Comments, observations and thoughts from two bloggers on applied statistics, higher education and epidemiology. Joseph is an associate professor. Mark is a professional statistician and former math teacher.
It will be a long time until the smoke clears enough to tell exactly who the winners were in the GameStop bubble, but it's not too early to spot some clear losers in this hybrid short squeeze/pump-and-dump. The Goliath of the story, Melvin Capital, lost tremendous amounts of money, but many, perhaps most, of the small investors swept up in the storm seem to have badly mistimed the spike and in some cases misunderstood the whole point of engineering a short squeeze was to sell on the peak.
As discussed previously, most small investors who followed the WallStreetBets mantra of go big and hold firm when the stock starts to dive appear to have taken horrible losses, which makes this latest development all the more bizarre and yet perfectly in keeping with the GameStop saga.
The spot that aired during the big game ran for only five
seconds, consisting simply of a message paying tribute to the users
involved in the GameStop stock frenzy.
"Wow,
this actually worked," reads the title of the ad, which broke into what
looked like a car commercial with what resembled a post on Reddit's
website.
"One
thing we learned from our communities last week is that underdogs can
accomplish just about anything when they come together around a common
idea," reads an excerpt of the Reddit message. "Who knows, maybe you'll
be the reason finance textbooks have to add a chapter on 'tends.' Maybe
you'll help r/SuperbOwl teach the world about the majesty of owls."
The practice of shorting stocks has been getting a lot of heat recently from across the political spectrum, much of it revealing a profound misunderstanding of how betting against the market works and why it's not a bad thing. Here Michael Hiltzik covers the basics.
A quick primer on short selling is perhaps in order here.
Short sellers honor the Wall Street mantra to buy low and sell high, but they do so in reverse order. First, they sell high, by borrowing stock from shareholders and selling it. Second, they buy low, by picking up shares at a lower price and returning them to the lenders.
Obviously, for this method to work, the shares must decline in price. That’s what short sellers are betting on. So they’re constantly searching for companies that are overvalued, whether because their business models have flaws unsuspected by investors, or they’re havens for fraud (think Enron), or any other reason.
This makes shorts very unpopular among corporate managements, which prefer that the investment community focus on their upside and swallow their optimistic press releases uncritically, rather than pointing out the downside.
Some executives get downright childish about it, such as Elon Musk, who revels in how shares in his Tesla electric car company have remained buoyant despite short sellers pointing out that it makes money not by selling cars but by trading auto emission credits.
Musk and other executives love to portray short selling as almost un-American.
I’ve taken it upon myself to defend them on numerous occasions, including back in 2014 when a respected Washington financial columnist joined a biotech company named Northwest Biotherapeutics in accusing, without a shred of evidence, a very good financial writer of conniving with short sellers to drive the company down.
Northwest was trading above $5 a share then; it’s now at $1.40 and its future was still in doubt a few months ago, so the short sellers were right to be skeptical.
In truth, short selling is not only proper but also essential for the smooth functioning of the financial markets. As I’ve explained before, although corporate managements believe that unalloyed investor optimism is nirvana, it’s unhealthy for capitalism, just as living on a diet exclusively of Twinkies would be for human beings.
Short sellers counteract this tendency. Shorts sounded early alarms about Enron and many other companies destined for collapse in ways that the investment world didn’t expect. Without shorts, not a few frauds would have continued, costing investors millions more than they did.
Musk has been relentless and (by proxy) vicious not just with investors who short his stock but with anyone he considers their allies.
With more than 22 million followers, Elon Musk knows exactly what happens when he uses his enormous Twitter bully pulpit to bully female journalists. Science writer Erin Biba, for one, has made that abundantly clear, with the story of what happened when he merely replied to one of her tweets.
Which is to say: If you don’t have a strong stomach, don’t look at Business Insider reporter Linette Lopez’s @-replies right now. Musk did much more than just reply to one of her tweets: He has gone on a veritable Twitter rampage aimed at her. A smattering:
@lopezlinette has published several false articles about Tesla, including a doozy where she claimed Tesla scrapped more batteries than our total S,X &3 production number, which is physically impossible.
This is worse than just stalking: Musk is setting his army of fanboys loose on Lopez, he’s retweeting stuff they find, and he’s encouraging them every step of the way. Milo Yiannopoulos was banned from Twitter for setting mobs upon his enemies; Musk should be banned too, but won’t be.
Musk’s harassment of Lopez is obsessive and deranged, to the point at which it should worry every shareholder of any company where he serves as CEO. But since even former journalists seem to think that somewhere in the madness there’s a legitimate beef, let’s put that idea to rest. Lopez has been reporting aggressively on Tesla for a while; her sources include Tesla whistleblower Martin Tripp, whom Musk considers a saboteur for talking to the press. Lopez has also, in the past, written about Jim Chanos, a dogged investor who is shorting Tesla stock.
Chanos talks to many financial journalists—he was famously a key source for Bethany McLean when she was writing the story that brought down Enron—and sometimes he even hires them to leave journalism and make more money doing private research into companies.. Financial journalists and short sellers are in many ways kindred spirits; they both like uncovering companies’ dirty secrets. And here we get to Musk’s beef with Lopez: He’s accusing her as “serving as an inside trading source” for Chanos. This makes no sense.
...
The weirdest part of all this is that Musk is on an anti-short-selling rampage at all. Tesla is one of the most-shorted stocks in America, and that’s great for Tesla’s share price: The more shorts there are, the more upward pressure there is on the stock. Shorts only depress a share price when they sell; once you’ve gone public as having a substantial short position, the rest of the market will try to make your life as painful as possible by bidding the stock up. Whatever damage that Chanos has done to Tesla’s share price is in the past; at some point, he will have to exit his position by buying back Tesla stock, and that’s going to help drive the price upwards. Musk should be ecstatic!
It's entirely possible that Musk simply doesn't understand how shorting works -- his appearance of expertise in fields like engineering, AI, manufacturing, and recently medicine and epidemiology has a long history of dissipating the moment he goes off script -- or he might believe, quite reasonably that increased scrutiny of Tesla is not in his best interest.
Whatever his motivation, Musk has spent years mocking and demonizing shorting of Tesla in particular and of stocks in general. He's been remarkably successful persuading his followers, but the GameStop bubble has taken things much further, badly burning investors who shorted this and other stocks and convincing a large part of the public that there's something evil about the very idea of shorting.
u can’t sell houses u don’t own u can’t sell cars u don’t own but u *can* sell stock u don’t own!? this is bs – shorting is a scam legal only for vestigial reasons
Side note: Tesla routinely makes sales then informs buyers that their car isn't ready. We won't even get into the practice of taking deposits on products that don't exist.
I've included two versions from two very different sources. The Colbert version has more interruptions but also includes more of the actual interview.
Beyond its considerable amusement value, the clip also demonstrates how the sudden appearance of legal consequences (after decades of freedom from any form of accountability) is upending the model of conservative media.
As mentioned before (see here, here and here), the standard democratization of Wall Street/little guys beat the big boys at their own game narrative never made much sense. Even viewed as zero-sum game, there were always more players at the table than just the hedge funds that went short and the traders on r/WallStreetBets. Certain hedge funds took horrendous losses in the massive short squeeze but on the other side of those trades were many investors like these two who went deep into a once and future five dollar stock when it was trading at somewhere between ten and one hundred times its likely post bubble value. Note how the second trader has not only wiped out his savings but is risking being fired by "sacrificing sleep and calling in sick to work."
Evan Oosterink, a 19-year-old college student in the Netherlands, knew almost nothing about GameStop when in December he chose the company for one of his first big stock-market bets, calling it some kind of “American games shop where you can get all your games,” he said.
But his favorite Reddit forum, WallStreetBets, was increasingly obsessed with it, casting it as a way to crush billionaires, move the market and profit heavily in the process. Energized by its rising price, Oosterink said he invested another 8,000 euros last month — nearly $10,000, mostly from years of savings from his parents and some government college loans — leaving only about 30 euros in his personal account.
Had he sold last week, he could have pocketed a typical American’s annual salary. But as the stock has crumbled, he has turned to the forum for reassurance, posting a screenshot from his online-banking app showing the day’s losses, totaling about $9,000. He said he was “deep in losses but holding will prevail,” and included the emoji for a rocket and “diamond hands,” the forum’s lingo for not selling when a stock nose-dives.
“Being a part of WallStreetBets, it’s like a religion you’re devoted to,” he said on a Tuesday phone call from his parents’ home, where, in his bedroom, he has hung up a printed-out meme image featuring Jesus Christ, the Virgin Mary and Tesla chief executive Elon Musk, with GameStop’s logo shining above them.
“There’s this enormous power driving WallStreetBets, this energy: ‘Hold the line. We aren’t giving in. We aren’t giving up. We are in for that ride to that moon,’ ” he said, reiterating several of the forum’s catchphrases. “That is the power that keeps everyone holding their shares.”
______________________________________
Several other WallStreetBets believers said they aren’t budging, regardless of the damage. The Reddit poster Volkswagens1, who declined to give his name but said he lives in the Pacific Northwest, showed The Washington Post an image indicating roughly $400,000 in potential GameStop losses from the day but insisted he would not sell.
He said he has “been poor for too long” and works “a god awful amount of hours for a garbage company” and sees betting on popular “meme stocks” as a way to potentially strike it big.
“You can’t get good returns waiting on garbage stocks to increase. Who wants to invest in some boomer a-- SEARS or Macys stock, just to watch it tank,” he said in a conversation on Reddit with The Post.
He said he’s poured most of his saving and checking accounts into the stocks and spent the last week “doing as much research as possible,” including sacrificing sleep and calling in sick to work, to make sure he was staying on top of the market’s moves.
“I’m slightly agitated, but in the end, its just a gamble and Im willing to risk it all,” he wrote. “Ill have diamond hands until the end.”
West Virginia Sen. Joe Manchin and Arizona Sen. Kyrsten Sinema — who aren’t up for reelection until 2024 — are the first Democrats on their target list, the left-wing strategists shared first with POLITICO. Chakrabarti and Trent are also former aides to Ocasio-Cortez.
Manchin and Sinema’s opposition to eliminating the legislative filibuster — which requires a 60-vote threshold for most legislation — is the main reason No Excuses is putting a call out for possible challengers. Progressives have increasingly pressed Senate Democrats and President Joe Biden to end the filibuster, arguing that in an evenly divided Senate it will be nearly impossible to find enough Republicans to pass major pieces of Biden’s agenda.
“The only real way to pressure any of these folks and hold them accountable to their promises is to threaten their power, and threaten the seat that they hold and threaten their reelection,” said Chakrabarti, who is also a former chief-of-staff to Ocasio-Cortez. “We sort of have this theory that the voters in Arizona and the voters in West Virginia would care more about action, they care more about jobs and their community and money in their pockets than they do about an arcane Senate rule called the filibuster.”
In an email to supporters Tuesday, the PAC will say, “Help us find the next AOC to replace Manchin and Sinema.”
Like how is this supposed to work? Consider West Virginia where the only major statewide office held by a Democrat is held by Joe Manchin. It is 15 points more Republican than the nation as a whole. The election is not for another 4 years so primary threats ring rather hollow at the moment.
Now let us compare to Alexandria Ocasio-Cortez's district: NY 14 went 72-27 for Biden in 2020. This was the same margin as Alexandria Ocasio-Cortez herself had. West Virginia went 69-30 for Trump (see the huge imbalance in the opposite direction). In 2018 it was Machin 49.6% to Morrisey 46.3%.
In other words, Joe Manchin massively outperforms the generic Democrat vote in WV. If you primary him with a strong progressive, that is the sort of person who will struggle to not be annihilated in the actual election. How does majority leader McConnell help matters at all?
As an outsider, if you want to strengthen the progressive wing of the party then the place to go is the safe seats. For example, Diane Feinstein could be replaced by a much further left senator without running any serious risk of losing a California senate seat. Kamala Harris was viable in California and in no serious danger of being picked off. That makes sense as a primary target if shifting the senate to the left is the goal.
But if you put in progressives in places they can't win (e.g., deep red states) then you risk replacing Joe Machin with somebody like Rand Paul or Josh Hawley. Do you think such a senator would break ranks with their party over the filibuster? Or that there would still be 50 votes if you picked off (selectively) the right wing democrats?
Arizona is more complicated, as it has the potential to be a swing state and I am less willing to comment on that case, except to say that Kyrsten Sinema's filibuster position is currently moot unless Joe Manchin changes his mind. I don't know what benefit there is in forcing a senator to make a tough vote that could hurt them politically unless it actually has the potential to be decisive.
The LA Times indispensable Michael Hiltzik points out yet another flaw in the popular David and Goliath take on the Gamestop story.
You say you want a revolution?
What’s most amusing about the GameStop story, in a sad way, is the notion among small investors that they’re striking a revolutionary blow against the Wall Street establishment.
“My goal isn’t to get rich on this, my goal is to bankrupt these billionaires,” says John Motter, an unemployed Angeleno who invested more than he received from the government’s coronavirus stimulus check in GameStop, as my colleagues Daniel Miller, Suhauna Hussain and Hugo Martìn reported. “I would buy magic beans on the street from a stranger if he said they had the potential to ruin a billionaire’s life.... A lot of people are really angry, and no one’s forgotten 2008.”
In fact, many on Wall Street are enjoying the ride, even as proxies for small investors. As of last March, the three biggest investors in GameStop were the investment management firms Fidelity, Vanguard and BlackRock, which combined owned more than 50% of the shares.
BlackRock reported that as of Dec. 31 it still owned 9 million shares, which means that over the last month the firm and its clients added about $2.1 billion to the value of their holdings (on paper).
Or maybe David dies from friendly fire. I'll admit that I don't have all of the details of the analogy worked out but than neither have most journalists covering the story and that hasn't slowed them down.
One place where they do have a grasp of the complexities is Marketplace. In particular, the weekly wrap does a good job taking apart the standard narrative. (You're probably already familiar with the excellent Catherine Rampell, but Linette Lopez is another journalist you should be following, especially if you like to annoy Elon Musk)
Meanwhile, the inexorable arithmetic of dollars times demography has taken us past the point of no return. It’s no longer possible to say that, by starting now, we can avert massive, and massively unfair, changes in the promises we have made, or that current beneficiaries have nothing to worry about. That line was crossed even before the emergency budget blowout of 2020 added trillions to the debt tab we will dump on younger generations.
Honestly, how do we even address this one? First, national debt includes investment (like purchasing a house) and debt used to increase investment can actually improve the long term fiscal outlook of the nation. Second, there is not a shortage of resources to pay for social security. Before you call this an question of all of the programs, note this piece:
A start on mitigation would be for the Social Security Administration to begin including in beneficiary bulletins a disclosure that, starting soon, the system cannot fulfill all of its commitments. The disclosure could then provide sample calculations of the amount of savings a given recipient will need to replace those expected payments under alternative scenarios.
This is not a "Medicare only" concern. But are we really, as a nation, incapable of generating enough wealth to pay social security benefits? By 2035 (somewhat of a demographic local peak), these benefits are projected to rise from 5% of GDP to 6.1% of GDP. But there is room for large tax cuts apparently, such as TCJA. Note that we could cover this entire gap by (for example) raising taxes to the levels of France or Germany.
This is not to say that there are not risks in budget deficits. But these risks are just as real for tax cuts as they are for entitlement expenses. Similarly, the idea that you should never increase taxes is bonkers, but rather that this needs to be balanced. You could find the difference by dropping military spending to UK levels, for example, and still have revenue to spare. Or follow Matt Yglesias on the road to One Billion Americans, and drop the cost as a % of a much larger GDP.
There are lots of decisions that can be made. Why are the retirement security programs always the first things on the chopping block? Because it looks like a declaration of values rather than a financial necessity.
We'll be coming back to the hopelessly wrong-headed short-seller take (when your arguments come from Elon Musk...), but you should also take a hard look at the "little guys beat the big boys at their own game" headlines. This spike certainly did screw over a multibillion dollar hedge fund, but that doesn't mean that the small retail investors are on the whole going to come out ahead on this. If this is a once and future $5 stock, it's safe to say that a lot of RobinHood traders will not (did not?) time the peak.
Putting aside the complicated options discussion for a later time, we have reason to believe that for every individual investor who bought at $20 and sold at $200, there are a few who jumped in after the stock had gone up 1,000%. 2021 is not likely to go well for the latter group.
The big difference that jumps out at me comparing the view now and then is that in 2017 I felt compelled to make the case that the delusional fringe was big enough to threaten the GOP.
The following is not really a voting paradox, but it is kind of in the
neighborhood. You have three stockholders for a company. A holds 48% of
the shares, B holds 49%, and C holds 3%. Assuming that any decision
needs to be approved by people holding a majority, who has the most
power? The slightly counterintuitive answer is no one. Each shareholder
is equal since an alliance of any two will produce a majority.
Now let's generalize the idea somewhat. Let's say you have N
shareholders whom you have brought together to form a majority. Some of
the members of your alliance have a large number of shares, some have
very few, but even the one with the smallest stake has enough that if he
or she drops out, you will be below 50%. In this scenario, every member
of the alliance has equal veto power.
I apologize for the really, really basic fun-with-math explanation, but
this principle has become increasingly fundamental in 21st-century
politics. At the risk of oversimplifying, elections come down to my
number of supporters times my turnout percentage versus your number
supporters times your turnout percentage. Arguably the fundamental piece
of the conservative movement has been to focus on ways to maximize
Republican turnout while suppressing democratic turnout. (Yes, I'm
leaving a lot out but bear with me.)
There are at least a couple of obvious inherent dangers in this
approach. The first is that there is an upper bound for turnout
percentage. This is especially worrisome when the number of your
supporters is decreasing. Sen. Lindsey Graham was alluding to this when
he observed that they weren't making enough new old white men to keep
the GOP strategy going.
There is, however, another danger which can potentially be even worse.
When you need nearly 100% of your supporters to show up to the polls in
order to win, you create a situation where virtually every faction of
your base has veto power. One somewhat perverse advantage of the large
base/low turnout model is that groups of supporters can be
interchangeable. You have lots of situations where you can alienate a
small segment but more than make up for it elsewhere. In and of itself,
this allows for a great deal of flexibility, but the really important
part is the power dynamic. You have to represent a large constituency in
order to wield veto power.
Probably since 2008 and certainly since 2012, pretty much every
nontrivial faction of the GOP has held veto power which means the
question is no longer who has it, but who is willing to use it. The Tea
Party was the first to realize this. Now the alt-right has caught on to
the dynamic as well.
Even with increasingly aggressive and shameless voter suppression techniques,
Republicans tend to get fewer votes. It is true that they have, through
smart strategy and tactics, managed to get an extraordinary number of
offices out of those votes, but it is a precarious situation. We can
debate how many people really believe in shadowy Jewish banker conspiracies or Martian slave labor camps,
but it is almost certainly a large enough group to sway some close
elections if the crazies collectively decided to go home or, worse yet,
opt for a third party.
Particularly at a time when identifying the truly crazy has become a high priority.
For those not familiar with the late, great mathematician-philosopher-magician's work...
Inspector Craig Visits TransylvaniaInspector Craig of Scotland Yard was called to Transylvania to solve some cases of vampirism. Arriving there, he found the country inhabited both by vampires and humans. Vampires always lie and humans always tell the truth. However, half the inhabitants, both human and vampire, are insane and totally deluded in their beliefs: all true propositions they believe false, and all false propositions they believe true. The other half of the inhabitants are completely sane: all true statements they know to be true, and all false statements they know to be false. Thus sane humans and insane vampires make only true statements; insane humans and sane vampires make only false statements. Inspector Craig met two sisters, Lucy and Minna. He knew that one was a vampire and one was a human, but knew nothing about the sanity of either. Here is the investigation: Craig (to Lucy): Tell me about yourselves. Lucy: We are both insane. Craig (to Minna): Is that true? Minna: Of course not! From this, Craig was able to prove which of the sisters was the vampire. Which one was it?— From Logician Raymond Smullyan
This sort of thing happens more often than you'd expect... unless you've kept up with the crypto world, in which case this sort of thing happens exactly as often as you'd expect.
A British man who accidentally threw a hard drive loaded with bitcoin into the trash has offered the local authority where he lives more than $70 million if it allows him to excavate a landfill site.
IT worker James Howells got rid of the drive, which held a digital store of 7,500 bitcoins, between June and August in 2013. He had originally mined the virtual currency four years earlier when it was of little value.
But when the cryptocurrency shot up in value and he went in search of it, he discovered that he had mistakenly thrown the hard drive out with the trash.
Now, with his lost bitcoin having soared even further, Howells has approached Newport City Council in Wales to ask for permission to dig a specific section of the landfill site where he believes the hard drive ended up.
...
"The value of the hard drive is over £200m (around $273 million) and I'm
happy to share a portion of that with the people of Newport should I be
given the opportunity to search for it. Approximately 50% would be for
investors who put up the capital to fund the project, and I would be
left with the remaining 25%," he added.
Of course the city, realizing the vanishingly small likelihood of finding and retrieving data from a hard drive thrown away almost seven years ago, has chosen not to approve this, but hope is not yet lost for Howells. Fortunately for him, the kind of people who would invest millions in a bitcoin scheme seldom have a really strong grasp of the concept of expected value.
[I didn't realize it until I started doing the background reading, but
the parts about the Collegiate Network fit nicely with the
origins-of-conservative-media-in-the-seventies thread that started
yesterday and will continue when I get around to commenting on this.]
If, like me, you're spending way too much time on political news lately, you certainly heard about this report from ABC's Jonathan Karl:
Republican officials are exploring how to handle a scenario that would
be unthinkable in a normal election year: What would happen if the
party's presidential nominee dropped out?
ABC News has learned that senior party officials are so frustrated — and
confused — by Donald Trump's erratic behavior that they are exploring
how to replace him on the ballot if he drops out.
As the reliable Josh Marshall has pointed out, there is no direct
evidence from the Trump camp that the candidate has any thoughts of
dropping out. These rumors look something like trial balloons, albeit an
odd one, since the event in question is unlikely and, more to the
point, the people floating the balloon have no say in whether it
happens.
Rather than speculate on the intent of the message (hint, empty threat,
groundwork for intervention, blowing off steam -- I'm kidding about that
last one), I think it's more interesting to think about the path this
and other stories take to get to our news feeds. In situations like
this, the source of the rumors is often more telling than the content.
In this case, that would be Karl, and that is remarkably informative.
Karl is not just a conservative journalist, he is a carefully cultivated product of a decades-long, highly successful conservative movement media initiative.
The Collegiate Network (CN) is a non-profit tax-exempt 501(c)(3)
organization that provides financial and technical assistance to student
editors and writers of roughly 100 independent, conservative and
libertarian publications at leading colleges and universities around the
United States. The CN estimates that member publications have a
combined annual distribution of more than two million[citation needed].
Since 1995, the CN has been administered by the Intercollegiate Studies
Institute (ISI), headquartered in Wilmington, Delaware
...
In 1979, the Institute For Educational Affairs (IEA) responded to the
request of two University of Chicago students for start-up funding for a
new conservative newspaper, Counterpoint. By 1980, the grant program
had been expanded and named the Collegiate Network, and by 1983, under
the continuing administration of the IEA, had added both internships and
persistent operating grants for conservative campus newspapers. In
1990, the Madison Center for Educational Affairs merged with the IEA to
maintain funding for what had expanded to 57 conservative student
publications. The Intercollegiate Studies Institute took over operations
in 1995 and has since administered the CN from Wilmington, Delaware.
Take a look at a few of his fellow alumni: Matthew Continetti, Ann Coulter, Dinesh D'Souza, Laura Ingraham, Rich Lowry, John Podhoretz, Ramesh Ponnuru, and Peter Thiel.
Long ago, Congresswoman Marcy Kaptur of Ohio once told me that she
thought my craft went bad when it became the province almost exclusively
of the over-educated, that it had professionalized itself out of its
traditional role, that she wished there were a few more people
practicing journalism who'd first worked on a loading dock, or in a
mine, the way people used to come to the job. Here, with Karl, we
apparently have a perfect product of the well-financed and staggeringly
successful network of conservative institutions and programs launched
more than 40 years ago by The Powell Memo. Assuming the FAIR report is
accurate, then Jonathan Karl was not trained as a journalist, because
the Collegiate Network doesn't produce journalists. It produces partisan
warriors. He was not trained as a reporter, because the Collegiate
Network doesn't produce reporters. It produces propagandists. He was not
trained as a newsman, because the Collegiate Network doesn't produce
newsmen. It produces hacks.
This is, of course, indelicate for someone in my business to say but, at
every level of his steady rise in the business, some executive should
have looked at Karl's resume, seen The Collegiate Network there, and
then shitcanned the thing before the interview process even began. Are
there conservatives who are good reporters? Absolutely. But all the ones
that I know came up the same way I did, and none of them came up
through the coddled terrariums of the activist Right. They learned their
craft. They were not trained to be spies in the camp of the enemy. They
were not trained to be moles. And every damn one of them would have
checked those phony e-mails before throwing them out to the public, and
most of them wouldn't have fallen for them, because they are
journalists, reporters, and newsmen. They are not partisan warriors,
propagandists, or hacks. If Jonathan Karl doesn't like being called a
hack, then he should stop being a hack. Here's one way to do it.
Like many successful journalists including Woodward and Bernstein,
Karl's career is largely based on his close relationship with a network
of well-placed contacts. In this case, the contacts are overwhelmingly
in the Republican Party and the conservative movement. At the risk of
putting too fine a point on it, when Jonathan Karl breaks the story, it
is usually something that the leadership of the GOP would like to get
out there.
So it would appear that, in August of the election year, we have a
political party not so subtly suggesting that its nominee should drop
out. Even if nothing comes of it, that is an extraordinary development.
I'm trying not to be too dickish about this but, yes, there is a degree of "we told you so" in these reposts. It's satisfying to go back and see that most or your old arguments (some of which very much ran counter to conventional wisdom) have held up over the years. There is, however, a more important point. One of the ways we check the quality of our hypotheses and narratives is to see how well they age. If you keep telling variations on the same story for eight or ten years and it continues to be reasonable and relevant, perhaps there's something to it.
On the right wing media side, journalists traded off their normal role as providers of feedback in order to be more effective motivators. This is perhaps most obvious with Ailes and Fox News where the goal (after turning a profit) was clearly to shape (and in some cases, falsify) the facts in such a way as to keep the base loyal and energized. In the short term, the strategy worked well but it always had inherent risks, risks that have finally started doing serious damage.
You can read this partly as a cautionary tale of Straussianism gone awry. The first, the most fundamental assumption of any society based on the noble lie is that you have a hierarchy with well-defined classes of the liars and the lied-to and that all major decisions are made by people in the first class.
Here's an analogy: officers have been known to paint overly rosy pictures for soldiers ("Things are going great on the Western front." "The enemy's factories are in ruins." "Victory is near."). We can argue over the ethics of this kind of lying, but it's easy to see why some officers might do it.
Now imagine that through a combination of field promotions, broken lines of communication and general confusion, strategic and tactical decisions start being made by people who actually believe all of the misinformation that was fed to the ranks. I'm no military historian but I'm fairly sure this would probably end badly.
We had a pretty clear example of this kind of a breakdown in the Romney team's analysis of poll data in the last days of the election. There was clear value for Romney in having his supporters believe that he was ahead but that value was more than negated by having his advisers believe the same misinformation. You can see similar dysfunction in the recent shutdown where many congressmen made what now appear to be disastrous decisions based apparently sincere belief in such Fox News talking point as "people won't get that upset about a shutdown."
Put more broadly, the processes that allow the right version of the truth to get to the right people – something that has been an integral part of the Republican strategy – has seemingly broken down entirely.
In addition to the largely random flow of misinformation, conservative media created an unforeseen problem in the rank and file with narrative momentum. When most members of a group get much of their information from outside, there's a natural friction on in-group narratives when members realize that their version is not shared by the general public. Conservative media is immersive to an unprecedented degree. Narratives like "the only time Republicans lose is when they become too moderate" are allowed to build unchecked.
On a related note, the immersive quality also greatly facilitates social norming. This greatly encourages extreme positions and widens the gap when members of the group try to communicate with outsiders.
Fortunately, the Financial Times has been doing its usual first-rate job poking at the bubble. Here Jemima Kelly explains how meaningless the standard Bitcoin narrative is. The whole piece is highly recommended as is the HODL link and Trolly's blog.
The first problem is that bitcoin is not of course a company — nor even, we would argue, an asset — so working out its “market cap” is a non-starter. As some of you might remember, it was originally designed to be a currency that could be used to buy actual things! And although it fails to meet all the criteria that would make it a currency, it does have one thing in common with it: its price is underpinned by sheer faith. The difference being that with fiat currencies, that faith is effectively placed in the governments of the nation states who issue them, whereas for bitcoin, the faith is placed in . . . the hope that other people will keep having the faith. A faith in faith, if you will. ...
Another problem is that although 18.6m bitcoins have indeed been mined, far fewer can actually be said to be “in circulation” in any meaningful way.
For a start, it is estimated that about 20 per cent of bitcoins have been lost in various ways, never to be recovered. Then there are the so-called “whales” that hold most of the bitcoin, whose dominance of the market has risen in recent months. The top 2.8 per cent of bitcoin addresses now control 95 per cent of the supply (including many that haven’t moved any bitcoin for the past half-decade), and more than 63 per cent of the bitcoin supply hasn’t been moved for the past year, according to recent estimates.
What all this means is that real liquidity — the actual available supply of bitcoin — is very low indeed. That’s quite obvious even without knowing the stats above from the price moves — you don’t see smooth ups and downs like you might expect in other markets where the demand is coming from real supply-and-demand dynamics rather than speculation, but sudden lurches upwards and cliff-like drops.
So the idea that you can get out of your bitcoin position at any time and the market will stay intact is frankly a nonsense. And that’s why the bitcoin religion’s “HODL” mantra is so important to be upheld, of course.
Because if people start to sell, bad things might happen! And they sometimes do. The excellent crypto critic Trolly McTrollface (not his real name, if you’re curious) pointed out on Twitter that on Saturday a sale of just 150 bitcoin resulted in a 10 per cent drop in the price. As Trolly said to us over the phone:
If you can destroy the market like that in the space of seven or eight minutes, that shows there is no liquidity and no depth — nobody is there to take the other side of the trade when things start moving. You have these extreme moves because everyone is on the same side.
More than 2,000 wallets contain over 1,000 bitcoin in them. What would happen to the price if just one of those tried to unload their coins on to the market at once? It wouldn’t be pretty, we would wager.
What we call the “bitcoin price” is in fact only the price of the very small number of bitcoins that wash around the retail market, and doesn’t represent the price that 18.6m bitcoins would actually be worth, even if they were all actually available.
So the “market cap” is in this way nonsense multiplied. You times two things together that don’t reflect what they claim to — the “circulating supply” and the “price” — and voilà !
