Reminiscences of a risk operator: 3_2.20.2021 // midnight Gnva - // 2,100 words, 8mins.
><El President himself, back to our VIEW, is making an announcement in Spanish.
...Because of serious setbacks of our troops in Guantanamo and Santiago, we feel reluctantly, that we must leave the Capital at once. Myself and my family must bid you goodbye, and good fortune. We will go directly to Ciudad Trujillo (Republica Dominicana).
The crowd is stunned; already whispers are moving throughout the guests. The only one who is not completely taken off guard is Michael, who quietly steps back, and disappears from the room.
><INTRO: Dear high-schoolers, as we reach mid-Feb ‘21 many now are hitting specific, memorable, one-year Covid19 anniversaries of all sorts of things: happy times, sickness, rewards (big paper gain$ in Feb ‘20), exhilarations of rushed/delayed weddings, accidents, and events that lay bare the twin systems of Learn & Trust.
February 2020 made DIStrust come to life at a grand scale with a myriad of black, gray, and white topics on who said what, when, from where, at what speed, for what, with broad election-cycle, multiples, balance sheet, and commitment impacts. Learn is for later, today is Trust.
There are many experts at dissecting the problems with corp/govt/media/overall societal Trust response to the Pandemic, for example:
—Scott Alexander of the Slate Solar Codex fiasco (an early #truthteller in Covid doxed by the fine folks on 8th/40th…who now are openly entertaining ‘reality czars’) brings those all together very nicely: who do you trust, for what, approved by whom, with how loud a megaphone?
}Reason Mag }LINK} A community…is struggling to decide what's off-limits for all of us.
}SSC response }LINK} Because they are much more powerful than I am
}Solana’s Pirate Wires }LINK} in this regard, if no other, be considered a great success.
A similar brew of factors created state/city rights battles with Los Federales, some at global level, and even others mixing in non-profit/agencies (WHO/NIH). One year in all sides now fully reveal there was plenty of DISinformation all around which nourished DIStrust. At the time two men came into the spotlight, both with uncertain, conflicting, conflicted pandemic positions.
One of them, of orange complexity, was the true lightening rod (while the other threw darts from a basement) - but both were shown to be out of touch with on-the-ground reality. And perhaps it is right that they were, because we_all_were since when we wanted to search for true insights last spring, it was severely lacking and what was offered was quite distorted.
}From social media via Mr. Bloomberg: Facebook / Instagram change advertising rules so politicians can use influencers to promote political campaigns - all thanks to Democratic candidate Mike Bloomberg using them in his campaign }The Guardian}
}From Italy: Municipalities in province of Lodi go on lockdown, affecting ~50,000 people }Metro}
><TRUST PILLARS: But this is about AP Finance 2026, so if DIStrust went viral at scale in spring of 2020, let’s start with its opposite across dimensions. What are areas of markets (any asset class) that require Trust?
Market Trust: that buyers and sellers (capital, resources, or services) have an understanding of the Nature of what they are trading with limited friction or surprises. // Example: if you go into a market, let’s say Munis (bland unsexy) you need to understand the contours of city funding, budgets/leverage, and general understanding of how to enter and exit said market**
Counterparty Trust: Need to know who you are trading against is who you think they are. Given that once you trade it takes time to settle (near instant in DeFi, 1 day/ 2 days through DTCC, etc) you impart a lot of trust in that participant holding.
}This even applies to “dark pools” since swimmers know they’re skinny-dipping in night waters w/no lights (don’t cry if Renaissance/Citadel nibble).
Documentation Trust: while many buy/sell treasuries, euros, stonks, agencies, puts, CLOs at seconds notice - all of these actually have hundreds of pages of docs behind them where integrity must hold // Example: buying Adyen requires trusting the ADR/ADS docs to faithfully represent your investment.
}At its worst: Citi makes an honest mistake (we have made the same, sending wrong $ to wrong party at wrong time) and the other side keeps $900M “because finders keepers” }LINK} Matt Levine’s Money Stuff on Bloomberg
Trade Trust: a binary construct in which passive/aggressive participants get spit out. There is no such thing as “market-nice”; you must be radically transparent on your Buy/Sell position.
// A 3.3.20 example:
-Pure vanilla: BUY 150 Adyen shrs @ market
-Vanilla + price: BUY 150 Adyen shrs @ $18.25 (or lower) for March 3 only
-Vanilla + price + time: BUY 150 Adyen shrs @ 18.25 for 90 days
-Non-vanilla: you start replicating above 3 with different parts of cap structure (bonds, converts, preferred, cds) or derivs (options, ala @RoaringKitty)
Bond Trust: dictum meum pactum which comes from Biblical times, or more recently the London Stock Exchange in 1801 = ”My word is my bond.” It translates to “You Are Done”, the simplest most enduring 3 words which are as good as any contract. They represent that Party 1 bought/sold to party 2 with the ‘contract’ living on, yes with Bloomberg chats/recorded lines for compliance, basis TRUST**
}Unlike the rest of society, markets are unique in that hundreds of million$ are transacted on you-are-done basis. It can take hours to sign papers/drive away from a dealer for a new, big ol’ pickup truck, versus 90 seconds of:
“Want to buy 5yr protection on Countrywide, $15M, can you check? / Broker: let me check…ok she’s at XYZ / Response: You Are Done”
In modern era that means that whether you traded at SalomonBros in the 80s with Michael Lewis and the Piranha, or high flying dotcom IPOs w/mustached Quattrone, or CDX IG/HY birth in mid-2000s, or more recently in the passivefication and derivafication (memefication?) of all markets everywhere, these pillars hold.
The Countrywide (we sure miss CFC as a ticker!) example points to real-life DIstrust from the mid-2000s, with another orange-complexity ‘leader’ }LINK} New Yorker and the long EDGAR LINK
A contrast is that when Morgan Stanley announced Etrade M&A in Feb. 2020 (largest banking deal since ‘08 crisis) Gorman and his Board had to rely on these pillars at a macro level }LINK to WASHPO}
>>Opinion: these same pillars underpinning markets perhaps could help those in the Frankfurt/Washington/London poli-circles that are lost, or the yellers on cabletv /printed legacy, or even small local school boards - such as in wonderful Oakland (NSFW) when the question is }TWEET LINK} “are we all alone?” and }NBC LINK}
><TRUST MARKETS: We hope our letters haven’t been too dark since Feb. 2020 also brought wonderful things. Valentine’s Day perks everyone up. Looking back from the Market Peak even provides some good news to those that let it all ride even after equities hit all time highs ("S&P 500/Nasdaq jump to record highs"). And in the northern climates the snow was starting to go out as spring was coming.
Similar to seasonal weather, Trust markets are VERY fragile and these 5 pillars have broader ramifications on relationships, home builds, careers, handshakes. Apart from #4 above which is very binary, the other 4 are lenses through which we look at most choices daily, whether recognized or not.
If we know that trust takes a long time to build, its corollary is that it takes the shortest amount of time to lose and betray: 1 look, 1 question, 1 answer, 1 statement, 1 sigh, 1 minute, 1 kiss to your dear brother Fredo,
Example: First 5mins of a call in mid-Feb ‘20:
// Pillars 1-3
Are you paying attention to what’s going on?
—Huh, what do you mean, I’m down here…on vacation?
Well if you look at cds, rates, ccys, they are speaking…what’s free capacity on lines? I suggest…
—Oh sure, yeah, right, what’s going on…humm tell me again?
}CXO titles may betray lack of understanding the market we are in…Ergo can you understand the message counter parties are screaming through open activity?…given 1 and 2, hate to ask terms of RC lines, CDS/risk overlay freedom from the BoD…
//Pillar 4-5, 2 mins later, different topic:
So when do we start [ie, are we DONE]?
—Ugh, umm, well no, yes in some ways. I mean I know I said before, but umm…the decision has been made…so you see…I’ not sure…
What? Yes or No? Be specific.
}That’s it, gone. Commitments / principles / teams / friendships: gone in 300 seconds.
><UPSIDE: Again, don’t let us get you down, given an amazing great thing is invariably you have many experiences where the 5 pillars came through to the UPside with friends, parents, teachers, supervisors at work, ideas, etc. By 2026 when you read this, a certain platform/movement/network that gives so many of us hours of entertainment, innovation rabbit holes, portfolio diversifiers, and hard-core academic text-book studying created an entire field I’d term: Unhinged DEvirsified Curiosity.
DE-ification of markets, payments, journalism, supply chains, systems, platforms, etc.
This IS the light-bulb moment from the Inception architect:
Question is, what happens as you start to mess with physics?
COVID19 accelerated the physics-messing, in a wonderful, beautiful, Shumpeter-style creative destruction }MIT Economics LINK} “the essential fact about capitalism” and to us, the fire was lit by Mr. Mars himself.
><DETRUST 2.8.21: in just 2 short week since our last letter, DEcentralization has moved at warp speed. This specially touches Pillars 2 (counter-party), 4 (trade) and 5 (bond). It all started Feb 8th ‘21*** when the Tesla 10K revealed a massive $1.5Bn purchase of Bitcoin.
For good (doctors=Mayo) or bad (rating agencies=Countrywide), we still trust institutions, or at least cover our peer-pressure bias with institutional cover. So when the news hit the tapes, the first action was to check EDGAR for 10K auditor listing: PWC+ KPMG + E&Y + Deloitte are now all deep in crypto. Two accepted Microstrategy and Tesla SEC filings, the other 2 have staked reputations on building Ethereum or giving audit guidance.
In January 2021, we updated our investment policy…which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds…Thereafter, we invested an aggregate $1.50 billion in bitcoin...Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future.
This is DEification at its most wonderful elegance:
1.The most prolific inventor/marketer of our age all along speaking loudly having already vanished his Corporate Communications team }LINK} “We no longer have a PR Team.”
2.Decision was swift & immediate: Elon asked publicly if $100M BTC transactions were even possible…and appears to have received adequate answer, BoD approval, and execution in ~6 weeks.
3.Open dreams are here to stay now given a big-4 auditor (and the SEC) allowed the BoD of an S&P500 multi-national to go on-chain }EDGAR link} Tesla 10K.
}}Quixote view: Ethereum may likely be the rails, but the dominant currency or form factor for payment in the DeFi world likely to be BTC. And perhaps ETH =EUR, major stable coins = Swiss Franc/Deutche mark, others Yen/Reais?
The weak bureaucratic protection of “our BoD/Audit Cmtee charter doesn’t allow it” is long gone and now Exec Teams/Directors must decide in 2021: Buy or Sell?
}Are we done?
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><CUBA LIBRE:
MICHAEL (whispering into FREDO's ear): There's a plane waiting for us to take us to Miami in an hour, alright? Don't make a big thing about it.
[He grabs FREDO on both sides of the face and kisses him on the mouth]
I know it was you, FREDO -- you broke my heart -- you broke my heart!
What Michael saw in Cuba was an official narrative of: ”do not worry, this virus protest is normal, we have seen it before, us corporate/govt overlords have it under control, it will all end soon.” An open mind willing to entertain signals, including the grenade scene, showed him that the Trust pillars were breaking. He immediately hedged by modifying relationships, moving cash, and securing plane/driver logistics. Even closer in, during the chaos one 30- second conversation with his brother revealed trust breakage at a personal level.
The pillars have always been there, though Covid keeps revealing them at deeper levels simultaneously.
What to do?
Dictum meum pactum.
//END/>
}ErraticNars Archive:
#0 1 yr later
[Disclaim: Individual, non-corporate views; not investment advice; may be long/short]
><APPENDIX Curriculum: Erratic Narratives are late-2020s AP Finance letters
**If anything, this is what most upset knowledgeable market participants in the Robinhood/Roaring Kitty fiasco: how in the world does a broker platform kill the buy button, throttle the order size (none of which were at block-size levels), and even get to the point of excluding tickers from search fields?
}Hearing VIDEO LINK} RH, I’m not a cat, citadel fun video, with live commentary
***Birthday presents were immediately adjusted (crypto has no exchange hours) to sprinkle in some btc, as were 529 plans to include small allocation on top of existing/most aggressive glide path that vanguard offers.
//Feedback (we not good at taking it): erraticnarratives “at” gmail “.” com