Profile picture
Paranoid Bull @paranoidbull
, 30 tweets, 5 min read Read on Twitter
The Videogamization of our Markets was one of the most obvious signs of its Destruction.

While the Central Banks crushed Volatility, forcing original thinking into Submission, the Bots got smarter and the Game of earnings got more predictable...
Given that $21T+ of QE was sloshing through Markets a a unidirectional Bid, it became quite clear that markets would go up over time.

Passive money helped grease the wheels, so Company Management became quite adept at the Game:
1) Tell “The Street” what your “Guidance” is so they can set their Models. (Make sure to make this very simple so it can be programmed into basic Sell-side Excel models but also read by OCR engines in Programmed Bots).
2) Make this “Guidance” low enough to be “Beatable”.
3) Be sure to keep the “Sell-side” models updated with your IR department talking to the “Analysts” throughout the Quarter.
4) Be sure to “Buyback” enough stock to increase your EPS enough to “Beat” the “growth” forecast.
5) “Announce the Earnings Beat!” Each quarter.
6) Repeat
There are literally thousands of examples of this Game being played over the last Decade but even yesterday $ORCL demonstrated it flawlessly. In a Quarter where revenues were flat and cash flows declined, they showed “EPS growth” due to buybacks, and they “Beat the Street.”
This Game of Earnings is only one small part of the overall Videogamization of Wall Street over the last Decade.
Much more pronounced is the Intra-day, Intra-week, daily movements of securities.
Given the collapse in Volatility and the Unidirectional nature of Markets over the last Decade, it became simplistic to program Bots to trade within this range.
Why would you need a Human mind for this type of environment?
The only Strategies that worked were ones that were long-biased and followed the metrics of the Earnings Game as well as the Markets Always Go Higher Lie of the Myth of Passive Investing which was kept propped up by the Myth of Infallible Central Banks.
These Strategies could be coded in a very simplistic way. Thus, they were and the short term movements of securities thus became relatively predictable. They would trend up, follow the Earnings Game and the Rules of the Myth of Passive Magic.

Unsurprisingly “Quants” thrived.
“Quants” is another name for “Simple Bots” they observe the behavior of securities operating within the Bounds of a System driven by The Earnings Game and the Myth of Passive Magic, while controlled by the Myth of the Infallible Central Banks.
Said differently:

If you crush Volatility and dispersion and force a certain limited set of parameters onto a market by eliminating the Volatility of many Factors, all you have to do is control those Factors and you can come up with solutions for the remaining variables.
By Faking like Risk doesn’t Exist,
Central Banks bounded The Game of Markets in such a way that The Myth of Passive Magic had enough power to ensure there would be enough Capital simply playing along with The Earnings Game...
But we shouldn’t ignore the: Central Banks Releasing Statements to tell everyone How the Game would be Played part of the last Decade.
This became an important element because it ensured that The Game could go on.
As long as the Words in the Release didn’t change: Keep Playing!
So all the while, Coding was getting easier, conformity was increasing, the Myth of Passive Magic was gaining steam and the Bots were growing in influence and the Companies were learning how to comply with The Earnings Game and Wall Street was cooperating. It was going great!
2017 was the Pinnacle of this Videogamization of the Markets.

During 2017, the S&P 500 had a Sharpe Ratio of 3.7 and the VIX remained under 20 all year long. There were a record number of days below 1% movement in the S&P. The Videogame was easy! The Bots thrived!
What is so remarkable about this is the Myth of Passive Magic should have been a tell that things weren’t making much sense. The basic premise is:
Don’t do anything because markets are so Easy you don’t need to do anything!
Investing is Easy and should be Free!
Go Passive!
Now of course there is some Truth to the Myth of Passive Magic: the Lie of shitty active management has been a source of value destruction historically and it is True that Beta should be close to free in time. BUT, the Myth is that Passive Magic will always work...
The Fundamental Error of the Myth of Passive Magic is the same error of the Myth of the Infallible Central Banks only more explicit. Passive Magic assumes if you markets will always go up.
The Myth of the Infallible Central Banks assumes they can make that happen.
Given that these two Myths are of course a Lie, it can begin to become clear what is wrong with the Videogamization of the Markets:

In Fake Years that Should Never Exist like 2017, the Videogamization works great! Passive Magic thrives. Bots thrive. Idiot Strategies work!
It is no coincidence that 2017 also featured the literal creation of a Videogamed Market called Crypto which was a 24/7 global Day-traded Digital Currency Complex made for the Videogamed Society of our time...

This was a Natural Reflection of the Markets. A microcosm...
Alas, as we know:
The Myth of Passive Magic is a Lie.
The Myth of the Infallible Central Banks is a Lie.
2017 was a blow off top of absurd denial about the Fact that Risk Exists.
2018 was the beginning of a return of Normalcy and Risk to Markets.
The Videogame got harder.
What we are witnessing this year and will continue to witness next year is the Losing of the Videogame by simplistic Bots and Idiot Strategies that were built for the environment of the last Decade which was Fake.

Markets are in Reality quite complex, Risky and hard to predict.
The Earnings Game itself has been a charade that has been able to be maintained in some sense but now that the Actual Economy is slowing down, particularly in China where the Fake System is being revealed, the companies are struggling to keep it up.
Now that Volatility is re-emerging in Markets the simplistic Intra-Day, Intra-week and other short-term patterns which were so simple to predict by simple Bots aren’t so simple anymore. “Quant” just got harder than it looked because Markets are Normal not Fake again.
Now that Risk is being reflected in the System and Central Banks will soon be revealed to be Fallible, the bounds of the Game will be healthily shattered.

The Videogame will Break.

But of course we knew that would happen...
Reality is way too complex to make into a Videogame. Global Markets are far more dynamic and complicated than the Myth of Passive Magic allows for: they can go Up and yes they can even go Down. Way down for a long long time.

Anything is possible in Global Markets and economies.
Now that we are entering a more Normal time, the Delusion is not only wearing off for the People. It also is for the Bots and others who believed the Videogamization could continue.

Unfortunately, it has Infected our Markets rather deeply so the Humans now watch the Bots fight.
But alas, the Humans can still look at the $ORCL Earnings release and call bullshit on the Video Game if they want.

The great thing about Reason being revealed is that Humans can finally participate in Markets again.
Now that Reason is returning and the Markets are becoming more Normal, the Humans should really have a lot more to do. Like think about what might happen if Markets don’t just go up, up, up.
Like if the Central Banks can’t just control everything...

Like what if Risk Exists?
The Videogamization will of course always be with us in someways.

But way the Future will be much more about Cyborgs than Bots.

It will be more about Risk and Reality than simple Myths.

Markets will be Hard again.

And That is a beautiful thing.
Missing some Tweet in this thread?
You can try to force a refresh.

Like this thread? Get email updates or save it to PDF!

Subscribe to Paranoid Bull
Profile picture

Get real-time email alerts when new unrolls are available from this author!

This content may be removed anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member and get exclusive features!

Premium member ($30.00/year)

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!