Bitcoin's sudden drop was preceded by a fall in social sentiment. While there may be a short-term bounce, sentiment still hasn't completely shaken out the weak hodl'ers.

The LSEG MarketPsych Transcripts Analytics offers insightful perspectives into the focal points of a company. The accompanying graph, developed by our colleague Elliot Chung, illustrates this by detailing the proportion of mentions that various Apple products and services received during Apple's earnings calls. This is measured as a fraction of the total mentions of all products and services. In the early 2000s, the Mac accounted for nearly 50% of these references. However, post-2007, the iPhone emerged as the predominant topic of discussion. At its peak, the iPad nearly matched the iPhone in terms of mentions, though it has since seen a decline in focus. Although the VisionPro represents one of Apple's most significant recent launches, it is currently referenced only about as frequently as the AirPods and the Apple Watch. Finally, there is a long-term trend in the overall increase in references to services (such as Apple TV, AppleCare, iCloud, etc.)

Which companies are likely to benefit from Nvidia's incredible revenue surge? By scanning global news and social media over the past 30-days, we found the companies with the highest percent of co-references to the topic "Nvidia" in each sentence. In the image below, the company name is to the left and the blue bar length represents the percentage of sentences containing the company name that also contain the proper noun "Nvidia". 1. Dell supplies server hardware2. OpenAI (private) runs on Nvidia's H100 GPUs.3. Nvidia Corp is the legal entity4. Global Mofy is a declining penny stock being linked with Nvidia in social media (caveat emptor).5. Foxconn's stock rallied alongside Samsung and HK Hynix after Nvidia's blowout earnings last week.6. Astera makes components used in Nvidia GPUs.7. NetApp is partnered with Nvidia and provides software tools to manage data across Nvidia infrastructure....and many more (see image below)  

Stock prices of companies with the most positive earnings conference call hashtag#sentiment outperform over the following month. Below is a monthly updated example using past 90-day deciles. • UNIVERSE: All US companies with available transcript data• REBALANCING: Monthly at the close of the last trading day• LOOKBACK: 3 months (usually last available quarterly call) Note the stocks are bought at the beginning of the month, up to 90 days after the earnings conference call. The price drift is quite significant and long-term.

Better-than-expected results have appeared more frequently than not in this earnings season. LSEG (London Stock Exchange Group) Workspace data shows that about 56% of companies have beaten the mean estimate. Such strong performances have been reflected in the earnings conference calls. In the plot below, we compare the average financial sentiment (from the LSEG MarketPsych Transcript Analytics) of all available earnings calls in the quarter until today with that of the same period in previous years. This is looking to be the most positive sentiment earnings season since the start of the data in 2002. Year to date, the FTSE All-World Index is up 8%, which is above average for the same period in previous years, although not abnormally higher.

Over the past 20 years corporate sentiment on earning scalls has been increasing (blue line) alongside stock prices (Russell 2000, IWV, black line). Our research on quantile performance indicates that highly positive sentiment calls precedes stock price hashtag#outperformance (a post on that effect coming soon). But why is higher call sentiment occurring? Could it be that consistently improving corporate fundamentals are reflected in more positive call sentiment? Are analysts becoming more polite (or maybe only the friendliest are selected to ask questions)? Or is it a result of executive communication coaching to avoid gaffes and add more positive polish? Or maybe all of the above…

Public US-based companies led by highly optimistic CEOs have outperformed their peers over the last two decades. Our preliminary analysis, using the LSEG (London Stock Exchange Group) MarketPsych Transcripts Analytics data feed, reveals that companies helmed by the top 5% of CEOs, in terms of optimism levels during Earnings Calls, exceeded their peers' future stock performance by an average of 0.5% per month. The optimism metric in the data feed is one of 13 emotional dimensions evaluated in each sentence of the earnings calls. It utilises an LLM-based architecture designed to assess the probability of speakers conveying specific emotions.

The LSEG MarketPsych Transcripts Analytics offers detailed sentiment analysis on corporate communications, including quarterly earnings calls. It analyses each sentence to produce insights on topics, sentiment levels, and the probability of several emotions, including optimism. Our initial studies using this data suggest a positive correlation between CEO optimism during earnings calls and relative stock price performance in the following months. With hundreds of earnings calls for Q1 2024 already underway, we present a partial rank of the top 10 CEOs from Russell 3000 companies based on their optimism during the current earnings season. As of now, Mr. Olivier Le Peuch, CEO & Director of Schlumberger, has had the most optimistic discourse. While Optimism is depicted in the underlying blue bars, the superimposed black bars depict the financial sentiment level of these CEOs. The optimism is higher than sentiment for every CEO. Notable disparities between the optimism and sentiment levels, such as those observed in the case of Ms. Joanna Geraghty, CEO & Director of JetBlue Airways, could also serve as valuable features for future stock price modelling.

"And I think it might be the biggest asset value appreciation in history when that day happens when you can do unsupervised full self-driving."~Elon Musk on Tesla's earnings call yesterday. The optimism on full self-driving is near its historical peak, as depicted in the image below. The image shows the average sentiment sentences referencing "FSD", "self driving" and "self-driving" (red line) in Tesla's earnings calls since 2019. Tesla's stock price is in black.

Interest Rate expectations drive U.S. stocks in an inverse relationship (rates up => stocks down). As Warren Buffett famously said, "Interest rates are to asset prices … like gravity is to the apple." Expectations often drive financial behavior. Since the monthly CPI came in above expectations last week, some economists are now expecting the Fed to raise before they lower rates in 2024-2025. The chart below shows the rally in the Russell 1000 (top 1000 US stocks) since Oct 2023 as expectations for rates fell. The blue shading was placed between a 90-day and a 200-day average of interest rate forecasts derived from natural language processing (NLP) on thousands of news and social media sources discussing U.S. interest rates (sentiment analysis). Note the stock rally was inversely correlated with rates expectations since October. As the narrative shifts and forecasts for rates move higher, we could see more air coming out of stocks until more assuring CPI numbers come in.

The overall media sentiment about bitcoin is in the high end of its range. According to academic research on social media and daily asset prices, "Sentiment predicts positive next-day returns, but attention predicts negative next-day returns." https://lnkd.in/g8GgXdHX. We see a similar effect at monthly and longer horizons for many assets (stocks, currencies, etc...). News media attention to bitcoin lately has been very high. The Bitcoin Halving is likely to occur in late April. From a psychological perspective, the increasing scarcity of bitcoin increases its attractiveness. Yet the last halving was May 11, 2020, and previously one occurred in July 2016. Before and after the past halvings, there was no clear price impact of the events. I've noticed in recent conversations at finance events that the launch of ETFs (specifically the SEC approval) has legitimized Bitcoin in the eyes of conservative financial institutions and family offices. Many are discussing new bitcoin products and investments. Surprisingly to me, the tradfi adoption of bitcoin as a store of value seems to be in early stages. So is Bitcoin peaking? What does the halving mean? It's hard to know in the short term: sentiment is higher (and vulnerable to a fall). The high overall attention implies downward pressure in future months. Longer term (years) the momentum is still positive.

Historically social media sentiment about individual cryptocurrencies tends to drive their prices higher. The highest sentiment large coins in March 2024 so far are #DOT #ARBITRUM #MATIC #AVAX #BNB.

Here's a ranked view on some of the smaller #cryptocurrencies' sentiment from #socialmedia covering the period March 1 through March 12, 2024.

We built a 30-day U.S. stock predictive model based on Media Sentiment using a simple Machine Learning algorithm - updated returns in the below image. Humans, even in hyper-competitive environments like the US stock market, respond predictably to news and social media content.The model was put in production in Aug 2019 and launched commercially on Jan 2020 in partnership with the StarMine team at LSEG Data & Analytics.The model ranks stocks (1 to 100) based on their likelihood of outperformance using a ML algo applied to only our LSEG MarketPsych Analytics news and social media-derived data. The blue line in the chart below depicts the spread between the top-ranked decile (10%) of stocks and the bottom-ranked decile - the absolute return portfolio. The gray-shaded regions are the 2-year training periods.The model performs similarly regardless of market cap. It is orthogonal to other StarMine models. It has about 30% monthly turnover, with no transaction costs assumed. Longer term models also work well with media data (we've tested out to 3 year forecasts).

For our UK readers, the evolving scandal at the UK's Post Office Ltd & Fujitsu is rapidly impacting Fujitsu's ESG scores. Background: The digital accounting system that the postmasters (regular people) entered their daily sales & cost calculations into were being fraudulently altered via remote access from the UK's Post Office Ltd / Fujitsu. In our ESG data Post Office Ltd has the lowest (1st percentile) Community & Social scores and a 4th percentile ESGControversies score (very bad). The blame has gradually shifted from Post Office Ltd to Fujitsu over the past month in social media, and Fujitsu's ESG scores have dropped substantially - see graphic below.

In our earlier post we identified #Robotics as the industry with the most positive media sentiment in 2023 (and 2022).Attached is a list of the companies most associated with Robotic initiatives or products in the past two months. Based on our #quant research, the valuations of such companies tend to (on average) outperform when associated with higher media sentiment (as they have been).  

Every year we look at the most positively viewed industries in global #businessnews and #socialmedia.For 2023 we see #Robotics on top (as it was in 2022) followed by #RenewableEnergy, #Tourism, #Fintech, and #Infrastructure.Further down the list the industries with a country code after them indicate the industry is primarily favored in one region (US = United States, CN = China).The stock prices of the highest #sentiment companies and industries on average outperform over the following year.In 2022 AI was #2 but fell to #33 based on legal and social challenges.We wish you all a happy, healthy, and prosperous 2024! #happynewyear  

#Bitcoin sentiment has been at highs and the bull keeps running - a phenomenon we call sentiment momentum. In this paper https://lnkd.in/gasgp9BQ we show that across thousands of global stocks, sentiment precedes price momentum (using Granger Causality Analysis), and the chart below illlustrates that effect in #BTC.In the chart, the black price bars are BTC/USD and the smooth lines are two moving averages of #sentiment (30 day and 90 day superimposed). The red shading indicates negative sentiment pressure (the 30-day sentiment is lower than 90-day), and blue shading indicates more positive sentiment.Social sentiment on BTC is the highest since 2020, and news sentiment is the highest since 2018. When sentiment falls substantially, we're likely to see a price correction, but that isn't happening yet.  

#Antidiabetes drugs (#glp1 agonists) have been in the news not only for success in treating diabetes, but also for the shortages caused by off-label uses for #weightloss, #addictivedisorders, and #longetivity.#MorganStanley sees the drugs decreasing food industry profits and dramatically impacting stock prices, with an 80% gap emerging since Jan 2023 between stocks of companies benefiting from these medicines (largely #pharma) vs those being impacted by these medicines (retail and fast food companies). Here is a #foodindustry perspective: https://lnkd.in/g5smxCGj. Big picture, these medicines may substantially reshape US society.We get a lot of questions about which of these medicines is winning in the public sentiment space, and our analysis shows #Zepbound (daily green line below) with higher media sentiment than #Ozempic (blue line below). Zepbound was the last GLP1 medicine to be released, about 10 days ago. We'll post more as the situation evolves...  

This recent academic paper - Investment Opportunities Offered by Investor Emotions - (https://lnkd.in/gTg4F9qu) implements a practical portfolio construction strategy built on existing research that identify investor emotions as precipitative of post-earnings excess returns.Even accounting for steep transaction costs, the authors demonstrate a long-short strategy yielding an 18% annualized return that has low or insignificant correlations to all FF5 factors using #Refinitiv #MarketPsych data.

A recent paper in the #JournalofFinance investigates how investors approach their portfolio allocation. The authors find evidence for an investor heuristic called naive buying diversification (NBD), where investors allocate 1/N of their money in the N assets bought on that day (instead of considering their portfolio composition as a whole). The authors used our MarketPsych Analytics ("TRMI" in the paper) to test an explanatory hypothesis for such behavior. Their analysis provides support for a stock-picking explanation: NBD is more common when investors buy similar stocks, such as stocks with similar buzz (amount of media chatter). The findings could "have implications for the design of contribution-based saving plans, such as pension schemes". https://lnkd.in/da7m7BSdThe researchers combined datasets of #Barclays brokerage transactions (and demographic data), LSEG (London Stock Exchange Group) price data, and #MarketPsych news data.The below plot shows the function by which investors are more biased to invest in the similar buzz stocks. Lower buzz difference between two stocks (one proxy for similarity) is correlated with higher likelihood of them being purchased using the NBD pattern.

#China's 3rd largest residential real estate developer #CountryGardenHoldings Co Ltd defaulted on its bonds this month. Note that our #Gloom score for the company was already triggering well in advance (image attached).The past two weeks distress in the Chinese financial system are creating a #RiskOff attitude in global markets.Per #Reuters: "China's property sector ... is the largest asset class in the world, with an estimated market value of around $62 trillion... The next thing to watch is how regional governments, many of which rely on real estate revenue, manage their debt."On top of commercial (and multifamily) real estate distress in the US, we may see a #HardLanding from #MonetaryTightening after all. (Markets have been betting on a soft landing until this week).  

The popular press is abuzz with articles about AI's transformation of investing, financial research and analysis, and stock market forecasting. At MarketPsych we work in the field of AI with large language models (LLMs) including chatGPT, and in today’s newsletter we explain some LLM trading basics as well as our own successful AI agent designed for stock price forecasting. To illustrate the value of AI in investing, we'll start with the human weaknesses it is designed to exploit… Investing on fear AI vs AGI chatGPT is a non-sentient model (it's not conscious), and there is a big gap between it and the type of artificial general intelligence (AGI) described in the Fear Index. As physicist David Deutsch noted: “AI [artificial intelligence] has nothing to do with AGI [artificial general intelligence]. It’s a completely different technology, and it is in many ways the opposite of AGI … An AGI can do anything, whereas an AI can only do the narrow thing that it’s supposed to do.”

Below is a minutely depiction of our #RegimeChange score (blue line) for #Russia from June 22nd to 28th, 2023 UTC time.MarketPsych's real-time NLP engine scours macroeconomic themes, political risk, and country-level signals around 100' of risk-related events from 1000s of #globalnews and #socialmedia sources in 13 languages. In partnership with Refinitiv, an LSEG business our clients set risk management alerts for 100s of such risk-related events. Available country-level indicators include #SocialUnrest, Terrorism, InflationForecast, BondStress, and 100+ more.

In Jan 2020 our MarketPsych team launched a stock predictive model in partnership with #StarMine and Refinitiv, an LSEG business, called the MarketPsych Media Sentiment (MMS) model. It is an #AI based model, making stock forecasts based solely on media themes and #sentimentanalysis.The model was approved for production in Aug 2019 (red dotted line in the image) and has been sold commercially since Jan 2020. It showed yet another great performance in May 2023. This model ranks stocks daily according to their expected relative performance for the following 30 days. This past May, the spread between the highest and lowest-ranked US stocks was 4.3%, accruing to +13.4% on a 12-trailing months basis. Among large-caps, the performance is at an impressive +22% with a Sharpe of 3.3. The decile spread is plotted in the image as the blue line.There are predictive patterns embedded in the emotions and themes expressed about companies in news and social media. #behavioralfinance #quantitativefinance #quantitativeanalysisFor an introduction to MMS, please watch the promo video at: https://lnkd.in/gNqwX7fx

With U.S. commercial real estate sentiment plummeting, is it time to buy?In the chart below we plotted the #Russell1000 price versus two moving averages of media-derived U.S. #commercialrealestate sentiment from 2020 to now. When the 90-day is under the 200-day, the gap between the lines is shaded pink. Note that COVID led to a slight downturn due to WFH (work from home), then there was optimism about RTO (return to office), but today's interest rate / hybrid work habits-driven collapse depressed sentiment much more.The Wall Street Journal last week reported distressed asset buyers buying properties like #AgaveHoldings. Per managing director Jose Perez “We have learned from the past, that when everyone is selling, buy; and when everyone is buying, sell.” https://lnkd.in/gpqKujd9#sentimentanalysis #sentiment #behavioralfinance

The U.S. CPI came out yesterday showing inflation at 4.9%. Our predictive model, based on the aggregate inflation forecasts from news and social media, shows a further significant inflation drop over the next month to 4.3%. This model has consistently had a 30% tighter fit to the U.S. CPI than the consensus of experts since it began rolling-forward (expanding window architecture) in 2004.Once interest rate expectations plateau, then the market may resume its upwards drift.

Today's bankrun is targeting large non-US banks: Credit Suisse (a repeat target from back in October 2022) and BNP. Note that Schwab is in the green, probably due to being in the US (Fed backstop) and having a supportive CEO aggressively buying his own shares. We plotted the overnight bullishness in the media about select major banks, below:

These are the companies most frequently mentioned in the media along with SVB in the last 5 days. Many are large financial institutions (LFIs, gray bars) that were mentioned due to stock prices falling across the board. However, the main concern surrounding SVB is other regional banks (blue bars), such as First Republic, Signature Bank, and Pac West Bancorp. Several technology companies have also been frequently mentioned due to their possible exposure to SVB (red bars): Roku, Circle, Roblox, BlockFi, Coinbase, and Etsy .

According to a new paper, news sentiment sometimes drives the stock market, and sometimes reacts to it. Specifically, news drives market prices during periods of upheaval (debt crises, Brexit and Covid-19 to name a few). Sentiment reports on market action - after the fact - during less volatile times. Spillover between investor sentiment and volatility: The role of social media by Ni Yang (Auckland University of Technology), Adrian Fernandez-Perez (Auckland University of Technology) and Ivan Indriawan (University of Adelaide)

Following on #Adani, another example of real-time #AI-detected ESG controversies monitoring capturing events as they evolve. Note how the controversies score decline leads the share price lower. We send our sympathies to the residents of East Palestine, OH.

After Hindenburg Research released their report highlighting AdaniGroup's accounting misdeeds, our ESG scores immediately signaled danger, yet the stock hovered for a day as investors entered a state of denial (see the quotes from representative social posts below). In the chart below several Adani long-term ESG Controversy scores are plotted against the share price of Adani Total Gas (the biggest hit). Our 365-day average ESG Controversies scores fell for all Adani companies, and Adani’s share prices started to plummet the day after. (Our 60-second scores were even faster...)

The CEO and CFO of Americanas SA resigned on Jan 11th due to Accounting inconsistencies at the company.The stock posted the largest one-day decline of any of the 89 companies currently in the Ibovespa index in at least 20 years. AI-based ESG analytics picked up the drama as it happened.Hiring new CEO Sergio Rial (formerly CEO of Santander Brazil) on August 20, 2022 was a good public relations move for Americanas.The company’s ESG Management score (our real-time ESG metric, green line) jumped after the announcement in the chart below (stock price is blue bars).Then on Jan 11th, 2023 (shortly after assuming his new job on Jan 1st) he reported accounting irregularities, causing both the drop in our Management score (in the final days of the chart) and the departure of the new CEO.

We reviewed public sentiment about 40 US industries over the past year, and our data shows the most overall excitement about the top 4 below (top 10%), in descending order:

Note the spike higher in Argentina’s Stock Market the Merval following their historic World Cup victory last weekend. This is similar to academic research such as “Sports Sentiment and Stock Returns” published in the Journal of Finance by Alex Edmans, Diego Garcia, Øyvind Norli - losses dampen moods and victories lift them - leading to national economic effects...

Note how optimism about the Chinese Stock Market rocketed following rumors (and then reality) of Covid Zero policy roll back. Behavioral finance research shows that relief from financial fear leads to - unexpectedly - excessive risk-taking, accounting for this “COVID relief rally.” The optimism chart was developed using a z-score of our Chinese stock market optimism index, derived from millions of news and social media comments in 13 languages, over the course of 2022.

Our Leadership score for the UK tracks news and social media-based perceptions of British leadership quality over time using NLP and Fall 2022 is a rollercoaster (see chart).  Most recently, the increasing cost of living is impacting Leadership perceptions.

While the economy seems to still be growing, our media-based recession indicator says it will soon be in recession. Note that when the media begins to beat the drum on an impending recession, a self-fulfilling prophecy may kick in as businesses hunker down in anticipation of the event. In this chart we show in blue the net references to "economic growth" vs "economic contraction". When the references to Growth vs Contraction fall below 1 standard deviation of their historical average, this has always preceded an actual recession since at least 1968 in the U.S.

A depiction of U.S. real estate sentiment since Jan 2019. The blue bars are the Russell 1000 stock index. The purple line is average commercial real estate sentiment, which is higher now that workers are going back to the office post-COVID. The green line is residential real estate sentiment, which is as low as it has been since 2011 due to rising mortgage rates. Sentiment is measured in the U.S. business news and social media from references to each asset class.

“We are not makers of history. We are made by history.” ~ Martin Luther King, Jr. 2021 was the Great Acceleration of technology and society: Memes, Anti-aging, mRNA, CRISPR, AI, Sustainable Finance, the Electricity Economy, Metaverse, DeFi, NFTs, Flying cars, and to cap it all off – surprise! – inflation. As investors it helps to know the dominant narratives driving the market, and where we are in each cycle. In 2021 media narratives dominated the conversation and passed on silently in COVID-like waves. The contagiousness of memes, and the bold meaninglessness of many, imbued 2021’s financial markets with a beautiful insanity. An article summarizing a few of the year’s memetic winners is here. The pace of change will slow (some mini-bubbles are popping), but markets will be forever changed. It’s an amazing time to be alive, with the Acceleration of Everything.

For generations, U.F.O.s have been in the purview of late-night call-in radio shows and supermarket tabloids, not the Department of Defense. Now the government is publicly acknowledging that mysterious sightings can no longer be dismissed, and a major report is due in June.  ~ “Are U.F.O.s a National-Security Threat?” April 30, 2021. David Remnick. The New Yorker Radio Hour. In December 1998, on a dark snowy road in southern Sweden, I glanced above the trees and saw a small glowing oval object moving in parallel to our car. The road was straight, the sky was cloudy and black. I pointed it out to my girlfriend, who was driving. We stared at it silently for about 10 seconds. The object moved in front of the car, hovering over the road a few hundred meters ahead. It maneuvered in perfectly straight lines – vertical then horizontal, far then near, side to side. I looked around for an explanation – was it a reflected dashboard light, a helicopter? After a minute of silence I reluctantly asked, “Are you seeing this? What is it?” She nodded but stayed silent. I offered, “Is that what they call ... um ... a UFO?” She peered at it thoughtfully, shrugged, “Mmmm, yeah, I guess so ...” After another minute of hovering and a few perfectly straight sideways and vertical movements, and it darted away. I filed it under "Head Scratchers."

As a young investor in the late 1990's the conventional wisdom was that "sin stocks" (gambling, alcohol, and weapons stocks) outperformed others. Investors could choose to either be greedy and profit or be principled and underperform. The narrative fit the transactional "greed is good" nature of the times. But it turns out the story isn't so simple. Inflation spotting, meme stocks (see our Jan newsletter), cryptocurrencies, and the green transformation – lots happening in markets. Today we focus on the latter. With a our new ESG dataset, we see that the performance of ESG investments is more often the opposite of the conventional wisdom - invesors can both do good AND outperform. BALI

This week's GameStop battle was the latest in a smoldering revolution - a revolution embodied in a cute Shiba Inu (and a few rainbow ponies). Dogecoin. wow Dogecoin is a cryptocurrency started as a joke, and it is worth $6.7 billion (as of Jan 29, 2021). Dogecoin is a meme that resonates widely perhaps because it has no “fundamental” value. It’s human - or canine - whatever. The point is, it isn’t useful. It has no tangible value, yet it has grown to a market cap of $6.7 billion.

“Prepare for the unknown by studying how others in the past have coped with the unforeseeable and the unpredictable.” ~ George S. Patton The chart above displays the S&P 500 average versus the level of media uncertainty around past (and present) U.S. presidential elections. The yellow line is the average news and social media uncertainty level. The uncertainty average includes all presidential elections back to 2000. The white dashed line is the average S&P 500 return around all presidential elections since 1928. In the longer lower plot, the red line shows our 2020 level of U.S. uncertainty coming into the Trump-Biden match-up. In 2020, uncertainty is higher than any other election. The “uncertainty collapse” (decline in the yellow line) starting 2-3 weeks before the elections (1) correlates with a rally in the S&P 500 and (2) happens when the media (and others) believe they know the likely outcome.

WILL THE ELITES ACCOMMODATE? “Inclusive economic and political institutions do not emerge by themselves. They are often the outcome of significant conflict between elites resisting economic growth and political change and those wishing to limit the economic and political power of existing elites.” ― Daron Acemoğlu, Why Nations Fail: The Origins of Power, Prosperity, and Poverty After the global financial crisis, many people lost trust in the financial system. The Fed came to the rescue, and market prices recovered. Yet the sense of economic unfairness remained. Rising asset prices helped those with assets, while wages stagnated.

“And with economic and cultural indexes down, with the world turned darker and more predatory, we will go through more. We thought we’d be telling our grandchildren about the spring of 2020. Actually we’ll be telling them about the coming 10 years, and how we tried to turn everything around.” ~ Peggy Noonan, "On Some Things, Americans Can Agree". June 4, 2020. Wall Street Journal. Last week my 11-year old daughter cried as she told our family how young neighborhood boys her age - strangers - had attacked her. They pelted her with batteries and tried to drive her off the bike path as she pedaled away from school, ramming her bike with their own.  Her mother and I explained that maybe the boys’ home lives aren’t positive. Maybe they are being raised in abusive households. But that didn’t satisfy her sense of injustice. Her school is in an immigrant neighborhood of Amsterdam, near public housing. Here in the Netherlands there is a higher proportion of Surinamese immigrants in public housing. These are largely descendants of African slaves from Dutch Suriname. Racial issues were in the back of our minds.

It's not easy training children to say "please" and "thank you" when appropriate (I must have reminded mine 10,000 times), and one unexpected benefit of the coronavirus pandemic is that my children now have a healthy hand-washing habit. Nothing focuses the mind like contagious disease. Today's newsletter focuses on information contagion - how information infects markets, provokes denial and fear, and creates investable patterns during negative events like disease outbreaks. A PDF presentation with graphics and more information underlying the newsletter is available here. For excellent alternative perspectives, see This New York times review projecting the disease burden of the pandemic. This James Mackintosh article in the Wall Street Journal discusses financial markets scenarios (e.g., L-U-or V-shaped bottom). No one can deny the epidemic anymore - it's time to wash our hands and dig in. UNDERREACTION (a.k.a. DENIAL) I've given webinars and conference presentations on coronavirus over the past month (here's one), and I've been surprised by the wide range of attitudes towards the pandemic in different countries. As recently as last Friday I was on full flights in Scandinavia and occasionally shaking hands during meetings (and then nervously stuffing my hand in my pockets so I wouldn't touch my face). However, at some banks in Stockholm meetings were canceled to prevent outsiders from bringing the virus into the firms. In other firms, in order to keep trading operations normal through the pandemic, employees were sorted into Team A and Team B alternating weekly home/work shifts. The general consensus in my meetings was that EU and US governments weren't taking the epidemic seriously enough. They were in DENIAL. As they say... “Denial ain’t just a river in Egypt.” ~ Provenance unclear, but formalized by self-help guru Stuart Smalley (played by Al Franken), 1991.

Eleven years ago we were trading through the Swine Flu epidemic. At the time, while I was trading our hedge fund (MarketPsy Long-Short Fund LP), my colleague Frank Murtha penned this humorous advice to relax about the outbreak (perhaps directed at me!)   Our fund's strategy took advantage of fear-driven dislocations, and we created the below image of an actual trade for our investors to understand how the fund timed investor overreaction. (In 2009 trading on social media was seen as seriously goofy, to put it politely, and we needed clear explanations of how our quant systems identified good trades).  

“All the incentives point to continuing this sort of self-extraction….Why would we stop scooping the attention out of ourselves, destroying democracy, and debasing our mental health when that’s the thing that makes the most money and Wall Street’s not going to stop funding it?” Tristan Harris. Sep 19, 2019. “Fighting Skynet and Firewalling Attention.” Tim Ferris podcast, Minute 1:11. "... I see people I have known my whole life slip away from me on social media, reposting conspiracies from sources I have never heard of, some sort of internet undercurrent pulling whole families apart, as if we never really knew each other, as if the algorithms know more about us than we do, as if we are becoming subsets of our own data, which is rearranging our relations and identities with its own logic, or in the cause of someone else's interests we can't even see ..." Peter Pomerantsev. (2019). "This is Not Propaganda: Adventures in the War Against Reality." “In the Banda Islands, ten pounds of nutmeg cost less than one English penny. In London, that same spice sold for more than £2.10s. – a mark-up of a staggering 60,000 per cent. A small sackful was enough to set a man up for life, buying him a gabled dwelling in Holborn and a servant to attend to his needs” ― Giles Milton, Nathaniel's Nutmeg: How One Man's Courage Changed the Course of History "You need to build a fairytale that will be common to all of them.... The disparate groups needed to be unified around a central emotion, a feeling powerful enough to unite them yet vague enough mean anything to anyone." Peter Pomerantsev. (2019). "This is Not Propaganda: Adventures in the War Against Reality"

“Facebook has learned how to manipulate empathy and attachment in order to increase engagement and make billions.” ~ Jennifer Szalai.  Jan. 16, 2019.  New York Times. "O.K., Google: How Much Money Have I Made for You Today?" “Instead of mining the natural landscape, surveillance capitalists extract their raw material from human experience.” ~ Jennifer Szalai.  Jan. 16, 2019.  New York Times. "O.K., Google: How Much Money Have I Made for You Today?" “You’re not technically the product, she explains over the course of several hundred tense pages, because you’re something even more degrading: an input for the real product, predictions about your future sold to the highest bidder so that this future can be altered.”  ~ Sam Biddle. Feb 2, 2019. “A Fundamentally Illegitimate Choice”: Shoshana Zuboff On The Age Of Surveillance Capitalism."  The Intercept.