I hate to be derisive towards anyone who harbors a justifiably skeptical view of financial assets which, for a decade, have benefited handsomely from trillions in central bank liquidity, record low rates and, just to make sure there’s no confusion, persistently dovish forward guidance.
And yet, past a certain point, honest people (and that qualifier necessarily excludes quite a few popular online commentators) are compelled to admit that normative considerations related to the long-term perils of monetary largesse aside, waxing hysterical about imminent financial catastrophe has been, at best, an exercise in futility.
At worst, taking a consistently bearish position day in and day out even as policymakers doubled and tripled down on asset purchases, rate cuts and qualitative forms of accommodation, long ago crossed the threshold into Einstein insanity (i.e., doing the same thing over and over again and expecting a different result). The Nasdaq topped 9,000 on Thursday. It’s up 606% over the course of the bull market.
This year’s gain for big-cap tech is approaching 40%.
Let me preface the following by saying that it’s not directed at anyone who has, over the last 10 years, advanced a well-developed, well-reasoned argument for why investors should, for example, be long bonds over stocks. And it’s not directed at anyone who has, at various intervals, suggested it might be a good idea to hedge, or, for example, take some off the table to lock in gains and replace outright long exposure with calls. Generally speaking, it’s not directed at honest people just trying to make sense of things and preserve capital.
With those caveats out of the way, this is an opportune time (i.e., with “Nasdaq 9,000” making headlines) to remind folks that there has been but one way to make money post-crisis being infallibly bearish: Monetizing clicks via ad placements on a website.
That’s not to say you couldn’t have made money being tactically bearish, or by shorting individual names, etc. But let’s face it: Being across-the-board bearish every day, all day for a decade has been one of the single worst implicit market calls in the entire history of tradable securities. Period. It’s just that simple.
But actually, it’s not – that simple, that is.
Because only a handful of people understand that the web content created in the new hyper-bearish tradition (and by that I mean what’s become so popular over the past decade) wasn’t, and isn’t, meant to be taken seriously. Rather, its sole purpose for existing is to be monetized. It’s no different than the famous “bat boy” covers from The Weekly World News, or a totally unnecessary seventh sequel to a slasher flick (“Jason Takes Manhattan” comes to mind).
This state of affairs – where millions of people consume wholly fantastical financial content each day and mistake it for being at least somewhat veracious – has consequences, none of which are any good.
A year ago this month, JPMorgan’s Marko Kolanovic famously lamented how misinformation is disseminated to market participants, citing the “mass production” of content that mixes real and fake news with “somewhat credible, but distorted” coverage of “sell-side financial research”. He then warned that “if we add to this an increased number of algorithms that trade based on posts and headlines, the impact on price action and investor psychology can be significant”.
Months later, in April of this year, Deutsche Bank’s Aleksandar Kocic wrote that one of “the biggest disconnects between the pre- and post-2008 world is encapsulated in the change of the attitude towards tail risk as a barometer of fear”.
“In the past, fear has had a bad reputation”, he remarked, noting that it was traditionally seen as a sign of “incompleteness”, and therefore “something one needs to outgrow”.
But that’s changed in the post-crisis world. Fear has been acquitted – it’s ascendant, supplanting other modes as the primary rational frame of reference.
“[The] post-2008 period can be seen effectively as an exoneration of fear,” Kocic went on to say, adding that “fear has become a sign of wisdom, elevated to a new heuristic as well as a source of considerable profit”.
It’s not entirely clear what Kocic meant by “considerable profit”, but it’s at least possible he was referring to the same monetization I mentioned above.
Beyond those considerations, note that there are three ways consumers of this type of content have chosen to approach it. Many people simply ignore it. Contrary to what you might have been led to believe, most serious analysts on Wall Street choose that approach. If you don’t believe me, just ask some of them.
Those who don’t ignore it can generally be separated into two categories: Those who persist in the fantasy, content to consume the content (i.e., maybe “bat boy” is real), and those who recognize the potential to replicate the message and monetize a derivative version for themselves.
That latter category of netizens very often includes people who previously had some claim on legitimacy or possess some actual bonafides which they imagine might help them in the quest to monetize their own riff on the same general theme.
Unfortunately, neither the consumers of the content nor those who seek to replicate it for their own financial benefit understand the true nature of it – i.e., that the only time it’s veracious is by accident.
Occasionally, there will be a market event which appears to “validate” some part of the narrative (e.g., the February 5, 2018, VIX ETN blowup), just as, occasionally, someone finds a “chupacabra” carcass or sees Bigfoot. Or Nessie.
You might argue that nobody has ever actually seen a chupacabra (although that kind of begs the question), while history is replete with financial busts, some of which have been spectacular in nature. That’s true, but bear in mind (and there’s a pun in there) that most of the content in question never even purports to advance an actual thesis. There are no Michael Burrys in that crowd. It is everywhere and always a generic message about the inherent instability of the current setup and the allegedly imminent collapse of various and sundry houses of cards.
Notably, those unstable setups are never identified initially by the purveyors of the content in question. Rather, the message can always – almost without fail – be traced to a perversion of something as pedestrian as an article in the mainstream financial media. Other times, the source for a given “bat boy” cover (just to extend the analogy) is an analyst note. Or a post lifted from another web portal. Or an assessment from a consultancy firm. Or cherry-picked quotes from the rationale accompanying a ratings downgrade.
Whatever the case, it all has one thing in common: It is designed to entertain and to be monetized via ad revenue.
And there would be nothing wrong with that, if the wink, wink nature of it were perceptible to casual readers. But it’s often not. Indeed, sometimes, it’s not even perceptible to financial journalists, who will occasionally cite the content in their own work, only to see that cross-referenced by the same outlets later as “validation” for the original story.
Meanwhile, some of those who enter the same market seeking to monetize their own brand of financial agitprop will sometimes marvel at the extent to which they are able to garner social media followers, Patreon contributions, and web traffic. It never seems to occur to them that those on whose coattails they ride have a vested interest in helping them prosper – the more the merrier when it comes to pushing the same propaganda, especially when something as a simple as a retweet from an account with a massive number of followers will do the trick.
The ultimate irony in all of this, of course, is that many of the portals which have foisted this content on the masses since 2009 cite central bank largesse as the source of the distortions and bubbles that will eventually correct, burst and otherwise unwind leaving nothing but dark ATMs and soup lines in their wake. And yet, implicit (and very often explicit) in that message is the notion that whatever the moral hazard, central banks can (and will) engineer epic asset booms which can (and will) last for prolonged periods before the eventual reckoning.
Given that, the purveyors of the particular brand of financial agitprop described above should know better than anyone else not to short this (or suggest anyone else do the same):
And yet, for the entirety of the last decade, this crowd of internet profiteers have suggested folks do just that, often implying that Wall Street agrees, even in cases where, were you to ask the actual analysts who have been unwittingly co-opted via citations during a decade of tabloid coverage, would tell you they meant to suggest no such thing in their own research.
But, just as people “get the government they deserve”, so too do consumers of online financial content get the message they “deserve”, and the results they deserve if they trade on it. After all, what are clicks but the virtual equivalent of votes?
We’ll leave you with some food for thought, courtesy of excerpts from a 2017 Daily Beast article documenting how the infamous “DPRK News Service” Twitter handle has, on all manner of occasions, duped the most reputable media outlets on the planet. Hopefully, readers will understand why this is germane. To wit, via The Daily Beast:
At 7:36 Tuesday evening (1:06 Wednesday morning in North Korea, accounting for its unique GMT+08:30 time zone), the DPRK News Service took to social media, posting a GIF of an undated joint U.S.-South Korean missile test denouncing the Americans as rank imbeciles.
“On Twitter early Wednesday, the North Korean government belittled the joint exercise as ‘demonstrating near total ignorance of ballistic science,’” The New York Times reported on its website a short time later.
The problem was, the North Korean government tweeted nothing of the sort. As numerous other outlets have learned the hard way, the DPRK News Service is not actually the DPRK’s news service.
The line was removed from the article about 45 minutes later, and a correction followed roughly an hour after that:
“Because of an editing error, an earlier version of this article attributed incorrectly a Twitter statement to the North Korean government. The North Korean government did not belittle a joint American-South Korean military exercise as ‘demonstrating near total ignorance of ballistic science,’ that statement was from the DPRK News Service, a parody Twitter account.”
In fact, the DPRK News Service, which first tweeted in July 2009, is the work of a West Coast data analyst and a North Carolina attorney.
Media outlets that have reported on the DPRK News Service Twitter feed as actually speaking for the North Korean government: Newsweek, Fox News, BuzzFeed (twice), Washington Post, a Norwegian TV network, The Verge, Roll Call, and now The New York Times.