Margin Call
Rusty Guinn
March 16, 2020·7 comments·Money
Institutions measure reality and institutions predict it. One gets caught when measurement lies are exposed. The other might not be caught until it's too late. As markets and governments respond to unprecedented uncertainty, many are still betting everything on models built for a world that no longer exists.
- Hedge funds aren't stupid. They saw the risk. They kept betting anyway, leveraged heavily, on correlation models that the actual world had stopped following. Process-oriented shops are different from shops that recognized something fundamental had shifted.
- There's a difference between a measurement cartoon collapsing and a model cartoon collapsing. One gets exposed when bodies pile up and everybody knows it's false. The other keeps running until the margin call comes.
- The UK government decided to let a pandemic spread based on estimates of how people would behave, how the virus would seasonally shift, how it would mutate, and when immunity would set in. All of those parameters were hugely uncertain.
- When a measurement cartoon fails, you lose reputation and trust. When a model cartoon fails, you lose what you leveraged to it. The scale of what's being wagered on these predictions is what makes the difference.
- The real question isn't whether these models are right or wrong. It's whether institutions can even recognize when the world they're modeling has fundamentally changed, and whether anyone will act before the margin call.
The Why of Epsilon Theory
- Direct access to leading narrative-tracking technology across global news.
- Deep analysis of how narratives shape markets, politics, and society.
- An active online community of independent voters, investors and thinkers.
Subscribe to Premium
Already a member? Log in
Looking for Deeper Insights?
Unlock exclusive market intelligence, trade ideas, and member-only events tailored for investment professionals and active investors with Perscient Pro.
VISIT PRO
Money
Money
Comments
Gentlemen, to whatever extent you feel comfortable, I’d humbly request you make as much as you can .pdf-able as it relates to this crisis over the next several weeks… I have a pack I forward a lot of material to from various platforms. Happy to pay more with my membership as well if need be, but I know that’s not why you do this… Your pieces are truly essential reading. I’m pushing my people hard with data and asking them to push it out even further to those they interact with. Our behavioral changes and solutions to this need to be just as viral as the problem… I know you know this. Just putting it out there for your consideration.
Thank you!
Ed
Ed, yes! We’ve been trying to make sure all of the content right now is PDFable for just the reason you describe. We also want to get the notes posted as quickly as we write them so there will sometimes be a lag! Thanks for thinking of this.
Social distancing but intellectual proximity, both pushed as far as we can to live…
Thank you! And thank you for everything you all do!
Ha !
I got a first hand example of that.
2 weeks ago, on Monday 2 March I read a short note from a normally quite on the ball firm about how the virus trajectory in the US would play out the way it did in HK. Luckily they also mentioned that the market was too sanguine about the coronavirus and it was not yet time to buy.
Yesterday they sent another note, apologizing for the miscalculation , suggesting that the US & EU Governments now bail us all out with helicopter money. True to their intellectual form, they suggested that any future inflation could easily be measured and brought under control…….
Is Boris so foolish?
We’re caging and bankrupting the small business owner and self employed, the worker who can’t work from home all in the same fell swoop.
Caged,
Bankrupted
Helpless.
My Friend: the middle class, the shopkeepers make revolutions. I mean an actual revolution, not the 60s.
See France, Russia, Iran and of course the United States.
All those people are now caged, going bankrupt and are helpless. In America.
Watching the Fat Cats cash in their next free Trillion$.
We’ll see if Boris is so foolish. The UK is betting on beating the second wave of COVID now.
They’re actually being British for a change. Not panicking in the face of a true test.
Where we are here now is a one time, one shot deal.
We’ll not quarantine the USA a second time. This is our one shot at self quarantine.
There will not be another, we’ve just shot our one bullet.
And even if it’s the magic bullet the angry and bankrupt will emerge from their cages angry, hungry.
And if they don’t walk out in the street and see bodies convinced they were played for fools by fat cats and their media minons.
Boris may not be so foolish, and if the plague does not take the English what will people here say?
Think?
DO.
And I may add the Fat Cats have their first Trillion…and not the first or last…
That we have been played for money even if we avoid mass casualties or if we suffer them we already know the answer is yes. We’ve been played. REPO and QE do not cure COVID.
The bailout will cost us dear if not one more dies. I do not mean money.
Continue the discussion at the Epsilon Theory Forum...