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October 21, 2020
Election Psychology & Markets

“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.

June 05, 2020
Elites and Inequality


“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.

June 05, 2020
Unraveling Social Trust & the Path Forward

“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.

March 13, 2020
Coronavirus & the Information Cycle in Markets

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.


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.

February 04, 2020
Epidemics of Fear - The Cycle of Panicked Overreaction and Bounce

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).


December 08, 2019
Emotional Manipulation in Markets

“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"