor Nic Carter, contrarian macro strategist David Hunter, Tiger Global founder Chase Coleman, and likely a host of others. He has promised these individuals that he will become their worst nightmare.

Mr. Noble seems to be enjoying his newfound fame. He’s more active than ever on Twitter, hosts his own Spaces discussions and pinned a recent Forbes piece on his crusade to his Twitter profile.

With all the buzz, I couldn’t help but do some research to better understand our new hero. What’s his story? What’s he like? And why is he doing this?

What I discovered is a man who is a walking contradiction. Someone who:

• pleads for civility in discourse while regularly excoriating those who dare disagree with him;

• bemoans ad hominem attacks yet routinely hurls insults himself;

• laments creations of social media when it appears he used one of them to elevate his own profile;

• claims altruistic intentions when his campaign of righteous indignation may have commercial motivations; and

• uses social media as a bully pulpit to disparage others for being wrong despite being wrong many times himself.

Mr. Noble began his career in 1981 as an analyst at Fidelity Investments. His formative years were spent working for the legendary Peter Lynch before becoming the first Portfolio Manager of the Fidelity Overseas Fund (FOSFX) in 1984.

Mr. Noble’s performance was strong during the early part of his FOSFX tenure, outperforming his category (Foreign Large-Cap Growth) by an average of 18% per annum for the period 1985-1987 (per Yahoo Finance). This strong start included a 79% gain in his first year at the helm (versus a peer group average of 59%), which made FOSFX the top-performing mutual fund in America in 1985.

This put Mr. Noble on the investment world map and remains his calling card to this day. It also provides a peek into the man’s personality and possible insecurities. The fact that he once managed the top-performing mutual fund in America is very important to him as it features prominently in his Twitter profile and history. An archive search of “#1” or “number one” returns dozens of instances where he is found reminding people that he used to be a big deal. He even once bragged that he could run six miles in under 36 minutes while boasting of his moment in the sun those many years ago.

That inaugural year with FOSFX would end up contributing almost half of all the gains achieved during Mr. Noble’s six years at the helm. The latter part of his FOSFX tenure was indeed less impressive, underperforming his category by roughly 5% per annum for the period 1988-1990. FOSFX would continue to underperform in 1991, not all of which can be attributed to Mr. Noble since he departed the firm early that year to launch his first hedge fund, Teton Partners.

Similar to the early success he achieved with FOSFX, Teton appears to have capitalized on a good start - and likely too Mr. Noble’s past affiliation with Mr. Lynch - to become one of the first global equity hedge funds to reach $1 billion in total assets under management (AUM).

Also echoing his FOSFX experience, Mr. Noble’s success with Teton was relatively short-lived, as he reportedly returned investor capital in 1996 “after a period of weak performance”. Since Teton was a private fund, we do not have access to its returns to render a full judgment. It’s also not uncommon for struggling managers to shutter their funds to “spend more time with family”, and for his part Mr. Noble referenced a sickness in the family as motivation for the shutdown.

After some time away, Mr. Noble returned to the hedge fund game in 2005 with a fund called Gyrfalcon. Here again he appears to have had some early success as his new fund also eclipsed the $1 billion AUM mark. But that too was short-lived. According to multiple news reports, Mr. Noble returned investor capital in 2009 after his fund incurred a 30% loss during the first several months of that year. Being down that much always hurts, especially when juxtaposed against a roughly equivalent gain in equity markets.

Commentary regarding the Gyrfalcon shutdown indicated that Mr. Noble planned to retool his investment strategy and raise capital for yet another go. Entertaining such an idea requires a special sort of chutzpah that Mr. Noble appears to have in spades. Getting a second bite at the apple in the hedge fund game is rare enough. A third go-round is virtually unprecedented, which may explain why he doesn’t appear to have made it to market with a third fund.

Mr. Noble instead spent the past decade-plus managing his own family office, Noble Capital Advisors, and has become increasingly active on Twitter in recent years.

His account (@gnoble79) was established in 2010 and lay dormant until 2017 when he posted an Oprah Winfrey meme about stocks going up. A couple of shots at Tesla followed before things started to pick up in the summer of 2018. After a brief dalliance with MiMedx (MDXG), Mr. Noble moved on to Overstock (OSTK).

He posted multiple bullish OSTK tweets over the following months, many of which focused on the stock’s short interest. Such constituted the majority of his feed, save for the occasional musing that provided us a preview of his signature pugnaciousness and braggadocio.

During the twelve months following his original tweet, OSTK declined roughly 60% while the NASDAQ rallied approximately 25%. The stock fell even further in the COVID bust and rallied hard along with everything else in the recovery, so we’ll just remove that episode altogether.

To be fair, there appears to have been some chicanery involved on the part of OSTK management that may inform the stock’s terrible performance. But investment losses don’t care about excuses and I doubt Mr. Noble has much patience for them himself.

Mr. Noble would spend the next couple of years on Twitter dipping in and out of conversations, many of which were markets-focused - especially energy - but also sometimes opining on politics or the dangers of COVID-19.

We got an early taste of his antagonism, hypocrisy and poor prediction skills with the following tweet:

Funnily, the minute I challenged Mr. Noble he blocked me too. It appears he makes liberal use of the block button and has remarkably thin skin for someone who operates with the sharpest of elbows. A review of commentary from those blocked often reveals their sins as simple disagreement or mere suggestions that Mr. Noble be more civil in his interactions. It’s almost as if he’s cultivating the type of echo chamber he often warns about.

Meanwhile, FB (+76%) and AMZN (+96%) would go on to outperform the Nasdaq (+68%) over the 18 months following the above tweet while BABA underperformed (+10%). Of course all three stocks are struggling now but being early is the same as being wrong.

One of my favorite examples of Mr. Noble’s cocksure nature is the following tweet:

Mr. Ubben is the founder of ValueAct Capital, a $14 billion activist fund that has been around since 2000. I reckon it’s safe to say Mr. Ubben has proven the more successful fund manager when compared to Mr. Noble.

This thread from December 2021 is another good example of Mr. Noble’s duplicity and trademark self-assuredness. It’s on the topic of the Omicron strain of COVID-19, about which Mr. Noble was highly concerned.

It appears Mr. Noble deleted his original tweet - perhaps because his certainty was in fact undeserved - but thankfully Mr. Young kept receipts. Turns out there are numerous references to Mr. Noble deleting tweets that proved incorrect. Given the crusade he has embarked upon, one would think that accountability might be something Mr. Noble treasures. Instead, he only occasionally speaks in broad strokes about ever being wrong and that’s typically when he’s otherwise being praised. He claims transparency about his mistakes but the only one I’ve seen him own is the one he can’t hide: the demise of Gyrfalcon. A Twitter keyword search of “wrong” and “mistake” returns dozens (if not hundreds) of tweets that feature him telling others how wrong they are with only a handful that generically reference his own faults.

(A cynic might read projection into this man’s desire to call someone arrogant, wrong and nasty.)

Mr. Noble has surely gotten plenty of things right over the course of his career. One doesn’t raise two $1 billion-plus hedge funds and amass enough personal wealth for their own family office without scoring plenty of victories along the way. And to his credit, he’s had good calls on Twitter as well, the most impressive of which would appear to be a long XOP/short ARKK pair trade.

From what I can tell, he never explicitly recommended this exact structure, at least not in writing. But we’ll give him credit nonetheless since he was directionally correct on both names individually. Mr. Noble was also decidedly bearish risk coming into 2022, which is turning out to be quite prescient.

The foregoing is not meant to suggest that Mr. Noble has been uniquely wrong or right throughout his career, but rather that people are sometimes wrong and sometimes right. Naturally, the longer they’ve been doing something, the more examples of both. It’s therefore curious that Mr. Noble so eagerly crucifies others for committing many of the same types of mistakes he’s undoubtedly made himself.

Let’s now examine the tendency of a man who laments personal insults to routinely levy such attacks himself. Indeed, Mr. Noble regularly complains about Twitter interactions turning ad hominem, especially when engaging with parts of the crypto community. Yet any objective assessment of his own behavior reveals an individual known more for his bullying than even-tempered engagement. Naturally, this contradiction is lost on him: When he resorts to name-calling, it’s just him expressing his opinion. When others do it, it’s an ad hominem attack and therefore a blockable offense.

A cursory review of his Twitter feed returns numerous examples of Mr. Noble’s hypocrisy on this topic. The man makes common use of the terms charlatan, liar and carnival barker to describe those with whom he disagrees. He even went so far as to describe the richest man in the world some combination of these things.

According to Mr. Noble, Larry Kudlow is an idiot. So is Paul Krugman. Those investing in NFTs are ignorant morons. People who don’t agree with him on the much-maligned stablecoin Tether are naive or stupid. Alan Greenspan is a putz who has reserved himself a special place in hell. Elon Musk is a dishonest, self-aggrandizing snake oil salesman. The stupidity of Alexandria Ocasio-Cortez is mind-blowing. Jerome Powell is clueless, ignorant of financial history and lacks intellectual integrity. JC Parets is a liar and horrible investor. Dr. Anthony Fauci is an educated ignoramus.

Then, of course, there’s Cathie Wood:

Perhaps the best example of Mr. Noble’s lack of self-awareness is a Spaces discussion he hosted a few weeks back, during which a target of his - the aforementioned Nic Carter - was brave enough to enter the lion’s den for a live debate. What Mr. Carter quickly learned is that to debate Mr. Noble is to be screamed at by him (something Tether CTO Paolo Ardoino learned as well). But in the process Mr. Carter expertly picked his antagonist apart, unmasking our newfound hero to reveal a bitter, incoherent ball of agitation and grievance.

Mr. Carter, a bitcoin enthusiast, joined the discussion to challenge Mr. Noble’s hyperbolic assertion that he had blood on his hands, presumably resulting from crypto’s brutal performance over the past several months.

This was an interesting fight for Mr. Noble to pick. Putting aside the fact that bitcoin has been a wildly profitable investment over longer time frames, Mr. Carter is a formidable adversary. While prone to mistake (like us all) and the occasional exaggeration, Mr. Carter himself is no shrinking violet. He is also among the more sober and thoughtful voices one will encounter in cryptoland. I’m no fan of the bitcoin maximalism of which Mr. Carter is perhaps guilty, but he is not the toxic variety that might justify the broadside assault that Mr. Noble launched against him. Instead, what I see in the accused is a gifted communicator, as articulate as he is composed, who is not only insightful but also measured in his rhetoric. In other words, the antithesis of Mr. Noble.

The conversation started with the false promise that Mr. Noble would be respectful. That sentiment was quickly betrayed as our belligerent moderator proceeded to accuse Mr. Carter of being macro-unaware, hyperbolic, sensationalist, likely to be relegated to the dustbin of history (another Noble insult favorite), and, of course, a carnival barker. He also leveled an insult by association while mentioning Mr. Carter in the same breath as Mr. Pal, whom Mr. Noble so respectfully described as a “scumbag”. (Mr. Noble would add to the insults by later calling Mr. Carter naive, ignorant and dishonest in one tweet and a sanctimonious faux erudite cheerleader in another.)

Mr. Carter handled the barrage with aplomb, calmly addressing the host’s aggression with considered and reasonable responses. As someone used to dominating debates through browbeating boorishness, Mr. Noble was easily felled by someone more his measure. Anyone listening to that “debate” with an objective ear would clearly see one side behaving in childish, emotional fashion after having their argument dissected in real time and it wasn’t the crypto guy.

The best I can tell from the mangled mess of Mr. Noble’s accusatory grandstanding is that Mr. Carter is guilty of the crimes of being popular and bitcoin bullish. Seeing an opportunity to point out the conflicted nature of those accusations, Mr. Carter asked Mr. Noble - who apropos of nothing reminded Mr. Carter that he worked at Fidelity longer than him - whether he was aware who runs Fidelity and what her view is of bitcoin (noting Fidelity has created an entire division dedicated to espousing the benefits of bitcoin called Fidelity Digital Assets). Rather than recognizing the flaw in his attack, Mr. Noble instead felt compelled to remind everyone that he is friends with Fidelity’s CEO, Abigail Johnson, revealing yet again a boastful instinct that comes naturally to him. And instead of acknowledging the disharmony with his claims against Mr. Carter in this context, Mr. Noble instead began foaming at the mouth while accusing his opponent of phantom sleights of hand and strawmanning.

Mr. Noble also claimed that Mr. Carter had a responsibility to fair and balanced reporting and accused him of failing to consider the null hypothesis of bitcoin. The dissonance on display here is remarkable. Mr. Noble himself is clearly not fair and balanced with his malicious musings about bitcoin nor does he make a habit of considering his own null hypothesis when it comes to crypto.

It was also fascinating to listen to Mr. Noble admonish Mr. Carter for not listening. Mr. Carter understood the conversation very well, it’s just that he responded in a manner that was embarrassing to the moderator. One can easily detect that this is a regular defensive technique employed by Mr. Noble. When his arguments are challenged effectively, he resorts to yelling and misdirection rather than mature, introspective discourse.

Interestingly, Mr. Noble prematurely abandoned and subsequently deleted that Spaces discussion. He attributes his early departure to a meeting he had to attend and the deletion to Mr. Carter adding no value to the discussion. I trust you’ll forgive my skepticism about his motivations here. Thankfully, someone recorded the discussion and posted it in the above YouTube clip (which comes in three parts), allowing the rest of us to judge for ourselves.

Let’s now investigate how we arrived at Mr. Noble’s social media renaissance. Towards the end of 2021, he began to actively engage with a Twitter account called Lead Lag Report (LLR). The account is run by Michael A. Gayed, a self-proclaimed thought leader who publishes an investment strategy newsletter and manages a suite of tactical investment funds.

I discovered Mr. Gayed the same way I suspect many others did, which was through an aggressive Twitter marketing campaign that made it feel like every other tweet was one of his promoted ones.

Mr. Gayed’s marketing campaign proved wildly successful (he looks to have started a new one as well). He now has over 650,000 followers on Twitter and hosts daily Spaces discussions that tend to draw a decent crowd.

From what I can surmise, Mr. Gayed is better known for his social media exploits than for his investing chops. His flagship mutual fund - the ATAC Rotation Fund (ATACX) - is rated three stars by Morningstar and has generated a 21% cumulative return since its inception in 2012 versus a 175% gain in the S&P 500 Index (per Google Finance, through June 2022). The fund is down 26% in 2022 versus a 21% decline in the S&P 500.

Mr. Gayed also manages two ETFs through Toroso Investments - the ATAC US Rotation ETF (RORO) and the ATAC Credit Rotation ETF (JOJO). RORO is down roughly 28% since its inception in November 2020 (versus a 7% gain in the S&P 500) while JOJO is down 24% since its inception in July 2021 (versus a 10% loss in the S&P 500).

The combined assets of these products is just over $100 million as of this writing.

A study of Mr. Gayed’s tweets reveals similar levels of disingenuousness witnessed with Mr. Noble. For example, he never misses a chance to dunk on crypto, tweeting so often about the asset class that one would be forgiven for assuming it was part of his fund mandates (it isn’t). I can appreciate the psychic benefit a struggling fund manager might enjoy by making fun of another group of investors doing worse than him. We all deal with underperformance in different ways; his appears to involve some combination of deflection and schadenfreude.

To be fair, some crypto enthusiasts are deserving of all that smoke given their behavior online (“have fun staying poor”). The space is characterized by lots of silly behavior and has performed atrociously this year. But the desire to obsess over an asset class that has nothing to do with one’s focus is rather odd.

Mr. Gayed also shares a flair for the hypocritical with Mr. Noble. For example, in one breath he’ll shame his critics by suggesting that people should “be kind” while in another breath:

His criticism of crypto is also pretty rich in light of this comment from about a year ago (when the asset class was seeing much better days):

By December, Mr. Noble began to regularly copy Mr. Gayed on his tweets. He would also go out of his way to compliment his aspirational friend.

This is a curious stance for a man who loathes creations of social media, which is precisely what Mr. Gayed would appear to be. How else would someone of his stature - an unaccomplished investor who regurgitates banal economic/market statistics that are interspersed with sarcastic takes on crypto - have more followers than accomplished investors like Bill Ackman and Jeffrey Gundlach?

It is difficult to envision many hedge fund luminaries assigning a moment’s worth of attention to the likes of Mr. Gayed. His background isn’t particularly compelling nor is he a proven moneymaker. I don’t mean to suggest that the man is unworthy of all attention. He is intelligent, a strong communicator and clearly an effective marketer. But he lacks the pedigree and track record to move the needle for most serious investors. The disconnect is most pronounced with fundamental equity managers since Mr. Gayed is a top-down market technician concerned with the interplay between things like lumber and gold rather than a bottom-up investor interested in discounted cash flows. And his funds are model- rather than research-driven.

So why would an old school, fundamental stock-picker - a man who probably counts himself among investing royalty - become so eager to engage with a small, underperforming systematic fund manager?

Urban Dictionary defines a clout chaser as “a person who strategically associates themselves with the success of a popular person…to gain fame and attention.” Could it be that Mr. Noble’s courtship of Mr. Gayed was designed to elevate his own profile? This would certainly explain his otherwise inexplicable reverence for Mr. Gayed as well as his newfound tendency to tag other popular accounts in his tweets.

Whatever the true motivation, Mr. Noble’s engagement with Mr. Gayed proved successful since by mid-December he was participating in LLR Spaces discussions. Lo and behold, Mr. Noble’s follower count began to explode shortly thereafter. The next thing we know he’s holding court with his own Spaces discussions and becoming a social media personality himself. He now goes so far as to copy large media platforms and personalities like CNBC, Elon Musk, Barack Obama, Ray Dalio and Joe Rogan on his tweets, presumably on the assumption they might care about what he has to say. His aspirations appear to be as grand as his personality.

Source: SocialBlade

As a quick aside on Spaces, Mr. Noble is awfully proud of his. They are of course the best that can be found ANYWHERE. With, naturally, the best moderation. (I must say his boastfulness reminds me a certain former American president.)

It should be apparent to everyone that these sessions are obviously marketing efforts. Messrs. Gayed and Noble now host them regularly, with topics and guests spanning the investment spectrum. Mr. Gayed sometimes even hosts multiple ones in a day.

It’s hard to imagine the average retail investor listening to any of these discussions and having the faintest idea of what they should do with their own portfolio afterwards. Rather than going down the rabbit hole on oil or being told how the world is coming to an end, most retail investors would benefit more from tuning all this noise out and staying the course. They’re likely best served by following Warren Buffett’s advice, which is to simply get long the market as cheaply as possible and do nothing else. Even for those looking to be a little more active, they probably just want to know whether they should be invested or not. These Spaces discussions are therefore more mental masturbation for industry professionals than they are a public service for average retail.

The evolution of Mr. Noble’s online personality got me wondering whether there could be a commercial motivation to it all. Early indications suggested that might not be the case. In fact, Mr. Noble used his newfound power for good, encouraging listeners of his Spaces discussions to donate to charity as a show of support. He appears to have crowdsourced over $200,000 in donations for World Central Kitchen, the wonderful organization started by chef Jose Andres to help feed those impacted by humanitarian disasters. I applaud Mr. Noble’s initiative here.

However, a more recent development seems to confirm my initial suspicion.

That recent Forbes feature said the quiet part out loud when it referenced Mr. Noble’s coyness on ways he might “monetize” his newfound fame. And sure enough, it looks like he’ll parlay his popularity into a fourth bite at the fund management apple. But instead of another hedge fund, he’ll be launching a global long-short equity ETF in partnership with - surprise, surprise - Mr. Gayed’s Toroso Investments.

It could be that Mr. Noble is doing this out of the kindness of his heart, that his investment brilliance must be shared with a world hurting for access to quality financial products. In which case we can surely expect a fee structure well below industry averages. Or will it be richly priced like Mr. Gayed’s products, which carry relatively high expense ratios for underperforming, “set it and forget it” strategies? I guess we’ll find out soon enough.

Now that we’ve gotten to know more about Mr. Noble’s background and personality, let’s now circle back to his “noble” crusade against the aforementioned individuals.

I sympathize with the disenchantment that may come with certain of these characters. For example, I’m of the opinion that what Michael Saylor has done with his treasury at Microstrategy is absurd and I tend to agree that Chamath Palihapitiya is of the raccoon variety that the great Ben Hunt has euphemistically described.

I’m less concerned by some of the others. Let’s start with Messrs. Cramer and Pal. Both make lots of mistakes and likely do little to help the average investor given their wayward musings. Yes, Mr. Cramer is more than a little disingenuous given his admission that he only invests in index funds rather than individual stocks, which is the lifeblood of his show. And he is plenty responsible for the gamification of stock trading amongst retail investors. For his part, Mr. Pal has done himself no favors with obfuscation regarding his crypto activities leading up to the current bear market. But neither of these gentlemen is dispensing professional investment advice. Though both have experience as hedge fund managers, their public personas have become more entertainer than investor. They are showmen cut from the same cloth as Tucker Carlson and Rachel Maddow. In just the way folks shouldn’t go to Fox News or MSNBC commentators for astute and objective political commentary, they shouldn’t go to Messrs. Cramer or Pal for investment advice. They should instead enjoy the performance - which is often thoughtful in Mr. Pal’s case - and do their own research before taking any action.

We then have the likes of Mr. Hunter, a strategist perhaps best known for his call that equity markets will soon experience a dramatic melt-up that will be followed by a catastrophic collapse.

Two things stand out to me here. First, strategists/experts are wrong all the time. Given their collective track record, our interest in their views probably stems less from confidence in their accuracy and more from the rationales behind their predictions. For example, FinTwit enjoys giving Scott Galloway a hard time for his many missed calls, but his ideas rarely come half-baked. He tends to frame his various hot takes in an eloquent manner that gives us something to think about regardless of outcome. Lucky for us, he’s brave enough to continue making those calls despite the blowback he receives online.

The same applies to talking heads at ESPN, the Wall Street Journal, the New York Times and all of cable media. We of course shouldn’t forgive blatant lies, blatant partisanship, lazy analysis or outright misinformation. And it’s totally reasonable to point out trends in wrongness. But earnest attempts to predict the future should always be graded on a curve.

Mr. Hunter is similar to Mr. Galloway in that he provides interesting analysis to go along with his calls. He also maintains the courage of his convictions even when markets move against him in the short term. His now infamous melt-up call would certainly appear to be floundering and I appreciate frustration with his refusal to concede defeat. But markets are complex and dynamic, so predictions related to them should call for accuracy over precision. In any event, it strikes me as a stretch to assign ill intent to his work, no matter how wrong he might prove to be with it.

This criticism is made all the more disingenuous by the fact that Mr. Noble himself is now in the prediction business. The majority of his tweets and Spaces discussions now feature him selling doom and gloom to his growing legion of followers. If his bearishness is proven incorrect, should we break out the pitchforks for him as well?

The shots taken at Ms. Wood and Mr. Coleman are most germane to this discussion as they represent what I believe is the philosophical impetus behind Mr. Noble’s charade.

It seems evident that Mr. Noble views himself as a stock-picking purist. Old-fashioned things like valuation matter to him. I suspect he watched with dismay the enormous success enjoyed by the likes of Tiger Global and ARK during the everything rally. My guess is that he attributes most of their success to luck rather than skill. They’ve been handsomely rewarded more for punting beta by being directionally correct than for generating alpha by being fundamentally sound, as evidenced by his desire to call Ms. Wood a “narrative chasing beta merchant”.

I reckon these investors have failed his purity test and the extraordinary riches attained by them are therefore ill-gotten. Conversely, the losses now befalling them are richly deserved. This would also explain Mr. Noble’s distaste for bitcoin, which cannot be valued in any traditional sense yet has generated extraordinary profits for amateur traders since its founding.

The vitriol being directed towards Ms. Wood is particularly disturbing. It’s one thing to challenge her investment theses and criticize her recent performance, which is fair and perhaps justified. It’s entirely another to go full ad hominem. A quick search of Twitter and YouTube sees all manner of insults being hurled her way. Bullshit artist, moron, charlatan, quack, liar, criminal, fucking nuts. Many of these Mr. Noble has used himself, again from a man ostensibly worried about the lack of civility in today’s discourse.

The following conversation from Mr. Noble’s YouTube channel is a good example of this disconnect. Its first portion is spent lambasting all things ARK and Cathie Wood before waxing philosophical on macro and markets. It is wonderfully emblematic of the man’s many contradictions, which seem to be shared by his merry band of acolytes.

There are a couple of good quotes here, firstly from Mr. Noble:

So now she’s a yield curve expert (in reference to a CNBC clip where Ms. Wood discusses 2/10 inversion). The whale oil queen who was calling for $12 oil. That oil peaked in 2019…she’s now pontificating about the slope of the yield curve. Are you kidding me?!?!

Here we have a career stock jock deriding a former economist for discussing the yield curve. Ms. Wood’s first job was as an assistant economist at Capital Group. This was followed by serving as Chief Economist at Jennison Associates for 18 years before becoming Chief Investment Officer at AllianceBernstein.

This criticism is made all the more disingenuous since Mr. Noble spends most of his time these days pontificating on monetary policy, commodities and currencies rather than idiosyncratic stock picks. As a reminder, Mr. Noble is not a trained economist nor has he served in that role in a professional capacity.

Here’s another quote even richer with irony:

Hubris was considered to be amongst the biggest of sins. It’s the complete lack of humility.

Mr. Noble made this statement when complaining about Ms. Wood’s lack of a public mea culpa. Putting aside the ridiculousness of this statement in light of Mr. Noble’s own monumental ego, the reality is that portfolio managers talk their books all the time. Reasons for this could be noble (they genuinely believe what they say) or ignoble (they are just trying to convince investors to stick around). I reckon this is a predicament quite familiar to Mr. Noble given his background.

None of us can know what Ms. Wood believes deep in her heart. But if she’s been anything it’s consistent in her belief that innovation will change the world. She is therefore delivering on precisely what she advertises to investors in terms of mandate. I’m sure everyone would prefer her performance to have been much better these past twelve months. But for someone who thinks in five-year cycles, this drawdown might not be catastrophic for her. It certainly doesn’t appear to be that troublesome for her investors, who continue to invest in her flagship ETF, ARKK, despite its recent losses. Granted, she has made some outlandish claims about return expectations and her research might not be robust enough for the likes of Mr. Noble. But to assign nefarious intent to it all can say more about the accuser than the accused.

It’s also important to recognize that drawdowns don’t typically occur in isolation. There are often exogenous factors that influence fund returns. In the case of ARKK and Tiger Global, those factors include an aggressive rate hiking cycle that has crushed the growth stocks that figure prominently in their portfolios. Just as being exposed to the growth factor worked splendidly over the past few years, we are now witnessing its opposite effect as highflying technology stocks come crashing back to earth. So while the absolute returns witnessed over the past year have been dismal, they should be considered in the context of an unwelcoming macro backdrop that has sent relevant benchmarks tanking.

Let’s dive into that dynamic in more detail.

There’s no disputing that ARKK is in the midst of a terrible run of performance. After posting a stellar 157% return in 2020 - which included a trough-to-peak rally of 300% from the COVID bottom - the fund has since declined 67% versus a roughly 11% fall in the Nasdaq Composite Index (through June 2022). This year has been especially difficult with ARKK now down about 58% versus a 30% decline in the Nasdaq. Relative performance is particularly relevant for long-only funds, and ARKK’s relative underperformance of 56% versus the Nasdaq over the past 18 months is noteworthy.

As an aside, ARKK’s returns since inception (+102%) have still outperformed ATACX (+19%) despite the former’s current drawdown. The five-year chart frames this nicely.

Source: Google Finance.

Based on various reports, Tiger Global lost 7% in 2021 versus a 21% gain in the Nasdaq. The fund was reportedly down another 50% in 2022 through June, which compared to a 30% decline in the Nasdaq. All told, this equates to relative underperformance of roughly 38% over the past 18 months.

As hedge funds are intended to be absolute return in orientation, benchmarks do not typically apply and relative returns are theoretically immaterial. But we all know most investors measure hedge fund performance in both risk-adjusted and relative terms.

So how does the relative underperformance of ARKK and Tiger Global amidst their largest drawdowns compare to Mr. Noble’s track record of the same? Since we don’t have his performance to analyze in full, we’ll have to extrapolate from publicly-available data (making this an imperfect exercise but hopefully close enough).

As previously mentioned, news reports indicate that Mr. Noble closed Gyrfalcon when the fund was down 30% in a stub year 2009 that saw the S&P 500 up 30% over the same period. The MSCI World Index - likely the more appropriate benchmark for Gyrfalcon given what I presume was a global equity mandate - was up closer to 40% during that time. That equates to relative underperformance of 60-70%, which exceeds that seen with Tiger Global as well as ARKK to date.

Measured in these terms, Mr. Noble’s Gyrfalcon meaningfully underperformed his growthy counterparts during their respective drawdowns. Given their collective AUM, Mr. Noble has asserted that the magnitude of the ARKK and Tiger losses is much greater in dollar terms. But in doing so he is penalizing those funds for their prior success in attracting that AUM when their relative drawdown performance appears to have outperformed his own.

This of course matters little to Mr. Noble and his righteous crusade, which works on sound bites rather than nuance. He’s gone so far as to suggest that Mr. Coleman should return investor fees because of his latest run of losses. As a hedge fund manager himself, Mr. Noble understands very well the absurdity of this request. But his commentary is calibrated for clicks rather than clarity, so practicality won’t stop him from grandstanding on the topic.

This can only lead us to wonder whether Mr. Noble reimbursed Gyrfalcon investors for the fees they paid in exchange for his massive underperformance in 2009.

None of this is to suggest that Ms. Wood and Mr. Coleman don’t deserve some of the heat they are receiving. Their recent performance certainly calls into question not only their research capabilities but also what if any risk management protocols may have been in place. And I agree with concerns about how hybrid funds like Tiger Global might be marking their private positions.

Nor is any of this to suggest that Mr. Noble lacks ability as an investor. He may be an excellent one. Rather, the point is simply to demonstrate that investing is hard. The hedge fund game can be particularly cutthroat. It’s rare that funds demonstrate any real persistence to their performance over time. The hope is that investors are profitable from start to finish, which I believe remains the case for both Tiger Global as well as ARKK despite their drawdowns. As someone with a lumpy return profile of his own, Mr. Noble should appreciate this reality.

It’s therefore a shame to see Mr. Noble play to the cancel culture ethos that has become prevalent in today’s society. Everyone is getting upset about everything it seems. I suppose it’s possible that Mr. Coleman and Ms. Wood have perpetrated a massive fraud against everyone. It’s also possible that Ms. Wood and Mr. Coleman are terrible investors. Or, more likely, it could be that they run aggressive funds that are predictably struggling in this type of environment but will bounce back when the earth doesn’t get eaten by the sun and growth returns to favor.

More to the point is that nobody is forcing anyone to invest in these vehicles. As an established hedge fund, it stands to reason that the majority of Tiger Global’s investors are large, sophisticated institutions. And ARKK’s investor base is almost equally comprised of institutional and retail investors.

There’s an old Hollywood saying that (paraphrased) says an actor is only as good as their last picture. I reckon this is the ghost that Mr. Noble is chasing and he’s adroitly manufactured a chance to slay that demon. But at the rate he’s gaining enemies through his wanton display of indignation, his new ETF might eclipse ARKK as the most heavily scrutinized in history. One false step and the boo-birds will come out in force. He’ll learn soon enough that schadenfreude works both ways.

This should be good fun for those of us aware of the game being played here. The result will either be a tip of the cap to someone who managed to pull it off or a wag of the finger at another flameout that in retrospect was entirely predictable.

Matt Taibbi is one of my favorite writers/podcasters, and I love the Joe Rogan Experience (JRE) for its diversity of guests and long-form discussions. Despite my many disagreements with them on various topics, Rogan and Taibbi are both national treasures in my book. But that doesn’t mean they can’t make their own mistakes along the way. My objective with Narrative Combat is to provide a sort of audience fact-checking service that does not discriminate, so even my favorite content providers are fair game.

Mr. Taibbi was recently featured on episode #1745 of JRE in which he made a number of mistaken attempts to describe the way hedge funds and markets work. The structure of this piece is comprised of direct quotes from Mr. Taibbi that are followed by my own commentary in response.

Hedge funds don’t really get checked. So if you’re running a hedge fund and…you get bunch of high net worth people [to invest]…and you start investing and it doesn’t work, and then suddenly there’s this temptation: “Well, I don’t have to tell them. I can put out a report that says we actually earned 7% or 14% this year.” And no one is gonna check because there isn’t a body that checks for that kind of investment.

Hedge fund performance is independently verified two ways: 1) Through third-party administrators that reconcile portfolio marks and formally issue monthly investor statements; and 2) Through auditors that work with fund administrators and managers to annually certify a fund’s financial reporting.

Hedge funds therefore cannot just “put out a report” that says whatever they want it to say. They do often provide performance estimates as part of standard communications with their clients, but official investor statements are issued by an independent administrator.

While there may not be an official “body” that checks hedge fund performance reporting, these practices do factor into the registrations that many hedge funds maintain with various regulatory bodies.

The overwhelming majority of hedge funds operating today conform to this convention. Those who do not are inviting suspicion and therefore unlikely to attract meaningful capital. Madoff was able to get away with it because his investors simply failed to perform even the most basic due diligence.

So Mr. Taibbi is quite wrong to suggest that hedge funds can report whatever performance they want to their investors.

Bernie Madoff’s banker was JP Morgan Chase. So the bank, which should’ve been monitoring whether or not their client had a legitimate business, didn’t…They’re part of the con. This guy banked with JP Morgan Chase, it’s part of the sales pitch. Of course he’s legitimate. He’s endorsed by the biggest commercial bank in the country.

Mr. Taibbi’s overarching point here is the correct one, which is that JP Morgan Chase appeared negligent in the Madoff fraud. However, it should be noted that banking relationships for hedge funds involve some important distinctions.

Conventional relationships between hedge fund managers and their banking partners are typically arms-length affairs. This is where a manager has what equates to a standard checking account for the management company to which fees accrue and from which bills are paid. The onboarding process here is usually straightforward and involves standard KYC and AML checks. Banks are required to monitor for unusual transactions to guard against money laundering and terrorism financing violations. I’m not sure that extends to passing more holistic judgment on the quality of a client’s business, and this type of relationship doesn’t typically serve as an endorsement per se (e.g., is your local bodega endorsed by its banking partner?).

Investors do not tend to care much about a fund management company’s banking partners. The banking relationship that is much more important is the prime broker, which is more likely to convey “legitimacy”. This is where a bank like JP Morgan helps its hedge fund clients execute their investment strategies through trading, custody, financing and lending services, among others. One of the many red flags with Madoff is that he used one of his own subsidiaries to perform his prime brokerage function.

It appears that Madoff had a single corporate bank account that took in investor subscriptions and funded redemptions. This is an odd structure as hedge fund vehicles themselves tend to have their own bank accounts to facilitate the receipt and deployment of capital (separate from the management company). It stands to reason that JP Morgan Chase should have exercised some judgment given the magnitude of balances being held in Madoff’s name. It certainly would be abnormal for any fund, no matter how successful, to be holding tens of billions of dollars in a single corporate bank account. And for those funds to have never been deployed towards something that looked like trading purposes is obviously sketch.

After the pandemic, the banks had their best year in history in 2020. Because why? Because when you have the CARES Act, which is all that money from the Fed that went to rescue everybody, to keep all these companies in business. Somebody has to underwrite all that lending. The Fed is basically buying all these bonds, there’s all this new lending to companies that’s coming from the government. Well some private entity has to do all that underwriting. So banks made like $140 or $150 billion in profits just from underwriting in 2020. So they all got rich off the bailouts for the pandemic.

There is nuance here that needs to be disentangled.

Like most government spending these days, money for the CARES Act (Act) was generated through increased bond issuance by the U.S. Treasury. This type of deficit spending is a hotly debated topic in economic circles and is a key component of modern monetary theory. The U.S. Federal Reserve Bank (Fed) has been increasingly buying those bonds from the open market in an effort to increase the money supply and keep a lid on interest rates. This is known as quantitative easing and has resulted in significant expansion of the Fed’s balance sheet since the onset of the pandemic.

The Paycheck Protection Program (PPP) was a part of the Act that sought to provide loans to small businesses to help them stay afloat during the pandemic. The PPP was overseen by the Small Business Administration (SBA), which partnered with local commercial banks to disburse those loans.

In order to provide commercial banks with the funds required to make those PPP loans, the Fed established a liquidity facility that enabled regional Federal Reserve banks to issue non-recourse loans to participating banks. Those loans were effectively guaranteed by the SBA (and, in turn, the U.S. Treasury).

Sahil Bloom has a good primer on the dynamics at play here.

Since these loans were forgiveable by the SBA, participating banks were not assuming any credit risk and therefore were not underwriting them. They were instead administering and processing them, for which they charged fees ranging from 1-5% (depending upon loan size). Consequently, loans associated with the CARES Act had no direct relation to the Fed buying “all these bonds” that needed to be underwritten.

On the topic of profits, large investment banks are indeed historically profitable right now. Per Bloomberg, “a total profit of more than $170 billion from a dozen of the biggest firms in the past four quarters shows how far the industry has come from the frazzled early stages of the pandemic.”

We should note that those estimated profits include other large global banks like UBS, Deutsche Bank, HSBC, and Barclays, most of which had little to do with PPP. But even for the American banks, their earnings were only slightly impacted by the CARES Act. In fact, it is estimated that Chase - the commercial banking unit of JP Morgan - earned approximately $1-2 billion in PPP fees. I’ve no idea what the profit margin may have been on those fees, but it would certainly pale in comparison to a total profit during the reference period of $47.8 billion.

Furthermore, the total amount of bank fees generated by PPP loan processing stands closer to $25 billion, well short of the $140-$150 billion in profits that Mr. Taibbi suggested.

The reality is that investment banks are wildly profitable today because of their bread-and-butter businesses: namely, advising and structuring large corporate transactions like mergers, acquisitions, IPOs, and (more recently) SPACs; and good old-fashioned trading. Global M&A activity is smashing records this year. Private equity buyouts will total nearly $1 trillion in 2021 and the IPO market has been red hot. And volatile, upward-trending markets tend to be good for trading and wealth management businesses.

Mr. Taibbi may be making a noteworthy broader point, which is that all the accommodation provided by the Fed and Treasury has created conditions supportive of financial services companies. Buoyant markets are obviously good for risk assets, which has undoubtedly fueled a lot of the transaction activity that made banks so profitable. This is what is known as the Cantillon Effect, which is the idea that those closest to the money spigot stand to benefit the most from monetary expansion.

But his attempt to tie bank profitability to the CARES Act was a stretch.

Once again people are struggling, they’re being ruined. But the 1% is kind of being artificially sustained because of this run of public support. It’s gonna make them all rich, which is gonna drive that resentment even further.

The logic being applied here sounds reasonable but falters with scrutiny.

Let’s assume Mr. Taibbi’s notion of “public support” takes two forms: bailouts and fiscal/monetary accommodation.

The CARES Act was basically a bunch of bailouts wrapped into one: some of which went to big companies (e.g., the airlines), some to small businesses (e.g., PPP), and some to homeowners who couldn’t meet their mortgage payments. It’s probably safe to assume that the top 1% benefitted from the economy being supported this way, but it’s hard to decipher whether these any of these programs directly made them richer.

I therefore assume Mr. Taibbi is referencing the Cantillon issue mentioned earlier, where accommodative policies tend to favor investors over workers. Policies encouraging growth in risk assets are naturally welcome for investors. The top 1% hold a significant amount of wealth and therefore disproportionately benefit on the way up just as they suffer on the way down (recall the 500 wealthiest people lost $239 billion in a single day during the COVID-induced market selloff last March).

But it isn’t just the top 1% that have benefited from all the liquidity sloshing around. In fact, household wealth has skyrocketed over the past two years. Over 55% of Americans own stocks, which have rallied strongly thanks to being “artificially sustained”. The residential real estate market has been on fire, which is good news for many since the U.S. has a homeownership rate of 66%. Over a quarter of Americans now trade crypto, which has seen meteoric growth over the past decade and minted untold millionaires in the process. It has even been suggested that this increase in wealth among average Americans is a primary factor behind today’s labor shortages.

Wealth inequality of course remains an issue in America, and the gap only continues to widen. Many Americans are struggling amidst the COVID pandemic and some in fact are being ruined. But a lot of Americans have also been doing quite well, and it’s not just the top 1%.

After 2008, there was a thing called the implied bailout. Just the fact that the public knows that the government is never gonna let JP Morgan Chase or Goldman Sachs go out of business allows them to borrow money more cheaply than some local bank. The government might let some local bank go out of business, so when they go out in the open market to borrow money, it costs more.

There are two primary ways banks access funding outside of core deposits: through the Fed’s discount window and debt issuance.

All member banks have access to the Fed’s discount window. The rates they pay on this money are directly linked to the credit-worthiness of the borrower. There isn’t much deviation in those rates and the borrowing is typically short-term in nature, so my guess is that Mr. Taibbi probably wasn’t referencing this type of activity.

With regard to debt issuance, it is easiest to focus on bonds that companies issue to raise funds. The primary underwriting consideration for bond investors is whether a company can service the debt being issued, not necessarily whether it has any implied federal backing. More specifically, bonds are (mostly) priced on the basis of a company’s financial health, which is often reflected in credit ratings provided by the likes of Moody’s, Fitch, and S&P. A review of those ratings does not indicate preferred pricing due to any implied put.

For example, a composite ranking conducted back in March showed the highest credit ratings belonging to BNY Mellon and Northern Trust. Ranked by assets, these banks are #12 and #27 in the U.S., so not names typically associated with the “too big to fail” variety. In fact, their combined assets are less than one-fifth the size of JP Morgan Chase, whose composite credit rating ranked #5.

Looking more granularly at current ratings, the senior debt of Goldman Sachs has been assigned a rating of BBB+ by S&P, which effectively scores as good but not great. That same rating is enjoyed by regional banks like Fifth-Third Bank (#17 by assets), Comerica Bank (#41), and East-West Bank (#50), just to randomly pick a few. BMO Harris Bank (#21) has an even better rating despite its much smaller stature.

Contrary to Mr. Taibbi’s suggestion, the notion of “too big to fail” has actually diminished since the financial crisis. Despite its success, the Troubled Asset Relief Program (TARP) is now burdened by a public stigma thanks to the populist narrative that the bailouts helped Wall Street more than Main Street. This has caused markets to assign a lower probability of bailout the next time around. A recent study put a finer point on this dynamic:

For globally systemically important banks (GSIBs) with U.S. headquarters, we find significant post-Lehman reductions in market-implied probabilities of government bailout, along with 50%-to-100% higher wholesale debt financing costs for these banks after controlling for insolvency risk. The data are consistent with measurable effectiveness for the official sector’s postLehman GSIB failure-resolution intentions, laws, and rules. GSIB creditors now appear to expect to suffer much larger losses in the event that a GSIB approaches insolvency. In this sense, we estimate a major decline of “too big to fail.”

Also important to note here is that it wasn’t just the largest banks that were bailed out in 2008. In fact, hundreds of banks large and small received bailout funds. For example, included on that list was Oak Valley Community Bank, which is the 50th-largest bank in California and the 593rd-largest bank in the U.S. It received bailout funds of $13.5 million from TARP, which - as measured by bank assets - was roughly pro-rata the $25 billion that JP Morgan received.

I can appreciate the logic Mr. Taibbi applied here. It stands to reason that those banks basically guaranteed to never default would have access to cheaper financing than those lacking such assurance. But the reality is different from what he described.

After 2008, when they took the failing companies like Washington Mutual, rather than break them up into smaller parts so they could become independent smaller enterprises, what they did was fold them up into the bigger companies. They got companies like Chase and Bank of America to buy up these smaller entities. They took an already concentrated marketplace and made it more concentrated. That’s happening again…

Washington Mutual (WaMu) was seized by the Federal Deposit Insurance Corporation (FDIC) at the height of the 2008 financial crisis. With over $300 billion in assets at the time, it was the largest bank failure in history. WaMu had a large mortgage portfolio that was growing increasingly impaired, and nervous depositors had started to withdraw their funds from the bank. The official narrative is that the FDIC feared a WaMu bank run could spark an even bigger panic, hence the need to step in and find a buyer as fast as possible in order to restore stability and therefore protect depositors as well as insurance funds.

There is some debate about whether WaMu even needed to be sold and whether there was chicanery involved in its purchase by JP Morgan. But the idea that WaMu should’ve been broken up into smaller parts makes no practical sense. Attempting to do so would have only increased uncertainty for depositors. Troubleshooting becomes one big confidence game when the entire financial system is on the verge of collapse, so there is wisdom in allowing the big to get bigger when stability is the goal.

Breaking up WaMu would’ve been a long, expensive process at a time when speed and loss mitigation were paramount. It’s important to note that the company had nearly $180 billion in mortgage assets and someone needed to take responsibility for managing them. The housing market was imploding at the time, so the expectation that there were a bunch of “independent, smaller enterprises” willing to take on that servicing burden - when their own businesses were being crushed - is simply unrealistic.

There is also the notion that increased financial fragmentation is not necessarily a good thing as economies of scale can allow larger banks to offer more attractive rates and innovative solutions.

I appreciate the populist distrust of oligopolies in general - and bank ones in particular - but any implication that WaMu should’ve been auctioned off in a bunch of small lots rather than sold whole is misplaced in my view.

I’m also unsure what he means about marketplaces growing more concentrated “happening again”. I suppose it might be in reference to small businesses struggling in the pandemic, but we haven’t seen the type of acquisitive consolidation that was prevalent during the 2008 financial crisis.

[GameStop] is another story that was massively misreported. I talked to a lot of the people who invested in GameStop and a lot of them were people who got ruined after the 2008 crash, whose families got ruined, and this was their way of kind of getting revenge on the system, as a form of protest. For some people it was just another way to make money.

I find it interesting how folks like to romanticize the GameStop (GME) short squeeze affair from earlier this year. I suppose it’s a fun narrative after all, where a ragtag group of keyboard warriors conspire to wage war against hotshot hedge funds. But for those of us familiar with message boards like r/WallStreetBets (WSB), the GME trade was less a revolt and more a reflection of the meme-fueled nature of risk-taking we see so much of today (e.g., crypto).

The reality is that WSB is comprised of professional traders as well as amateurs, so it’s not necessarily a disenfranchised group looking for revenge. For example, Keith Gill, the man who became the face of the GME trade, is a CFA charterholder who until recently worked at MassMutual. His interest in GME initially derived from real and proper analysis, which he freely shared with his fellow Redditors and in YouTube videos.

Part of Mr. Gill’s GME analysis included the amount of short interest in the company. It is common for traders to target stocks with high short interest since they can be susceptible to squeezes, which occur when shorts need to be covered as they rally in price. The more violent the squeeze, the more urgent a short-seller’s need to cover its position, which only adds fuel to the buying frenzy. This self-fulfilling rally can sometimes get crazy when there are a lot of shorts to be covered.

This is a common tactic among professional and retail traders alike. And the objective here is always the same: to make as much money as possible. Once it became known that hedge funds like Melvin Capital were on the losing end of the GameStop squeeze, plenty of Redditors had fun with the idea and a David-versus-Goliath narrative began to manufacture. This was to be expected since the media love to foment class conflict and bash hedge funds. Such framing may have attracted some to the trade as a form of personal protest; apparently, Mr. Taibbi was able to speak with a few of them. And there were certainly plenty of Redditors cheering Melvin’s demise in real time. But that was more of a side story than an organizing force for those of us paying closer attention.

I would therefore reverse Mr. Taibbi’s framing by saying a lot of GameStop punters were there to make money while some of them may have been tourists looking to protest. It is my view that the reality aligns more closely with an observation of the essayist Abraham Polonsky, who suggested that “Money has no moral opinions.”

I’m a fan of Bari Weiss. I read and listen to everything she produces. I find her to be a savvy observer of media bias and a thought-provoking writer. I tend to agree with the majority of her takes, but it’s the points of disagreement that I enjoy most since they always give me something to think about. 

Her work resonates with me in the same way I find myself drawn to the likes of Matt Taibi, Glenn Greenwald, Joe Rogan, Sam Harris, and Ben Hunt, to name a few. Their collective willingness to call bullshit on what Eric Weinstein refers to as the gated institutional narrative is what appeals to me most. This crew’s work represents a certain heterodoxy that I appreciate. 

Ms. Weiss hosts a podcast called Honestly with Bari Weiss. As a loyal listener, I took in a recent episode featuring Dr. Marty Makary entitled Is Covid…Over? And Other Burning Questions This Thanksgiving.

I had never heard of Dr. Makary before Ms. Weiss introduced him to me, but the man piqued my curiosity enough to warrant this writeup. More to the point, his comments struck me as some combination of hyperbolic and unrealistic over the course of their discussion. And while I wouldn’t expect Ms. Weiss to continuously challenge him along the way (she’s not a medical professional and hosts tend to be docile with their guests anyway), the lack of even subtle pushback was disappointing. 

Before proceeding, I should confess my own priors up front. Firstly, and importantly(!), I’m not a doctor of any sort. I also don’t enjoy watching medical dramas on TV nor did I stay at a Holiday Inn last night, so I’d fail miserably at attempting even armchair expertise with any medical topic. The issues I highlight below are purely a function of my own curiosity and halfway decent understanding of risk. 

Second, I try my best to consume information as objectively as I can. As we all do, I still bring my own biases to issues, but I try to pursue the type of independent open-mindedness that I admire in folks like Ms. Weiss. One bias I am fully aware of is that I really enjoy a good counter-narrative. I also share a mistrust in institutions that has driven a lot of the policy skepticism we see today. When it comes to most things establishment, I generally share Mr. Hunt’s BITFD sentiment. And I too really want to see our world return to normal as quickly as possible. All of this is to say that I was predisposed to enjoy this type of discussion. 

Lastly, I have loosely held opinions on masks, vaccines, and COVID-related policy initiatives. I view masks as a minor annoyance with probably limited impact and vaccines as a gift of modern medicine. I think vaccine mandates are a bad idea, both in terms of overreach and in hardening opposition. I think certain cities/states/countries have been unnecessarily draconian in their crackdown attempts. I am sympathetic to the view that our leadership has not covered itself in glory during this ordeal, which if we’re being honest it rarely does. I attribute our policy clumsiness to rapidly evolving circumstances and poorly-constructed incentives rather than nefarious plots aimed at exerting control over the populace. When watching our leaders stumble their way through all this, I am reminded of a quote, “Never ascribe to malice that which is adequately explained by incompetence.”

The structure of this piece is mostly comprised of direct quotes of Dr. Makary from his discussion with Ms. Weiss, which are followed by my own commentary in response. 

I will talk to doctors who are supposed experts…and that term is a very loose term because it’s usually a term crowned by the media.

This quote was pulled from about halfway through and nicely sets the stage for this piece. Invited onto this podcast to speak on the topic of the pandemic, Dr. Makary himself is not an epidemiologist or infectious disease expert. He is a Professor of Surgery at the Johns Hopkins School of Medicine. Per the school’s website, none of the dozens of topics listed under his Expertise and Research Interests pertain to the study of airborne pathogens. 

This is a good example of the cognitive dissonance we so often see these days. Here is an accomplished surgeon and author with no apparent expertise in infectious diseases speaking with authority on the topic of COVID and its associated prophylactics and therapeutics. The irony of him being featured as an expert in light of this quote is rather rich. 

Despite his lack of expertise, Dr. Makary has nonetheless become a bit of a talking head on COVID, making him precisely the media-crowned expert he dismisses here. A YouTube search finds dozens of videos of him waxing philosophical on COVID policy across platforms large and small. Funnily, he complains to Ms. Weiss about the media having their go-to experts to perpetuate some sort of narrative around vaccines, yet he too has become a go-to “expert” for those outlets seeking a counter-narrative.  

The good doctor seems to enjoy the spotlight, perhaps due in part to the fact that he has a new book out. He writes and talks a lot, so his desire to feed the publicity machine is clear. The bio on his own website leads with the fact that he was the recipient of the Business Book of the Year Award in 2020, which may speak to the marketing angle of his various hot takes. By the way, you can book Dr. Makary for a speaking gig through his agency for $20,000-$39,999. He’s listed there first as a NY Times bestselling author, second as an NBC and Fox News commentator, third as a healthcare futurist, and, lastly, a surgeon then professor. 

Interestingly, his agency bio describes him as a Professor of Health Policy, but again the Johns Hopkins Medicine website shows him as a Professor of Surgery. According to his Wikipedia page, he has a Masters in Public Health with a concentration in Health Policy from Harvard University. And he appears to have been associated with the Bloomberg School of Public Policy at some point, though he is not currently listed as a professor there. So he does appear to have some schooling on the topic of public health policy and presumably did some research and/or teaching on the subject in the past. Whether that had anything to do with global pandemic response could not be confirmed.

It should also be noted that Dr. Makary achieved some infamy earlier this year by predicting that America would reach herd immunity by April. Making fantastical predictions is a savvy way to garner headlines and I’m not one to begrudge smart marketing. And who among us hasn’t had a failed prediction or two? But instead of doing the reasonable thing by admitting that he was wrong, he has instead blamed the delta variant and everyone else for not understanding what herd immunity means. 

I won’t attempt to decipher whatever nuance may exist when it comes to defining herd immunity, but here Dr. Makary sounds to me more like an agenda-driven politician refusing to admit wrong than a doctor in genuine pursuit of truth. 

Another doctor, Mr. Jonathan Howard, wrote an excellent piece in response to Mr. Makary’s many wayward COVID takes that addresses the herd immunity topic (and others) much better than I ever could. By way of disclaimer, Dr. Howard is a neurologist, so consider his post a non-expert dismantling of a non-expert opinion. But he claims more than a passing interest in infectious diseases and has written a number of thoughtful takes on the subject of COVID.

In this day and age, fake experts are everywhere casting doubt on expert agreement, since “popularity and self promotion have replaced knowledge and experience as indicators of expertise.” Dr. Makary appears to fit squarely into this box. What is striking to me is how easily he inserts himself into a discussion that appears well beyond his purview, which I reckon results in a collective eye roll amongst his more informed colleagues. I wonder, for example, how he might respond if a virologist started opining on the usefulness of his surgeon checklist?

Ms. Weiss revealed her own bias by inviting someone with Dr. Makary’s track record on to her program. That bias was clear in how she engaged with Dr. Makary during their conversation as well as in the episode description, where she asks “whether we can safely — and finally — call time on the pandemic”, and says Dr. Makary “offers a no-nonsense approach” to the debate. 

Dr. Makary has already failed once in calling time on the pandemic and there was plenty non-sensical about what he had to say.

…I will talk to infectious diseases doctors, they haven’t read the studies.

Dr. Makary followed his previous quote with this example of a logical fallacy known as hasty generalization, which is a claim based on a few examples rather than robust proof. It reminds me of a misappropriated aphorism about the plural of anecdote not being data. Dr. Makary is extrapolating a couple of personal observations that leads the listener to assume that most true experts on infectious diseases have for some reason decided not to read any of the COVID literature, therefore casting doubt on the legitimacy of all such research. 

A couple of data points does not make a trend, and it strikes me as reasonably likely that his friends are more the exception than the rule. I have value investor friends who pay no attention to Berkshire Hathaway annual letters, but that doesn’t suggest to me that most value investors don’t read Warren Buffett’s musings. Epidemiologists avoiding studies on the greatest pandemic of their lifetimes is like astronomers ignoring research about an approaching asteroid with extinction-level potential. Just wouldn’t make much sense.

We have two pandemics: We have the COVID-19 pandemic and we have an accompanying second pandemic which is a pandemic of lunacy.

Dr. Makary points here to polling which found that a sizable segment of the population believes the risk of hospitalization with COVID is greater than 20%. He is likely referring to this Gallup survey and this chart in particular:

The bigger picture numbers are still wrong but not nearly as dramatic, which wouldn’t make for as fun of a talking point.

He later laments that “70% of people in this half of America belong to a political party — I won’t say which one because I stay out of politics — believe that the risk of hospitalization from COVID is over 20%. 41% believe that the risk of hospitalization is over 50%. It’s 1%.”

Dr. Makary’s presentation of this data is incorrect. To be more precise, 49% of Americans polled incorrectly pegged the risk of COVID hospitalization at over 20% (147/300). To comport to his own reading, 63% of Democrats (he rounded up to 70%) believe this to be true, which accounts for only 43% (63/147) of those “in this half of America” (not 70%). And it’s 61% (89/147) “in this half of America” that believe the risk of hospitalization is over 50%, 46% (41/89) of which is comprised of Democrats.

Putting aside his inaccurate portrayal of the data, a similar observation could have been made about Republicans, 54% of whom incorrectly believe the risk of hospitalization is over 10%. The magnitude of the misunderstanding is of course lower but the dynamic is the same directionally.

Misunderstanding of COVID risk should come as no surprise. Sadly, Americans believe lots of things that are factually incorrect. This in my view is a function of media bias and proliferation of non-expert opinion across social media platforms. This unfortunate reality was with us well before COVID, which just so happens to make for an easily contested flash point in our never-ending culture wars.

For example, 58% of Americans wrongly believe crime rates are higher today than they were 30 years ago. Why do we believe this? I suspect it’s because we live in a 24-hour news cycle that is desperate for clicks and can disseminate information instantaneously to billions of people across the world. If it bleeds it leads, and having such efficient access to crime reporting allows recency bias to misinform our collective perception of risk. Naturally (and sadly), there is a partisan element to these views as well: 54% of Democrats believe this “uptick” in crime is the result of loose gun laws compared to just 8% of Republicans who believe the same.

Another misperception that Dr. Makary could have highlighted is that 28% of Americans believe that the government is intentionally hiding the truth about the harmful effects of COVID vaccines. This also broke down along partisan lines, with just 9% of Biden supporters believing the same compared to 47% of Trump supporters.

Here’s another fun one: 20% of Americans believe COVID vaccines contain microchips as part of a government attempt at population control.

So which is more harmful to society at large: An overestimation of COVID hospitalization risk — where the downside is more vigilance — or belief that Bill Gates has brought Innerspace to life as part of some genocidal conspiracy —  where the downside is entrenched paranoia and reduction in contagion mitigation efforts that only prolongs the pandemic?

The reality is that we as a society have long held misinformed views. This is a result of how and where people consume their news, whose delivery is almost always shaped by an agenda. The pandemic of lunacy Dr. Makary decries was with us well before COVID and will be with us long after. We did not suddenly lose our faculties when the virus arrived.

You must wear a mask in a restaurant for the nine steps until you get to your table and then you can take off the mask for two hours and yap and yell and talk and spit.

Here Dr. Makary ridicules the apparent illogic of wearing a mask in a restaurant only while not seated at a table, as if the act of mask removal during a meal negates any benefit of wearing the mask elsewhere. I would imagine that, while moving about a restaurant, the potential for entering an unknown person’s space increases dramatically when compared to sitting in one spot. Again, I’m no infectious disease expert, but my rudimentary understanding of spatial awareness suggests to me there may be wisdom in achieving some incremental protection when the surface area of engagement is increased beyond one’s intimate space. That is, I would presume it’s more likely that someone could contract COVID while walking by 20 random, unmasked people than they might when seated amongst a handful of known acquaintances (and interacting with a masked server).

Look at the farce of what’s happening…When you go to a gathering, the workers are wearing a mask and no one else is wearing a mask…We’re imposing a new form of oligarchy that is exercising a power imbalance that in any other setting would be seen as disgusting…Look and see who is wearing a mask, these are people from minority communities, low income poor people…who have to work during the pandemic and those of us who are enjoying cocktails, we’re told for you, you are dignified enough where your transmission is somehow sanctioned…and for other people it’s not.

You can almost see the picture Dr. Makary is referencing in his mind when he makes this statement. I‘d bet good money it was this year’s Met Gala, which saw the likes of Alexandria Ocasio-Cortez gallivanting around in fancy outfits while their handlers and servers were masked up. Plenty of points can be made about inequality with events like this, but the masking part of it misses the mark for me.

Firstly, Dr. Makary is making inaccurate generalizations about the service industry. A quick review of restaurant, banquet, and hotel worker demographics shows caucasians as typically the largest racial group, usually in line with census estimates (i.e., minorities are not disproportionately represented on balance). The split between women and men varies by role but on the whole breaks down roughly 50/50. So Dr. Makary is wrong to imply that the service worker community is minority-dominated. 

Second, the power imbalance he describes would have to be ever-present for it to prove truly problematic in a discriminatory sense. But it is, in fact, only circumstantial. All of these service workers experience the other side of this perceived injustice during their off hours when they turn into the client. For example, the masked waiter at a fancy gathering is typically subjected to more liberal masking requirements when frequenting a restaurant on his own or grabbing a beer at his favorite bar.

These masking requirements derive from CDC and OSHA guidelines that define “medium risk employees [as] those who regularly come within six feet of other people, such as retail workers, restaurant servers and hair stylists.” Which is to say, the masking is as much designed to protect service workers as it is to protect gala attendees sipping their fancy cocktails. It stands to reason that those regularly interacting with a high volume of random people might want to take some extra precautions. This is a good example of the selective masking that Dr. Makary espouses when discussing whether he believes children should be masked in school.

Lastly, there are plenty of instances where the well-to-do are required to mask up. Indeed, we often see full, non-discriminatory mask enforcement when the numbers get large enough for indoor events. For example, fans are often required to wear a mask while attending NBA games. This rule applies equally to everyone, including those with expensive courtside seats. Even the players — with their multi-million dollar contracts — are required to be masked when not on the court. The same level of enforcement applies to patrons of the Chicago Symphony Orchestra, a demographic I presume ranks high on the socioeconomic scale. High fashion companies like Hermes and Louis Vuitton often require shoppers to mask up before entering their stores.

It is also worth noting that Met Gala attendees were required to provide proof of vaccination before attending. This seems an easier ask than requiring the same of all service workers, and I’m sure Dr. Makary would’ve complained about vaccine mandates that forced all employees to be inoculated in order to keep their jobs. Requiring masks instead of shots seems a reasonable compromise. Gala guests were also instructed to be masked at all times while indoors except when eating or drinking.

We have seen social inequality magnified during this pandemic through an oligarchy that has been telling this other group in the United States let them eat cake. Last year, we had a very healthy conversation…about racial equality in the wake of George Floyd…Fast forward just a couple months down the road and the vaccine comes out and guess what, people with power and influence insert themselves in the vaccine line. Board members, private jets flying to Florida…22-year old aestheticians in a dermatology clinic…basically saying in a societal way, our life matters more than those who are vulnerable and at risk.

Dr. Makary continues to beat the inequality drum here and does some pandering with his George Floyd comment. I’m not sure many would characterize the “conversation” we had following Mr. Floyd’s tragic death as “healthy”. Certainly not the 25 people who are estimated to have died during protests that resulted in over 14,000 arrests and billions of dollars in property damage.

People with power and influence always receive preferential treatment. This is nothing new. The fact that some of them gained early access to COVID vaccines should come as no surprise, nor did I see much handwringing about this fact. I’m not suggesting that inequality is wonderful for society, just that I don’t see how this instance magnified anything. I also found the 22-year old aesthetician to be an odd example, particularly given how specific he was with the description. When thinking about things that magnify inequality, 22-year old aestheticians getting early access to a vaccine would probably rate relatively low on the list of concerns for most.

What we’re doing now is using an indiscriminate mask policy at times when it may not even be working, and we don’t have any data that it’s working.

This statement was made in reference to the effectiveness of mask-wearing for children in school. Dr. Makary makes several authoritative assertions like this throughout the conversation. Any time I hear someone say we have zero data or evidence of something, I suspect hyperbole is at play. My standard course of action is to conduct a quick Google search to see what’s what. I’m not here to determine which interpretations might be the correct ones, but more to check whether the science is settled in such a way as to justify these types of emphatic statements. 

The first thing that popped up was this Duke study that found masking of children to be effective. I also saw an interview with Dr. Nipunie Rajapakse, a pediatric infectious disease physician at the Mayo Clinic Children’s Center, in which she referenced “numerous studies” that found that masking children is not harmful and indeed provides significant protection.

But there were other articles that seemed to suggest otherwise. It would thusly appear that the science isn’t quite settled on this topic, making child masking appear not as cut-and-dry as Dr. Makary claims it to be.

If masks worked — and we have zero data on masks working — they would rank number six in mitigation strategies. Yet the entire culture wars are around masking kids.

As discussed, it does not appear to be settled science regarding the effectiveness of masking kids, so to say we have zero data is misleading. I couldn’t find anything referencing masking as number six in mitigation strategies. My understanding is that masking is indeed a low risk mitigation strategy, so this might very well be correct. But assigning a single subject as being the sole focus of today’s culture wars obviously makes no sense. Masking of kids likely ranks below many other hot button issues for the simple reason that not everyone has kids. In fact, only 40% of U.S. households contain children under the age of 18.

We have zero data on the risk [of COVID] to healthy kids. Zero.

Dr. Makary doubles down on zero to emphatically make a point that seems to be in dispute. Deaths among children are thankfully rare, but they do happen, even among healthy ones, and there is data on them.

“We know kids are less efficient transmitters.”

Another handy Google search surfaced multiple articles and studies suggesting that children are indeed efficient transmitters of the virus, with one Princeton study referring to them as superspreaders. There is also plenty of literature that agrees with Dr. Makary here. Seems the science is not quite settled on this topic, so here again we’re being guided by Dr. Makary’s binary reading of the literature. 

Let’s be honest, there is a power imbalance going on. Schools were closed when bowling alleys were open. The absolute last group to reopen was gonna be schools. You know why? Because kids don’t vote.

This sounds like a clever talking point prima facie but loses its punch due to the simple fact that kids have parents who vote, many of whom have been terribly inconvenienced by school COVID protocols. In fact, this may have played a key role in Glenn Youngkin’s recent gubernatorial victory in Virginia. I appreciate the teacher’s union angle that Ms. Weiss brought up here, but I also suspect there is some wisdom in slow-playing anything related to kids since they are typically amongst the most vulnerable as a demographic.

If they do universal vaccine requirements, they will hurt kids that do not benefit from the vaccine. There will be unintended harm. Let me be very clear because the rate of myocarditis in adolescents was 1 in 7000 boys. Doesn’t sound very pretty. We’re talking about heart inflammation. Now, in the group of kids, when I say kids it’s really up to age 22, in the group of folks 15–22, one of those out of 100+, died. You talk about an indiscriminate vaccine policy for 72 million kids in America. By the way, Israel had a 22-year old death clearly from the vaccine…Israel s 1/38th the size of the United States. Are we prepared to extrapolate their deaths to our population of our young people.

This is one of the bigger misconceptions relayed by Dr. Makary during the conversation, and takes some time to disentangle. 

For starters, to claim that anyone — regardless of age — would not benefit from vaccines that have proven highly efficacious is obviously misplaced. He may be correct in suggesting only marginal benefit for young children — since they tend to be at lower risk individually — but to claim they would reap zero benefit appears incorrect. This has been proven in previous studies for adolescents in particular.

Second, Dr. Makary is mixing age cohorts here. He addresses the question of whether children (presumably in the 5–11 age cohort) should be required to be vaccinated by referencing what I presume are vaccine-induced myocarditis incidents in the older adolescent cohort. To his credit, Dr. Makary acknowledges the distinction, but I doubt most listeners will take the time to parse the data as presented. This distinction is important because, best I can tell, there have been no documented cases of children under the age of 12 dying as a result of being administered a COVID vaccine.

I’m not sure which study he is referencing but let’s run with the numbers anyway. Backing out the math, it would appear that there were approximately 700,000 adolescents (not children) studied in this trial (where 1 in 7,000 = 100 diagnosed). Of the 100 or so that were diagnosed with myocarditis, one of them died, which works out to a mortality rate of 1 in 700,000. Stated differently, adolescents stand a 99.999999% chance of not dying from myocarditis as a result of the vaccine. To put that in perspective, the odds of being struck by lightning in one’s lifetime are 1 in 15,300. 

Of further note is that he mentions boys specifically. That’s because myocarditis tends to affect males at twice the rate of females. This would suggest that the study contained closer to 1.4 million adolescents (assuming boys and girls were equally represented). We can therefore roughly deduce that 1 in 14,000 females were affected, none of whom apparently died during the study (as surely Dr. Makary would’ve pointed that out). If my assumptions are correct, this would result in a vaccine-induced mortality rate among adolescents of just 1 in 1.4 million. 

Dr. Makary has been publicly corrected on this framing before yet he continues to make these claims.

Israel has distributed 16.2 million doses of the COVID vaccine to its citizens, with roughly 5.5 million of them being fully vaccinated. To Dr. Makary’s point, there has been one reported death attributed to post-vaccine myocarditis. Those odds are even lower than the ones he used in the previous example, so the Israel experience only weakens his case. 

Also missing is the average incidence of myocarditis ex-COVID. According to the Myocarditis Foundation, there were 3.1 million such cases globally in 2017. This is a condition that disproportionately affects males from puberty through their early 30s. The majority of cases are mild yet still resulted in 354,000 deaths in 2015, making it the third-leading cause of sudden death among children and young adults. Putting this in equivalent terms, myocarditis (ex-COVID) on average affects 1 in 2,548 people (out of 7.9 billion globally) with a case fatality rate of over 11%(!) in normal course.

Also missing here is an even higher incidence of myocarditis post-COVID infection. According to Yale Medicine, a study of college athletes found that 0.7% out of 3,018 COVID positive cases reported incidents of “cardiac involvement”. This is substantially higher than the 1 in 7,000 (.01%) risk Dr. Makary highlighted for post-vaccine myocarditis.

There are plenty of studies that disagree with Dr. Makary’s premise entirely, including from the American College of Cardiology and Harvard Medical School. Again, it’s not my place to determine which studies are correct. But I do believe it’s important to contextualize the data as presented by Dr. Makary, whose attempts at threat inflation are contested by many in the medical establishment. 

[Natural immunity] protects you better than vaccinated immunity. It’s not perfect, but where are those cases of those who had COVID in the past and recovered, and are now intubated in the ICU or died. They’re exceptionally rare, and when they occur they’re in immunosuppressed or people with unique medical conditions.

Dr. Makary made this statement when asked by Ms. Weiss whether natural immunity can protect against COVID.

This is yet another authoritative proclamation about something that again appears to be unsettled science. Though he discounts what the CDC has to say about the topic, the consensus view among medical experts appears to disagree with Dr. Makary. Included in this group is Dr. Anna Durbin, an infectious disease expert and Professor of International Health at the Johns Hopkins Bloomberg School of Public Health and Johns Hopkins School of Medicine — as well as faculty member at the Center for Immunization Research.

Among other things, studies have indicated that over a third of COVID infections result in no protective antibodies and that natural immunity fades faster than vaccinated immunity.  

Putting aside which studies and experts should be believed, doesn’t it stand to reason that the risk of vaccine-induced complications is smaller than the risk of COVID-related complications? As Dr. Durbin has noted, “Vaccines provide protection without any of the morbidities you can get with a natural COVID-19 protection.” 

Vaccines also help stop the spread (at least pre-Omicron!), so I’m confused as to why Dr. Makary would appear to be advocating for natural immunity as a substitute for vaccinated immunity.

There are of course examples of people who have died after being infected with COVID more than once, though thankfully Dr. Makary is correct about the rarity of those incidents. You know what else is exceptionally rare? Vaccinated folks dying from COVID. And, as discussed, children and adolescents dying from vaccine-induced myocarditis. 

If [someone] has had COVID, there’s no scientific evidence that they would benefit from the vaccine. That data does not exist.

This is another claim stated with such authoritative certainty that it begs further scrutiny. And we need look no further than Dr. Makary’s own school to find a contrary — and more informed — opinion. Dr. Lisa Maragakis, Senior Director of Infection Prevention, and Dr. Gabor Kelen, director of the Johns Hopkins Office of Critical Event Preparedness and Response, wrote an article that stated the exact opposite of Dr. Makary here. When posed the question of whether those with “natural immunity” still need a vaccine, the authors responded:

Yes, the COVID-19 vaccines are recommended, even if you had COVID-19. At present, evidence from Johns Hopkins Medicine and the U.S. Centers for Disease Control and Prevention (CDC) supports getting a COVID-19 vaccine as the best protection against getting COVID-19, whether you have already had the virus or not.

The authors go on to highlight various studies in support of this view. Dr. Makary may push back by claiming that the studies highlighted include those conducted by the CDC, which he says “would get disqualified in a 7th-grade science fair project”. Well, they seem good enough for his Johns Hopkins colleagues. So here again we’re left to assume that Dr. Makary’s reading of the literature is the correct one rather than those of actual experts on the topic. Whether his interpretation is right or wrong, to state that there is “no scientific evidence” and that the “data does not exist” is misleading.

As an aside, it’s fun to imagine the awkwardness when Dr. Makary encounters his Johns Hopkins colleagues who have dedicated their lives to the study of infectious diseases. 

No one would ever act like this when there was influenza circulating in the community even though the case fatality rate is comparable.

This struck me as an odd thing to say on two levels. Firstly, we’ve known about the flu for many years and have learned to manage it through annual vaccinations and other remedies. Comparing the seasonal flu to a new and mutating virus struck my novice brain as nonsensical.

Second, is it really true that case fatality rates are the same? The CDC estimates that seasonal influenza kills about 36,000 people per year in the U.S. Meanwhile, we’re on track for nearly 800,000 COVID deaths in just the past two years. Granted, COVID is significantly more contagious than the flu, but surely not enough to account for such a large delta in the number of deaths.

According to Dr. Makary’s own university, the current case fatality rate of COVID is 1.6%. Most estimates I could find peg the case fatality rate for the seasonal flu at well below 1%, with several putting it at 0.1%.

Dr. Makary’s comments here appear to be demonstrably false.

They would never act like this with Coxsackievirus. Do you know there were as many kids with RSV in the hospital this year as there were with COVID? Didn’t get any attention…it’s not getting any headlines. They don’t give a rip that 400,000 kids died of malaria the year before COVID. Where’s the outrage? It’s such selective outrage.

Dr. Makary continues with the false equivalency here.

Coxsackievirus is better known as hand, foot and mouth disease. It is considered to be a relatively mild virus that impacts mostly children and usually resolves in 7–10 days. There is virtually no risk of mortality and only a small risk of hospitalization. Not quite the makings of a mutating virus with the potential to kill millions of people and cause a coordinated global shutdown.

RSV is a common respiratory ailment that usually causes mild, cold-like symptoms. It was discovered in 1956 and is recognized as among the most common causes of childhood illness. More severe cases lead to an average of 58,000 hospitalizations per year among children aged five or younger, making it the number one cause of pediatric hospitalizations year-after-year.

Firstly, why would a well-known disease with a rather predictable hospitalization rate steal headlines from an emergent virus that caused a global pandemic? Second, the numbers don’t add up. With 58,000 RSV-related hospitalizations per year, that averages out to 1,035 hospitalizations per week. According to a study conducted last summer, it is estimated that 0.4% of pediatric hospitalizations are due to COVID. With 5.3 million pediatric hospitalizations per year, that works out to 21,200 that are COVID-related, or 378 per week.

If there really were as many children hospitalized with COVID as there were with RSV at the time of this interview, that’s either a big problem (because the number of COVID admissions is higher than average) or it’s good news (because the number of RSV hospitalizations is lower than average).

According to the CDC, there were an estimated 409,000 deaths globally from malaria in 2019. Roughly two-thirds of those deaths tragically occurred in children under the age of five, which would equate to 274,000 kids. We’ll give Dr. Makary the benefit of the doubt with regard to the number of deaths, but to say that “they don’t give a rip” is not only vague (who is they?) but also disingenuous.

Funding for malaria control, prevention, and treatment totals billions of dollars per year. There are dozens if not hundreds of charitable organizations dedicated to fighting the disease, and celebrities routinely make it a focus of their philanthropic mix. A stated goal of the Bill and Melinda Gates Foundation is a “world free of malaria”. The Global Fund distributed 188 million mosquito nets in 2020 to help with prevention.

I don’t think any of this qualifies as “not giving a rip”. I can only assume he is complaining about the lack of malaria news coverage in comparison to COVID. But the reality is that we’ve known about malaria for over a century and it’s mostly a regional phenomenon at this point, so it’s understandable that it wouldn’t dominate global headlines amidst the largest pandemic of our lifetimes.

It’s pathetic to be honest with you because let’s assume COVID was eradicated, would the doctor have the same feeling about influenza? Guaranteed that doctor has never vaccinated their kid for influenza.

This was said in response to Ms. Weiss relaying the story of a doctor she follows on Twitter who said they would like to go to a store with their three-year old and not feel like they were risking the child’s life.

I agree that the story Ms. Weiss relayed is a pretty dramatic take. But here again Dr. Makary makes a false equivalence between two very different viruses. And his assumption about the vaccination status of that child is as unprofessional as it is unfounded.

Since Dr. Makary often extrapolates anecdotal data points, I’ll do so here myself. I am personally not nearly as concerned as this Twitter doctor appears to be when it comes to COVID, yet I have had my kids vaccinated against the seasonal flu each year that they’ve been eligible. I reckon if I’ve been willing to do so, then so too has this paranoid doctor.

The question is at what point do you let people ride a bike, and drive a car, and participate in sports, and go on a golf course, because there is a risk that a golf ball can hit you or that lightning could strike…let them make the choice, not us in public health. 

Dr. Makary demonstrates a fundamental misunderstanding of group risk throughout the conversation, and this is a good example. Here he commits the same mistake many others do when it comes to the vaccine debate, which is allowing individual risk to inform broader risk metrics. 

As the mathematician Mr. Nassim Taleb has explained, this represents a fallacy of aggregation. Lightning strikes, errant golf balls, and car accidents are not contagious. Thusly, the risk is not multiplicative like it is with a communicable disease. Per Mr. Taleb:

Under multiplicative events the risk for the collective do not scale up from the risks of an individual. Systemic risks can be extreme where the individual ones are low, or vice-versa…[for large enough groups] it is a tail risk/systemic problem computationally dissociated from the individual components.

What this speaks to is a micro versus macro dynamic that often goes missing in our COVID debates. So many people are focused on individual circumstances and less interested in understanding how personal decisions can impact those around them. My rudimentary understanding of viral replication is that suitable hosts are required in order to feed the beast. This makes the unvaccinated population ready vessels to facilitate propagation — and therefore mutation — of the virus. If you probabilistically decrease the number of hosts by way of vaccination, you hamper the ability of the virus to go forth and multiply, which should be expected to slowly choke out the danger and thusly reduce the number of COVID-related deaths over time. The type of individualist thinking Dr. Makary appears to endorse here is how the “minority threatens the majority” in moments like this.

It’s almost like the government is the arsenic and the firefighter. They’ve created the problem that they are there to solve with their own vaccine solution.

Funny flub to start this comment (arsonist, not arsenic). The primary problem to be solved for here is transmission of COVID. Lab leak likelihood aside, the U.S. government did not (at least directly or intentionally) create that problem. Nor is the vaccine the government’s solution since it was developed by private companies. As far as I can tell, the government has no economic interest in vaccine manufacturers and does not stand to directly benefit monetarily from their distribution. So the solution being advocated for by the government is not “their” solution at all. 

And keep in mind the notion of incentives here: The government wants a happy and productive populace to ensure its survival, both by way of re-election and tax receipts. Whatever solution the government is endorsing will surely be in service of those overarching objectives. 

No state will tell us who is showing up in the hospital except for one, North Dakota…The average age of a fully-vaccinated person going to the hospital — a breakthrough hospitalization — is 73. The average age of a breakthrough death is 80. So, what’s that tell ya?

What it tells Ms. Weiss is that we “should be even more enraged” that we are expected to wear masks two years into the pandemic. 

It should be noted that the federal government has left mask guidance to the states, many of which have rather liberal masking policies. That said, it is well understood that COVID disproportionately affects the older among us. This makes sense as, similar to obesity, the elderly tend to be at higher risk for all sorts of ailments. 

But just because COVID seems to be impacting mostly the elderly, does that mean the rest of us should not be inconvenienced to care? Mr. Taleb recently wrote a piece demonstrating the flaw in this thinking, first by making the point that “The main trait in civilized society is to protect the weak” and later with the following mental model:

Another problem…is that the way society is built is via dynamic not static reasoning. As I keep writing in the Incerto, a certain class of people…ignore that things move. A 30 y.o. is not going to be frozen in complete youth and (civilized) societies have been organized around intergenerational commitments: you treat the current elderly the way you would like to be treated when you grow older. For even [you] will be older some day…Why is it so difficult to grasp that by killing seniors, you reduce your own life expectancy?

The point he makes here is an important one. Not only does our vaccine hesitancy betray our collective civic duty in protecting the most vulnerable among us, but it increases the likelihood that similar intransigence will adversely impact us when the next pandemic arrives. 

There is the notion of “long-term greedy” from the finance world that rings true here.

If you go on the CDC website and look at their guidance on the varicella chickenpox vaccine, it says we do not recommend the chickenpox vaccine if you have had chickenpox because you have long-term immunity.

This is more editorializing by Dr. Makary. He claims a negative affirmation in the form a specific recommendation by the CDC to not get the chickenpox vaccine, when in fact the guidance simply suggests that previously infected people “do not need” the vaccine. This is a subtle but important distinction given the difference in weight between actively recommending against a vaccine (which speaks to potential danger) versus simply saying it is not required (which speaks to necessity). 

Also, chickenpox was discovered centuries ago, so I suspect we have a pretty good understanding of what long-term immunity might look like for something like that.

As many as 1 in 5 people in healthcare have left in the last two years. They’re leaving in droves and they’re about to leave in another mass exodus unless the court keeps the (vaccine mandate) stay on.

…40% of TSA were not fully vaccinated as of a few weeks ago. 22 fire stations in New York have closed…police officers all over the place are leaving with crime surging in Baltimore and other...

The healthcare resignations number looks to be accurate, but COVID vaccine mandates appear to have nothing to do with those resignations (at least thus far). The Atlantic conducted an analysis on what is behind the attrition and vaccine mandates were never mentioned. In fact, the primary reason for resignation is because these poor people are exhausted and overworked, largely thanks to wave upon wave of COVID patients. 

Interestingly, the hospital staff turnover rate in 2019 was 17.8%, so maybe the 2020 numbers aren’t that dramatic all things considered. That could very well change, though a recent survey suggested that just 5% of unvaccinated workers have quit because of vaccine mandates. If this number holds for healthcare workers, then it should result in only a minor exodus. Thankfully, it appears TSA workers are tracking towards that number with a full 93% of them getting vaccinated by Thanksgiving.

The latest estimate of fire station closures due to mandate-induced shortages in NYC is a bit higher now at 26. This is obviously suboptimal. Not necessarily catastrophic in the context of NYC’s 1,667 fire stations but surely could have negative implications for local communities. I wonder how a former firefighter might feel about someone dying in their community because a fire was not put out in time?

There are indeed plenty of reports of police officers turning in their badges as a form of personal protest against vaccine mandates. The best data I could find on this was for the NYPD, which actually recorded very small numbers of resignations and suspensions related to the mandate. In fact, it looks like only 100 or so protesting officers were removed from duty out of a workforce 35,000 strong (0.3%).

It’s difficult to find updated total crime statistics for Baltimore. But there were less homicides in Baltimore in 2020 than in 2019, and the number of homicides this year is tracking less than last year. I know other cities (e.g., San Francisco) have seen a meaningful uptick in crime this year, but some attribute this more to the local philosophy of policing rather than number of police officers per se.

I think they got a taste of what it’s like to be king and they don’t want to turn the keys over. 

Dr. Makary made this statement in response to a question from Ms. Weiss about “what’s in it for the oligarchy” when it comes to what the doctor believes to be overbearing and nonsensical COVID policy.

I appreciate the general sentiment about insular institutions being staffed by out-of-touch fuddy-duddies and run by power-hungry bureaucrats. But to ascribe power grab motivations to onerous COVID policies speaks more to Dr. Makary’s narrative bias than it does to the likely reality in my view.

This is where the idea of incentives comes into play. The CDC is incentivized by one thing, which is to mitigate as much as possible  the risk associated with COVID. Social, political, and economic implications probably don’t factor much into its analysis because those issues are beyond its purview. Its focus is therefore singular in nature: stop the spread of COVID while leaving political and financial implications for other authorities to navigate. 

A creeping sense of zeroism naturally sets in when the objective is to mitigate downside rather than maximize upside. Put another way, the CDC is heralded for bringing about an end to the pandemic but not necessarily rewarded for doing so in as gentle a manner as possible. 

Politicians, on the other hand, are focused on the acquisition, maintenance, and projection of power. Dr. Makary seems to suggest they are using COVID policy to exercise the projection part of that power equation. But this misses the larger objective of most politicians, which is to get in office and stay in office. Antagonizing one’s voter base with restrictive policies that inhibit economic production and impinge upon individual freedoms probably isn’t a recipe for success. 

I would imagine a win for everyone here is to get this whole thing over with as quickly as possible with the least amount of collateral damage, not to prolong it for control purposes. 

When HIV hit this country, Dr. Fauci immediately started talking incessantly about a vaccine that would bail us out of the HIV epidemic. Guess what? We never got a vaccine. It was therapeutics…that allowed us to manage the infection. Same here. An intense focus on vaccines, which we needed…but there are so many therapeutics now…

This was an odd analogy to make since it sounds like Dr. Makary is making the case for therapeutics over the vaccine. Comparing our HIV response to COVID makes little sense given that we’ve developed a vaccine for the latter and not the former. So it’s not the “same here”. For someone who says he’s pro-vaccine, he makes a lot of statements like this that suggest otherwise.

Fluvaxomine, which is Prozac, reduced hospitalizations by 91%. A German study just came and said that almost no one died with high levels of vitamin D in a meta analysis. Hypertonic saline, a nasal spray you can buy for $4 over the counter reduced your hospitalization risk from 10% to 1.2%. Steroid nebulizers, actively included in standard of care in the UK, not even acknowledged here. 

A couple of new studies have indeed shown that fluvaxomine may be an effective therapeutic for COVID. It appears Dr. Makary got his numbers mixed up, but it is nonetheless great news and he’s right on the trajectory at least.

However, it’s important to note that these studies are new and have not yet been peer reviewed. In fact, a number of experts have already contested the findings, so I guess we’ll have to see how this shakes out. 

Pending validation aside, do you know what has proven even more effective at reducing hospitalizations and deaths? You guessed it: The COVID vaccines!

I wasn’t able to find anything to confirm his stats on the effectiveness of hypertonic saline nasal sprays, but I did come across a few studies that seemed to indicate positive findings. 

What stood out to me with the fluvaxomine and nasal spray studies is that they didn’t appear especially robust (e.g., the fluvaxomine study included only 1,497 people, half of whom were given a placebo). Dr. Makary expressed reticence previously in extrapolating vaccine data for just 1,500 kids but seems fine extrapolating small data sets when they conform to his narrative.

I couldn’t find the German vitamin D analysis Dr. Makary referenced, but there are a number of studies that suggest vitamin D deficiency may be a driver of COVID outcomes. But there seems to be plenty of disagreement here amongst the scientific community, so again this appears to be a contested assertion.

From what I could find, steroid nebulizers are inhaled steroid treatments usually designed for asthma patients. It appears that this form of COVID treatment has not been approved by the WHO or CDC. And judging from official NHS communications — which specifically stated that “there was no statistically significant improvement in COVID-19-related hospitalisation or deaths” and that “inhaled budesonide is not being recommended for routine use” — it doesn’t sound like nebulizers are part of U.K. standard care.

But there do appear to be studies suggesting at least some benefit to them. So here again we have Dr. Makary making unsettled science sound more settled than it really is. 

With this rant, Dr. Makary makes it sound as if the FDA has not approved any therapeutics, which is incorrect. The FDA has approved remdesivir and has granted Emergency Use Authorization for the monoclonal antibody treatment REGEN-COV. It’s just that the FDA hasn’t approved all the other things Dr. Makary appears to like. At least not yet. 

In any other industry, if you’re this wrong you would no longer hold your job. It’s sad, when I read the studies…even Pfizer’s new drug, the pill, the oral pill, the 5-day pill, cut COVID deaths to zero. One of the main components, Ritonavir, that’s been around for decades. Why weren’t we doing those trials last year?

This is yet another odd criticism. It’s like asking why Apple didn’t release the iPhone in 2006 instead of 2007. I mean, all the parts were there for the company to make it, right? Why couldn’t they just figure it out earlier?!

Perhaps he’s criticizing Pfizer for focusing on the vaccine before the pill. But it strikes me as logical that prophylactics would be prioritized since the goal should be slowing transmission as quickly as possible. Then we can take on therapeutics as part of ongoing treatment needed for inevitable breakthrough cases. Makes sense to me to start with prevention then move to treatment. That way you can mitigate propagation of a virus that has an insatiable desire to replicate. But again, I’m no expert…

One thing I do know is that talking heads are wrong all the time. Yet they continue to get invited back for more of their misplaced punditry, so long as it adheres to whatever narrative is being pushed by the host outlet.

We’ve completely ignored the fact that the reason we have one of the highest death rates in the world is we have one of the most obese populations in the world. We’ve completely ignored comorbidity in data. That’s how I think we got into this problem. 

…the number one risk factor for COVID…is the metabolic syndrome from obesity.

I don’t see comorbidities being ignored anywhere. I’ve personally heard it mentioned over and over again. Another handy Google search pulls up lots of results on the topic. And a list of comorbidities is provided on the CDC website that includes obesity, where it specifically states that “people with certain medical conditions…are more likely to get severely ill from COVID-19”. The CDC also published a study earlier this year which found that 78% of COVID-related hospitalizations were among the overweight and obese, with similar numbers for intensive care, medical ventilations, and death.

Though a recent Columbia University study suggested that comorbidities had no predictive power in determining COVID outcomes, it stands to reason that obesity would increase the risks associated with COVID since it increases the risk with all sorts of ailments.

But the correlation between obesity and COVID mortality isn’t as straightforward as Dr. Makary makes it seem since it doesn’t hold across countries. The U.S. is the 12th-most obese nation in the world and, per Johns Hopkins, ranks 20th in COVID mortality (measured as deaths per 100,000). Most of the countries ahead of the U.S. in obesity are tiny island nations nicely sequestered from the rest of the world, so their COVID incidence has been de minimis. 

Kuwait, however, ranks 11th in obesity and 93rd in COVID mortality. Jordan ranks 13th in obesity and 65th in COVID mortality. Saudi Arabia ranks 14th in obesity and 113th in COVID mortality. Qatar ranks 15th in obesity and 117th in COVID mortality. Our neighbors to the north, rank 26th in obesity and 82nd in COVID mortality. Mexico ranks 29th in obesity and 23rd in COVID mortality. 

But let’s assume anyway that obesity is America’s primary problem when it comes to combating COVID. What are we supposed to do with that? It has proven difficult enough to get people to incur the minor annoyance of wearing a face mask or submit to a couple of free shots. How easy might it be to convince a population of stubbornly entrenched habits to meaningfully change their lifestyles? Even if we were to miraculously convince everyone to get fitter, it would take years for those changes to reflect in broader society. What good does that do for a mutating danger present in the here and now? 

Imagine our country undergoes a massive cyberattack that cuts off everyone’s access to the internet. The only solution is for folks to individually code their way out of it or install free antivirus software created by Google, Apple and Microsoft. Which is more productive in addressing the immediate problem: Downloading that free software or suggesting that more Americans learn how to code?

Shouldn’t the message be to get the shot to assist with mitigating the immediate crisis AND maybe cut back on those carbs and get some cardio in?

By the way, Johns Hopkins does not list obesity as a major risk factor for COVID. It appears from their list that old age is the number one risk factor, followed by heart disease, lung disease, and diabetes (which presumably has an obesity link).

Natural immunity threatens the message that we need to vaccinate every human being with two feet. The message is ‘Hey, how dare you do that? People might go out there and choose to get natural immunity, that is choose to get the infection instead of get vaccinated. And we cannot allow that to happen’. So you’re saying we can’t be honest with people? We can both be honest about natural immunity and its effectiveness and encourage people to get the vaccine at the same time.

I agree we should be honest with people, both in acknowledging the limitations and morbidities associated with natural immunity, and in quantifying the societal damage such a pursuit might cause. 

There are approximately 256 million adults in America. According to FiveThirtyEight, 30% of them are unvaccinated, which equates to 77 million people. The CDC estimates that roughly one-third of Americans have already had COVID, which would mean that there are 52 million American adults walking around with neither vaccinated nor natural immunity. 

Some experts suggest that everyone will contract COVID at some point, but let’s be conservative here and estimate that only 25 million of those non-immune adults eventually catch it. Per the Gallup study that Dr. Makary referenced several times, it is estimated that the COVID hospitalization rate is between 1–5%, so let’s split the difference and call it 3%. And the latest COVID fatality rate in America is approximately 1.6%. 

Using the above data, the expected net result of folks choosing natural immunity would be an additional 750,000 hospitalizations and another 400,000 projected deaths. For reference, there have been 3.5 million COVID hospitalizations to date and about 791,000 deaths. 

Even if forthcoming therapeutics cut those numbers in half, we would still be inviting significant numbers of unnecessary deaths by suggesting that people should choose natural immunity over vaccinated immunity.

I sometimes think we would’ve done better in the pandemic if we didn’t have the CDC. Because the CDC consistently put out unreliable recommendations and we can’t have a group of disconnected people adjudicating on every aspect of American life.

Dr. Makary made this statement when Ms. Weiss asked whether he trusts the CDC. For starters, the CDC obviously doesn’t seek to adjudicate on “every aspect of American life”. This is yet another example of the hyperbole he often uses for dramatic effect.

He also has a striking amount of impatience when it comes to the CDC. A more liberal interpretation of the agency’s changing recommendations might be that it is trying to adapt in real time to a rapidly evolving situation. Dr. Makary admitted that he backed the early lockdowns because we didn’t know what we were dealing with. We certainly know much more today than we did then, but the situation remains fluid, as we can see with these new variants. I would expect guidance to remain fluid as well, especially as new research comes to light.

And since “we can’t have a group of disconnected people adjudicating” on our lives, I reckon Dr. Makary doesn’t have much love for Congress or the Supreme Court either. 

Some women are reporting menstrual irregularities with the vaccine. There is something going on…

There have been reports of menstrual irregularities post-COVID as well. And there are theories as to why this may be happening. Bottom line is that there are no systemic studies yet on this phenomenon, so it might be more appropriate for Dr. Makary to say there might be something going on rather than there is something going on. This appears to be further evidence of premature certainty on the part of Dr. Makary. 

People should be able to make their own decisions and if they’ve chosen not to get vaccinated, they have done so at their own individual risk. They pose no risk to those who have immunity…

Dr. Makary is again committing the miscalculation error of micro versus macro risk.

Ms. Weiss then asked if there are “30 people sitting around a Thanksgiving table and 29 have been vaccinated and one isn’t, those 29 people are protected from that one person.” 

…That’s right. I mean they have a risk of, let’s say they’re under age 50 with no comorbidity, of being hospitalized of maybe 1 in 100,000. Now is that a risk that is acceptable? I would think so. Because if you drive to get a vaccine, you have a greater risk of dying on the ride to get vaccinated.

Dr. Makary often laments our collective misunderstanding of risk when complaining about COVID policy, but he makes the same mistake multiple times himself. This recalls for me Mr. Taleb’s description of the Intellectual Yet Idiot given “his misunderstanding of probability theory and cosmetic use of first-order models.” 

Here Dr. Makary is conflating the lifetime risk of death due to automobile accidents with per incident risk, which is incorrect framing. Assuming one is driving a car (rather than motorcycle), the lifetime odds of dying in a car accident are 1 in 608. The odds of dying in a given year are 1 in 47,852. But with this statement, Dr. Makary is referencing very specifically the risk of death while driving to a singular destination. 

Americans drive 3 trillion miles per year. There is an average of 7,000 car occupant deaths per year. That works out to 1 death per 428 million miles driven. Assuming a trip to the local pharmacy is within ten miles, the odds of one dying while driving to get a COVID vaccine are infinitesimal, and orders of magnitude lower than 1 in 100,000.

Putting aside his clear miscalculation of incidental risk, I find it interesting that he considers a 1 in 100,000 risk level acceptable in this context while a 1 in 700,000 risk of vaccine-induced myocarditis death among adolescent boys is unacceptable. 

Senior advisors to the White House have said, people who are unvaccinated should get tested twice a day at their own individual expense in perpetuity. That is not medicine, that’s political vindictiveness.

I could find no confirmation that senior advisors to the White House have suggested that unvaccinated people take COVID tests twice per day. Even if they did, no such policy exists because that would obviously be ridiculous. 

It is true that unvaccinated federal employees must submit to weekly or bi-weekly testing, but to peg that frequency at twice a day is incorrect. Unvaccinated visitors to the White House are required to be tested and to foot their own testing bills, but staffers see their testing costs borne by taxpayers. 

Second, there is no realistic basis to assume any of this will persist “in perpetuity”. 

Lastly, politics have nothing to do with policy implementation here. That is, there is no political test associated with testing requirements. Vaccination status may indeed correlate with political affiliation, but party loyalty has nothing to do with whether anyone needs to be tested. The determinant variable here is not whether someone is Democrat or Republican but rather whether they are vaccinated or unvaccinated.

COVID has become so stigmatized that doctors have actually refused to do transplant operations if someone, say, has natural immunity but they haven’t gotten vaccinated. OK so, are we gonna stop taking care of people who eat too many potato chips? Or people who have HIV? Or people who broke a bone in the past from being a BMX racer? And they come back with another broken bone? Are we gonna say, there were risks out there and you failed to listen to our guidance and therefore we’re not gonna take care of you? People have lost their minds.

I’ve no idea whether refusal to conduct transplant operations is a moral or medical quandary, but this more false equivalency since obesity and broken bones are not contagious. And HIV is not nearly as transmissable as COVID (and isn’t killing nearly as many people or causing the global economy to come to a screeching halt).

No one’s talking about Sweden right now. Sweden’s doing the best in the world.

Dr. Makary seems to agree with a view that is common amongst policy antagonists, which is that the relatively hands-off Swedish model is a viable alternative approach to COVID.

Sweden is a lovely place. I’m sure it’s the best at many things. It apparently ranks best in the world for sustainable tourism and is ranked #9 in the US News and World Report Best Countries report. 

On COVID policy and outcomes, though, not so much.

Despite Dr. Makary’s claim, there are plenty of people talking about Sweden these days when it comes to COVID, and not for reasons he implies. Another handy Google search picks up multiple headlines about Sweden imposing new COVID restrictions as cases rise, offering booster shots, and introducing vaccine passports for indoor events. 

Why would that be the case if Sweden is “doing the best in the world”? Could it be because Sweden’s COVID case and mortality rate has been dramatically higher than its Scandinavian neighbors? Could it be because it was determined that the country acted too slowly in handling the pandemic? 

The reality is that the Swedish model hasn’t been the smashing success that many pundits claim it to be. The country has experienced 10x as many deaths per capita as its Nordic neighbors and hasn’t fared much better economically.

So here again Dr. Makary’s comments appear to be misleading. 

We told people that indoors was better than outdoors. We got it backwards. We told people that vaccinated immunity is better than natural immunity. We got it backwards. We told people to wash their hands like crazy for 20 seconds. Stop at 15 seconds, you feel guilty…We made so many mistakes.

I don’t recall any specific guidance that suggested indoor activities were recommended over outdoor activities. Dr. Makary may be referring to the early days of the pandemic, when everyone was instructed to stay home during lockdowns (which he claims to have supported), but the benefits of being outdoors seems to have been clear for some time now.

As previously discussed, the notion that natural immunity is better than vaccinated immunity is heavily disputed.

I also find it odd that a doctor would seem to suggest that washing one’s hands is unnecessary when combating the spread of anything, aerosol or otherwise. UNICEF continues to recommend that children wash their hands, for reasons that appear axiomatic:

Respiratory viruses like coronavirus disease (COVID-19) spread when mucus or droplets containing the virus get into your body through your eyes, nose or throat. Often, the virus can easily spread from one person to the next via hands. During a global pandemic, one of the cheapest, easiest, and most important ways to prevent the spread of a virus is to wash your hands frequently with soap and water.

And I’m going to go out on a limb here and bet that there isn’t a single person on the planet who has ever felt guilty for only washing their hands for 15 seconds!

In Conclusion

As a free speech diehard, I have no problem conceptually with Ms. Weiss featuring the likes of Dr. Makary on her podcast. I share a suspicion of all things establishment and, frankly, believe our elected leaders represent the worst of our society intellectually and ethically (especially our modern vintage). I therefore sympathize with the general thrust of these types of discussions.

I do, however, have more faith in our scientific institutions, especially when it comes to things like the actual saving of lives. It is here that the government is called upon to perform the function of “tail risk manager”. I therefore find it unfortunate that: 1) Dr. Makary has staked the claim he has in the COVID debate; and 2) Ms. Weiss did not challenge even the most obvious mistruths (e.g., Is there really zero data for all these things?).

I believe the information Dr. Makary is disseminating is providing fuel for the vaccine hesitant among us, which may only work to prolong this crisis. For example, the aforementioned Dr. Howard recently posted another piece asking the question of whether contrarian claims about the pandemic’s end actually resulted in a false sense of security that had the paradoxical effect of extending the pandemic. 

I don’t mean to suggest any ill intent on the part of Dr. Makary. I can only assume his views are genuinely held and surely he wants as many lives spared as possible in this whole thing. I just think his views are misplaced and counterproductive, especially in how he presents them by often using inaccurate and non-contextual framing. 

Something to ponder with the likes of Dr. Makary, who certainly is not alone as a medical professional speaking out against COVID policies, is that those doctors most vocal in their views tend to be furthest away from the front lines. Indeed, it’s not often you read about a doctor who actually treats COVID patients making the types of claims that we heard in this podcast. Quoting Mr. Taleb again:

The error continues because someone else is paying the price.

I ultimately view vaccines as the least of all evils, likely doing way more good than harm in the grand scheme. For those expressing hesitancy because we don’t know the long-term effects of the vaccines, I again reference the work of Mr. Taleb, who has suggested that meaningful morbidities associated with vaccines would’ve shown by now given the massive number of vaccinations that have already occurred.

For those who point out that vaccine manufacturers still qualify for legal immunity, so surely something may be afoot, I employ a little common sense. If these companies knew that their vaccines stood any meaningful chance of sickening or, worse yet, killing their customers — which now count in the billions — surely that would be bad for business, no? Legalities aside, the existential risk remains the same for these companies. 

Then there is the micro versus macro risk that I’ve already discussed. I have personally been boosted, not because I’m overly-concerned about my own risk but because I feel compelled to protect those around me by doing my part to stop the spread and reduce the strain on our hospitals. This is a form of civic, almost patriotic duty that I feel. It saddens me that so much of our country is so caught up in the politicization of it all that they allow their individual interests — however misplaced — to rule over the interests of their fellow citizens. This is a selfish stance in my opinion, and ironically predominant amongst those whose political affiliations are historically associated with the more “patriotic” of our political parties. 

I cannot imagine how this generation of Americans would respond to the call to storm the beaches of Normandy when they can’t even muster a few shots to help prevent more deaths in their own families and communities. 

Thankfully, Sam Harris dropped a COVID-focused podcast episode of his own just as I finished writing this piece. In it, he injects some sanity into the debate by interviewing an actual expert on these issues, Dr. Nicholas Christakis, a sociologist and physician with expertise in biosocial science. I can’t help but think that Mr. Harris felt compelled to have this discussion after listening to the conversation between Ms. Weiss and Dr. Makary. To which I say, thank you Sam!