Must Read: Fear And Loathing On The Marketing Trail

Tyler Durden's picture

Submitted by Ben Hunt of Epsilon Theory

I shared a dark suspicion that the life we were leading was a lost cause, that we were all actors, kidding ourselves along on a senseless journey. It was the tension between these two poles – a restless idealism on one hand and a sense of impending doom on the other – that kept me going.
Hunter S. Thompson, “The Rum Diary”

There lives more faith in honest doubt, believe me, than in half the creeds.
Alfred, Lord Tennyson

Preach the Gospel at all times, and when necessary, use words.
St. Francis of Assisi

Faith is the bird that feels the light and sings when the dawn is still dark.
Rabindranath Tagore, 1913 Literature Nobel Prize winner

Hold faithfulness and sincerity as first principles.
Confucius, “The Analects”


Fear and Loathing on the Marketing Trail, 2014

I’ve spent the past few weeks meeting Salient clients and partners all across the country: New York, California, Illinois, Texas, Minnesota, Massachusetts, etc. With four teenage or tweenage daughters at home I don’t mind the travel, talking about Epsilon Theory topics with smart, engaged people takes me back to what I loved about academia, and I find tremendous value in listening to what investment professionals have to say about markets today. Of particular note to me is how investment professionals are experiencing markets. What does it mean to be a professional investor or investment advisor in the Golden Age of the Central Banker? Two observations surprised me, and I believe they’re connected.

First, when I had these conversations six months ago I would get a fair amount of resistance to the notion that narratives dominate markets and that we're in an Emperor's New Clothes world. Today, everyone believes that market price levels are largely driven by monetary policy and that we are all being played by politicians and central bankers using their words for effect rather than direct communication. No one requires convincing that market price levels are unsupported by real world economic activity. Everyone believes that this will all end badly, and the only real question is when.

Second, trading volumes are abysmal. I know it's summer, but this is more than just seasonality. Here’s a chart using data from my friends at Barclays showing the 10-year trend in US cash equity volumes.

Source: Barclays Capital (July 2014)

I love charts that require absolutely no explanation. Since the outbreak of the Great Recession, with a few exceptional months marked by panic selling, trading activity in US equity markets has done nothing but go down. And when you take into account the growth of algorithmic trading and other machine-to-machine activity, which now accounts for as much as 70% of daily trading volume, the decline in actual human beings buying or selling stock in order to acquire a fractional ownership share in an actual real-world company is much more dramatic than this chart shows.

But wait, there’s more. Here’s a 50-year chart (!) from my friends at Deutsche Bank showing the steady growth rate of trading volume in the S&P 500. With an r-squared trend line fit of 96%, this growth rate of 9.3% is an incredibly strong and stable pattern. Until late 2008 or early 2009, that is, at which point the pattern breaks like a thin, dead twig.

Source: Deutsche Bank (July 2014)

How unusual is this 5-year break in the 50-year pattern of equity trading volume growth? Is this perhaps a transitory or random blip? Or maybe just a more pronounced version of a cyclical trough in trading activity.  Ummm … no.

Take a look at the chart below showing the degree of deviation from the trend line. Back in the 1973-74 recession trading volumes dropped slightly more than two standard deviations from the trend line. Today we are more than four standard deviations below the trend line, and the separation is steadily getting worse. The 50-year boom in US equity trading activity has not just stopped. It has reversed.

Source: Deutsche Bank (July 2014)

Is this just an equity story? Nope. Here’s a 20-year growth trend and deviation chart for US bonds.

Source: Deutsche Bank (July 2014)

Source: Deutsche Bank (July 2014)

This summer’s anemic trading volumes in both stocks and bonds are neither seasonal nor temporary. As you might expect, the Powers That Be at the bulge-bracket market makers are pretty freaked out and are pushing hard to generate some activity (not that we'd want any account churning, mind you). But all of these efforts announced from on high … all of the reorg’s and all of the revised compensation programs and all of the new investment platforms … it's all just pushing on a string if there’s been a fundamental change in the behavior of advisors and investors. Unfortunately, that’s exactly what I’ve been seeing and hearing over the past year, and particularly the past few weeks. It’s a buyers’ strike, a massive “meh” about public capital markets, and it’s growing.

These two observations about the state of mind of advisors and investors today – a prevailing belief that market outcomes are driven by monetary policy (what I call the Narrative of Central Bank Omnipotence) and a lack of appetite to do much buying of anything – are two sides of the same coin.

The overwhelming perception I had of the advisors and investors I met over the past few weeks is that they feel as if they're going along with some big charade. There's a profound disillusionment with political and economic leaders ... not that these leaders are necessarily incompetent, but that they are completely insincere. The advisors and investors I met – no matter how successful they had been over the past five years – were weary of the game and wary of being told what to think. They’re not suckers. They know they’re being played by Authority, whether it’s a Famous Investor talking up his book on CNBC or a Central Banker jawboning the entire market for the umpteenth time or a Chief Economist pushing his latest prediction from some macroeconomic crystal ball, and they’re playing the game right back, usually pretty well. But OMG are they sick and tired of the lack of authenticity in the investment world today!

There’s still plenty of "confidence" in markets, per se, because these advisors and investors are justifiably confident in their knowledge of how the game is played. No one is running for the hills or hiding under a rock. On the contrary, everyone is pretty much fully invested because they feel like they have to be. But there's no faith in markets, which is a totally different thing than knowledge or intellectual confidence. No one is excited or bulled-up about anything in a visceral or emotional way, so there's neither a powerful push nor pull to buy anything. I saw lots of faces like this guy in the classic WWI propaganda poster, sort of a wistful far-away gaze, wishing that they had enough faith in something – anything! – that would trigger their animal spirits and get them up out of their comfortable chairs and back into the trenches of actively buying and selling to make a real difference in their portfolios. But alas, no.

I don’t think you have to be an ace salesman or marketing guru to appreciate the crucial difference between knowledge and faith when it comes to driving action, the actual buying behavior that creates markets. My favorite quote on the subject comes from a perhaps unlikely source, St. Francis of Assisi, when he wrote, “Preach the Gospel at all times, and when necessary, use words.” Brilliant! Faith, regardless of its venue or form, is only faintly reflected in words and speeches and Fed employment models. But it shines like the sun from what we DO. Without a faith or belief system to drive us, we human animals tend to DO very little, or at least very little with passion, energy, and growth. Faith, to quote Indian Nobel Prize winner Rabindranath Tagore, is the little bird that feels the dawn of a new day well before the first light of the sun. Where is that little bird today? It’s sure not flitting around in the financial advisor offices that I visited recently.

The animal spirits of greed and fear have been crushed, not so much by zero interest rates or any other specific policy, but more by the non-stop game-playing of our political and economic leaders as they seek to maintain a political status quo within a deleveraging and fragmented world of overwhelming public debt. In macroeconomics we talk all the time about “the crowding-out effect”, where public sector borrowing sops up available private capital and diverts it from more productive uses in the overall economy. What we are experiencing today is a Narrative crowding-out effect, where public stories and words in the service of political goals dominate market expectations and prevent private narratives in the service of greed and fear from taking root in the hearts of investors. When every real-world event is interpreted for us by Voices of Authority within seconds, when Bernanke’s farewell speech is all about social control through communication policy … well, that’s a world designed to tell you what to think, which among thinking people inevitably becomes a world where you are hesitant to act. That’s a world where public insincerity reigns and private authenticity is painted as either quaint or dangerous. That’s a world of “macroprudential policy”, to use our current Fed Chair’s favorite phrase, and you better believe there’s no room at that inn for good old-fashioned greed and fear.

Are there exceptions to this general rule, small pockets of faith in real-world economic activity that retain their power to compel action? Sure. The "US Energy Independence" story, for example, remains strong and motivating among its devotees (of which I am one). In general today, the farther away an investment narrative is from public market game-playing and the closer it is to private market opportunities, the more it inspires belief and action. Everyone I know still believes with their heart of hearts in private market opportunities. It’s the public markets where faith has been lost, and that’s why the Golden Age of the Central Banker poses existential risks for firms and business strategies based on trading activity within those public markets.

For all of us that rely directly or indirectly on healthy, growing public markets for our livelihood, it’s high time to recognize that these markets are neither healthy nor growing. They are hollow and declining. A 50-year bull market in the market itself ended with policy responses to the Great Recession, and we are now in the 5th year of a bear market in the market itself, a bear market that shows no sign of abating but rather of accelerating. I'm calling this an existential risk, because it is, but it's also a phenomenal opportunity for any investment firm that can make an emotional, animal-spirited connection with public market investors. The capacity for faith is there. Investors will absolutely come back to public markets if they’re given a rationale that works not only for the head but also for the gut, if they’re given a philosophy that is not only smart but also something they can believe in.

What is that investment philosophy that can inspire as well as inform? I don’t know where it ends, but I know where it starts. It starts with what Tennyson called honest doubt. It starts with what Confucius described as his first principles – faithfulness and sincerity. There’s absolutely nothing sincere about the public sphere today, in its politics or its economics, and as a result we have lost faith in our public institutions, including public markets. It’s not the first time in the history of the Western world this has happened … the last time was in the 1930’s … and over time, perhaps a very long period of time, a modicum of faith will return. This, too, shall pass. But in the meantime, investment firms immersed in the public markets had better start adapting to these new political realities.

How? By embracing honest doubt and rejecting the didactic, crystal ball-driven approach to asset allocation and broad portfolio construction that is so rampant in our industry. By embracing sincerity and rejecting the hard sell of “alpha”, as if market-beating returns in this politically-driven investment environment were just a matter of listening to this analyst’s opinion rather than that analyst’s opinion. Adaptation to difficult times is never easy, and the implications of embracing honest doubt and sincerity within an investment philosophy will start to seem rather uncomfortable and weird to most investment firms pretty quickly. But as Hunter S. Thompson said in his most famous line, when the going gets weird, the weird turn pro.

Without adaptation and on its current trajectory of trading volume declines, vast swaths of the professional investment community will have a hard time surviving another 5 years just like the last 5 years. It’s time for reform, not in the sense of adding regulations or government oversight, but in the sense of re-forming our investment beliefs based on first principles of honest doubt and sincerity and, yes, greed and fear. Only then will our actions speak more loudly than the politicians’ and central bankers’ words. And won’t that be a sight?

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Cattender's picture

God i wish Hunter was alive today..

max2205's picture

Low vol, low Vix, nobody's selling

When the market goes down on high vol. watch out

Where's all the crap about HFT's...huh?

y3maxx's picture

...hmmmm...May as well buy a million homes in Detroit for a dollar each and put grow opps in all of'em.

Stackers's picture

I shared a dark suspicion that the life we were leading was a lost cause, that we were all actors, kidding ourselves along on a senseless journey. It was the tension between these two poles – a restless idealism on one hand and a sense of impending doom on the other – that kept me going.
Hunter S. Thompson, “The Rum Diary”


Until I stuck a .357 to my head and blew my brains all over the kitchen counter

nmewn's picture
"In a closed society where everybody's guilty, the only crime is getting caught. In a world of thieves, the only final sin is stupidity."
NoDebt's picture

This article is all well and good, but do you know the pain that would be required to get to that point?

Just imagine for a moment we were to do something "honest" like run a balanced federal budget.  $2T in tax revenues a year is nothing to sneeze at unless you are spending $3T, most of it on auto-pilot since it goes to "social welfare" programs (at all levels of society, across individuals and corporations).  

Imagine the screams of pain.  Not just from those directly receiving the benefits, but from big companies like WalMart that would see a DEVASTATING crash in their sales reveue.  Sucking $1T out of our economy overnight would definitely "leave a mark".

If this debt ponzi was ever cleared out you would find that probably half of our economy was entwined in it.  The crash across the country and the globe would be a MULTIPLE of that reduction in spending, not a fraction.

We had a chance in 2008 to start to clear some of this stuff away, but it was squandered.  Back then some of that pain would have been tolerated, since it was largely expected.  Not now.  Too late.  Everyone is back to being "promised".  From welfare queens and their EBT cards to Wall St. financiers with their promise of endless Fed backstops.  They'll ALL hold onto what they're getting until it's pryed from their cold, dead fingers now.  Everyone knows if you give an inch, they'll take a mile and they'll never give it back.  

All that is left is pain and it's approtionment.  Me?  I'm doing what rich people do.  They'll get less pain than the rest, if recent trends hold.


Escrava Isaura's picture


US Private Debt (Not including financials and government) = $42 trillion dollars / 316 million Americans = $133 thousand each man, woman, and child.

NoDebt, you are being too naive. Debt is a problem... but debt is nothing compared to what is around the corner:

The Long Descent: The End of the Industrial Age 


NoDebt's picture

Without having to write my own book, I am limited to tackling one facet of the issue.  I know what you're saying and you're right.  Empires don't collapse for a single reason.  

Seer's picture

In case you haven't read it:

Great dissertation on the collapse of empires.  There's a pretty common pattern.  I'd have to state that ALL empires place themselves on this projected path and that NONE escape the final outcome: collapse.  The details aren't the drivers, they're just subplots, markers along the trip (you can see ones that we're driving by today).

nmewn's picture

"Imagine the screams of pain.  Not just from those directly receiving the benefits, but from big companies like WalMart that would see a DEVASTATING crash in their sales reveue."

That is it, on the head.

We saw it when a simple 1-3% actual cut was proposed (not a cut in the growth of government "goodies"...but an actual CUT). You would have thought an asteroid had been sighted heading directly for DC.

And it was ;-)

Seer's picture

All the contracts, all the promises are based on (projections of perpetual) growth.  The entire System requires that there be something above neutral/zero else it cannot operate.  Seems we can never accept the fact that we have always operated on buy a small margin; this small margin is threatened, and with that REAL threat (perpetual growth WILL end at some point- so says reality) comes the threat to the System itself.  For some time they've only fakes the numbers to make it appear that we're above zero; with zero and sub-zero it all comes undone, the Ponzi blows up.

drstrangelove73's picture

The most hilarious piece on ZeroHedge in months.One can FEEL the pathos,even the bathos.
Good Lord,when can one find meaning again in trading 'stawks'
Oh, tempore!
I haven't laughed so hard since I read of the death of Little Nelle in UNCLE TOM'S CABIN...

drstrangelove73's picture

Over a stupid peroxide whore who was with me for the residual$.
Go for the gusto!
Hunter S.Thompson,RIP
Putz extraordinaire.
Not that I don't quote him weekly.
"Even a blind pig finds an acorn once in awhile"

oudinot's picture

I talked a couple of time with  Hunter in the late 80's.

He was sick, so he pulled the trigger.

If you were that way would you have bee man enough to have  done that?

Don't think so.


SheepDog-One's picture

It's got kind of an 80's feel to it, it's like when I watched Black Rain the other nite.

Escrava Isaura's picture

Talking about the 80’s and market crash… This will bring great memories:

The Working Group on Financial Markets (also, President's Working Group on Financial Markets, the Working Group, and colloquially the Plunge Protection Team) was created by Executive Order 12631, signed on March 18, 1988 by United States President Ronald Reagan.

Seer's picture

The financial floodgates opened up during Reagan's administration.  I don't fault Reagan (POTUS doesn't really do anything that TPTB don't want).  It was a natural progression to start lfaking growth.  By the time Reagan got in office the USD had been solidified as being fiat (Nixon), which pretty much was the nail in the coffin.  The LIES had to continue... they've held up pretty damn well!

drstrangelove73's picture

One of my favorites! One of the most stupid movies ever!I could feel my IQ declining with every moment of the film.Michael Douglas is one of those actors who an make it seem as if you are living longer,because time passes so slowly when he is onscreen.It almost comes to a stop.

Dead Man Walking's picture

low volume will continue until it's high volume. Then high volume will beget higher volume. Going down on low volume always scared me because it shows there are absolutely no buyers. healthy mkts go up on low volume.

Seer's picture

Sadly, it would probably be granted, but only with an accompanying reanimation of some foul character :-(  (really, imagine being immortal along with a bunch of the jokers that are running the carnival)

Gringo Viejo's picture

Hunter Thompson. The last American MALE?

Escrava Isaura's picture

Why did you phrase it as a question?

nmewn's picture

Some of the most vicious creatures on the planet are female. I can personally vouch for this, the first time I had ever seen an Erlanger beer bottle, it was coming toward my head.

(No, I ducked, her boyfriend wasn't so lucky, his face found my truck

Escrava Isaura's picture

In the U.S., the rate of violent crime for girls and women aged 10 and older is one in 56; the corresponding figure among their male counterparts is one in nine. Men commit close to 90 percent of the murders in the U.S. and more murders than women in all the countries researchers have examined,

You see, nmewn, there are no available resources for battered men.

Instead of expressing their angry emotions with their fists, women tend to use what in 1995 psychologist Nicki Crick, then at the University of Illinois, termed “relational aggression,” a less overt form characterized by social manipulation, especially of same-sex peers.

nmewn, you need some help. You are clueless.

Ness.'s picture

..women tend to use.. a less overt form characterized by social manipulation, especially of same-sex peers.


Urban Dictionary:  Commonly referred to as the "butch" in the relationship.  

JB634's picture

Violent men raised by single mothers. There's a generational effect.

Gringo Viejo's picture

@Escrava: Hear ya 'bro. Mea Culpa.

HardAssets's picture

"Hunter Thompson. The last American MALE?"

I don' know what that means.

But I've gotta feeling the real guys are ones you never heard of.

Actors, writers, and other so called celebs try too hard creating an image to sell. They become cartoon figures. I lost interest in Superman and Batman when I was 8.

Escrava Isaura's picture

Good for you that you overcame the indoctrination/propaganda early on.

Too bad that many still can’t overcome it… Think for themselves.

SheepDog-One's picture

Fear and loathing lost wages.

AldoHux_IV's picture

I don't know why I ever give these guys the faith of writing anything inciteful or at the very least inciting anything but disdain for their lamentations of the "good ole days".

HardAssets's picture

At first I liked the article, but that declined as I got further into it.
But then he mentioned animal spirited connection with public investors to generate faith. Groan.
What he writes about gold and central banks in the link found in this article is even worse.

Of course no real addressing the Ponzi money/banking system which ultimately makes thes markets a fraud. But you wouldn't really expect a stock salesman (no matter his title) to do that.

Seer's picture

"Of course no real addressing the Ponzi money/banking system which ultimately makes thes markets a fraud. But you wouldn't really expect a stock salesman (no matter his title) to do that."


Hence my squeezing in my note on this all being part of the workings of an empire, and, of course, that ALL empires collapse.  Picking at lint from a sheep on the tracks with the train appoaching... or, in this case, trying to get us to do that.

kill switch's picture
'I hate to advocate drugs, alcohol, violence, or insanity to anyone, but they've always worked for me.” HT


Seer's picture

ALL empires go through pretty predictable phases and ALWAYS terminate in collapse (roughly 250 years total timeframe).  Sir John Glubb suggests (against my better emotional judgment) that govts actually stabilize trade.  Regardless, this is only a very small comment on his part in what otherwise is quite a telling picture of the absolute certainty of empire collapses:

Glubb failed to map the problem to that of growth and the inevitable inability to acquire more and more resources. 

Escrava Isaura's picture


Some people here are in a hurry. Let's collapse tomorrow.

dobermangang's picture

"The secret of success is sincerity. Once you can fake that you've got it made."  - Jean Giraudoux

Escrava Isaura's picture

“It’s all fake” When Harry met Sally -- (1989)

Kirk2NCC1701's picture

Elaine:  Fake! Fake, fake, fake, fake, fake, fake, fake!

Jerry:  What about...?

Elaine:  Fake!

vulcanraven's picture

I would love to have heard HST's commentary on social media and the influence it is having on our society.

NOTaREALmerican's picture

He was viewed as just another un-Merican immoral malcontent by a majority of REAL Mericans!

Country first, hippy.  Love it or leave it!   

Mercury's picture

HST would have loved ZH.

saycheeeese's picture

The central planners have not lost faith (due to their banksters`friend on the hook...) in  the asset inflation price model  so.... their model shall prevail even if the investors`animal spirit  has lost faith in it.  Maybe the animal spirit will awaken without warning,  maybe the currency market could be a good starting point or maybe the simple quest of "how to preserve wealth" could be the viceral trigger of this asymetrical situation.

1stepcloser's picture

Picked the wrong day to quit Mescaline

Implied Violins's picture

There's always ayahuasca...GOD I would have paid to see HST write while under the influence

hobopants's picture

Well that was a waste of time. Yes the markets are all theater and nobody likes the story much but they all play along anyway, welcome to the last six years.

NOTaREALmerican's picture

An "investors" gotta do what an "investors" gotta do...