Series Table Of Contents

Previously: Greatest Story Never Told

To fully decode the Financial Matrix and confront the Index Fund Question—whether or not passive investing is “worse than Marxism”—we must trace the code back to its source and examine the Architect’s monumental legacy across markets, finance, and economics. The institutions Marschak built, led, and shaped—and the wider networks of students, colleagues, and collaborators that formed around them—directly produced or incubated virtually the entire canon of modern finance and econometrics:

To separate Marschak’s technical legacy from the ideology animating it is impossible—for they were always the same project, as the full arc of this series will prove. Models and equations served as scientific-seeming camouflage for the Architect’s vision for society, translating his political aspirations into mathematical form.

Once laundered through equations, that vision could circulate under the veneer of objective technical knowledge rather than as contestable political commitments. Over time, as economists, financial institutions, and regulators absorbed the Architect’s vision and methodology—and embedded them into Nobel Prize-winning theory and market practice—his ideology was invisibly installed as the base layer of the Financial Matrix’s operating system. By rewiring markets from within, Marschak encoded the digital nervous system through which global capital—and increasingly AI—sees, prices, and governs the world.

Marschak’s Marxism

In his youth, Marschak pledged his political allegiance to Marxism by joining the Mensheviks. As we will show in later chapters, this was no mere youthful dalliance with Marxism. He did not renounce Marxism upon arrival in America; rather, he shed its name but not its nature, changed its uniform and its language—and wove its ideology so deeply into the fabric of the modern world that we no longer even recognize its origins. The lesson Marschak carried out of Russia and Nazi Germany was not that socialistic planning was impossible or ill-advised; it was that planning by overt seizure was primitive—Marschak needed to design a subtler, more sophisticated architecture capable of optimizing society without anyone noticing.

Marschak exploited a profound psychological truth: to most observers, a market is ‘free’ so long as the State hasn’t literally seized the factories, outlawed private property, or begun centrally planning the price of a loaf of bread. It appears to be capitalism if people conspicuously consume Hermès bags, corporations compete, entrepreneurs launch startups, and Elon Musk is able to IPO SpaceX.

From Marxism To Truman Show Technocracy

Marschak left overt Marxism behind in Russia and Germany, but he did not abandon the fatal conceit that had animated his youth; in America’s capitalist economy and universities, he found a new host for his technocratic ideology. Here, the old socialist revolutionary traded its worker’s coat for a suit, and reemerged as mathematical economics in order to disguise the socialist-planning question as neutral economic “science.”

These formulas, theorems, and algorithms were not discovered as “natural laws of capitalism” nor were they ever intended to describe markets. They were invented specifically as a Trojan horse to reconstruct markets as administrative tools for socialist planners.

A model of markets, once embedded in algorithms, academia, regulation, and institutions, teaches capital how to flow. The map begins to rewrite the terrain. For Marschak, that was the entire point. His life’s work was not to map the market terrain, but to replace it. He desperately wanted society rendered mathematically tractable, because then and only then could he attempt to rationally “solve” society as an optimization problem.

Even the socialists had discovered that markets were useful—not for the freedom and prosperity they promised, but as instruments of optimization and social engineering. Let consumers buy, let investors purchase index funds, let workers choose jobs, let prices allocate day-to-day production—but only within pre-approved channels. The commanding heights—interest rates, savings, investment, the structure of the economy and financial markets—should remain planned and under “rational” administrative control.

Programming Markets: Seizing The Means Of Allocation

The problem with all of this, of course, is that once human life is reimagined as a mathematical optimization problem to be ‘solved,’ your preferences as an individual become the system’s most persistent inefficiency to be engineered around.

Anyone who has used Google Search or a social media app has already experienced this type of algorithmic black box. The social media feed never simply defaults to showing us what we want; it edits and arranges information long before we encounter it while scrolling on our iPhones. The feed algorithmically decides what gets surfaced, what gets “shadow-banned” and buried, what gets amplified, and what is removed altogether from the menu of possible thought. This logic was infamously captured by the quote “freedom of speech doesn’t guarantee freedom of reach.”

Because the control does not appear to be overtly top-down, it still sometimes feels like reality unfolding naturally before us. And the interface is generous with the vocabulary of agency: it permits us to like, mute, and follow—allowing us to feel as if we are experiencing “choice,” “preference,” and “market feedback.” Subconsciously, we come to believe we are the authors of our feeds—that their information content reflects a thousand small choices we made freely, a digital self-portrait of our interests. We are not the authors of our feeds, however, but rather their subjects: social media is a Truman Show engineered for us by those who designed the algorithm. It is not a mirror of reality, but a mechanism for allocating it.

Prices—in both the financial markets and the real economy—have long been subject to the same treatment at the hands of the Architect and his intellectual descendants. Once prices are captured by their models and equations, they become a control surface—one that can reward, punish, subsidize, ration, channel, and discipline behavior without ever announcing itself as command.

The social media feed makes the mechanism of control intuitively obvious in a way the price system rarely does. Few among us have ever felt prices being curated by algorithms, but nearly everyone has seen “influencers” boosted on Instagram or Twitter—and has viscerally felt a feed curating their informational reality without their consent.

Index Funds As Social Media Influencers

The algorithms powering social media feeds are many, but one mechanism inside the recommendation stack has a direct analogue in capital markets. “Influencers” that already attract engagement are more likely to be boosted, which can generate still more engagement, followers, and distribution in a self-reinforcing loop.

The S&P 500’s market-cap-weighted algorithm operates on a similar principle, but directs capital rather than engagement: the larger a company’s market value, the greater its index weight—and the greater the share of each new dollar flowing into passive index funds that is automatically allocated to it. As and others have shown, the result is a rich-get-richer curation system that converts prior market success into future allocation priority.

From The Invisible Hand To Invisible Fist

But index investing is merely one algorithm by which capital is now directed. As later chapters will show, nearly all such algorithms—and more importantly, the ideological methodology on which they are based—can be traced through Marschak.

The Architect didn’t use his scientific-seeming math to invent a thermometer that measures the temperature; instead, he invented a thermostat that sets the temperature. He seized the means of allocation—the price system itself—rather than the means of production. In doing so, he helped turn capitalism into a curated feed of HyperPrices masquerading as real prices, just as social media feeds display curated HyperReality.

Soviet-style central planning becomes unnecessary if the Financial Matrix determines which judgments are allowed to become prices, which are amplified, which are suppressed, and which are snuffed out before they can register at all. What the social media feed is now doing to our “information content,” the Financial Matrix had already been doing to prices in the economy and markets.

The point is not that passive investing, HFT, “quant factors,” CAPM, Sharpe ratios—or any of the Architect’s intellectual offspring—are literally Marxist. The danger is perhaps more insidious than overt central planning: all of these ideas were developed as part of a broader project to import the logic of socialist planning into the market itself—not by abolishing prices, private ownership, or competition, but by programming the mechanisms through which capital is measured, ranked, and allocated. They are all prominent expressions of the same sweeping ambition we explored in Value In The Age Of AI Technocracy—an ambition fundamentally hostile to Adam Smith’s “invisible hand” and the American conception of freedom.

Priests & Merchants

The Architect and his immediate intellectual descendants were ideologically driven Priests: theorists who embedded their ideology into mathematical models, benchmarks, and seemingly neutral rules. Investors, on the other hand, are Merchants: they need not understand or believe in the ideology; they only need to profit. Their creed is “these are the market conditions now,” and they adapt to whatever thermostat setting they’re handed rather than asking who set the temperature and why.

The Priests therefore only needed to win adoption by a “long march through the [financial] institutions”: once the S&P 500 became “the market,” for example, dissent became defined as tracking error. The Merchants then did the rest, reinforcing the Priests’ ideology. When trillions in passive flows mechanically bid up the largest index weights, for example, the rational investor does not protest the distortion—he anticipates it, front-runs it, and pockets billions:

Society Optimized To Run Like A Motherboard

All of this perhaps explains why modern ‘capitalism’ increasingly behaves like a social media feed—one in which the Forgotten Man is “shadow-banned.” This is hardly an accident: Marschak and colleagues laid much of the theoretical groundwork for not only the algorithmic systems that now govern the Financial Matrix, but also for social media and AI.

Marschak and company permitted the market to live—even Hermès bags and SpaceX—but only after stripping it of sovereignty. Technocratic planners determined the top-down architecture, markets were permitted to optimize locally within predetermined channels, and consumers and producers were “nudged” as necessary to meet the planners’ goals.

Only now, perhaps, does Slavin’s caustic quip about high-frequency trading fully land: New York City “optimised to run like a motherboard”—while human beings were left “just loitering.” Slavin had inadvertently revealed the terminal logic of the Architect’s dream.

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Series Table Of Contents

Previously: Are Index Funds Communist?

Designed, Not Discovered: The Ideology Is The Architecture

In Part I: Hypermarkets, we introduced the Architect: the long-forgotten father of finance, whose influence permeates every aspect of the modern economy and financial system.

In Part II: Are Index Funds Communist? we revisited the decade-long debate over whether index investing has “crossed the Rubicon”—grown large enough to impair the price system.

But even the boldest heretics treat passive investing as a brilliant “free market” innovation rooted in Nobel Prize-winning science that simply grew too large—a victim of its own runaway success.

The market distortions now visible under pervasive passive indexing are not merely the result of scale, however—even if scale is what finally made them impossible to ignore. They are the wages of an Original Sin committed by the Architect at the birth of modern finance itself—one whose true origins and nature have never been properly told.

Of course, a controversial beginning proves nothing on its own, nor do compromised origins in and of themselves invalidate everything downstream. Einstein was famously a socialist, and Wernher von Braun’s rockets reached the moon despite the ideology of his youth.

But finance is neither physics nor rocketry, and there is a world of difference between discovering a law of nature and attempting to write one. In modern finance, what masquerades as organic discovery has, from its very inception, been deliberate legislation—a claim so sweeping, and so improbable on its face, that it can merely be asserted here, accumulating the weight of proof across the chapters to come.

Nevertheless, the Nobel Prize-winning financial models that now govern trillions in assets did not reveal underlying reality—they purposefully remade reality in the image of the Architect’s ideology. As these models hardened into the Financial Matrix, that animating ideology became its organizing law, conscripting economic and social reality into its service.

When Ben Hunt warned that markets had become a ‘political utility,’ his diagnosis was more literally accurate than even he could have known: what he identified is not a recent corruption of the market, however, but rather a feature hardcoded into its architecture at the moment of Original Sin nearly a century ago.

Expose the Architect and his ideology, and we entirely invert the foundational myth of global capitalism, forcing us to recast everything we think we know about the markets, about finance—even about twentieth-century history itself.

The Map Rewrites The Terrain

An 825-mile trench runs from New York to Chicago, its path cleared by rock saws and dynamite blasts—the culmination of a secretive $300 million project to forge the straightest route geography would permit between the two financial centers.

It carries no passengers; it moves no water, oil, freight, or electricity.

It carries one kind of traffic, and exists for only one reason: so that an algorithm can execute a trade three milliseconds faster than competing algorithms—“37 times faster than a person can click a mouse.” The fiber optic line, built by Spread Networks and vaulted into notoriety by Michael Lewis’ Flash Boys—his exposé of High Frequency Trading (HFT) and Flash Crashes—became the physical emblem of an economy optimized for financial algorithms.

The trench itself ended at a server farm in New Jersey, but as the network’s signal breached lower Manhattan, the city itself began to contort around the vast infrastructure required to process it. The signal surfaced at 60 Hudson Street—the former Western Union headquarters, now a massive carrier hotel boasting 45,000 square feet of server space—making the traditional servers down on Wall Street agonizingly slow by comparison. A fierce proximity war erupted. To shave a few milliseconds of latency from the execution time, the surrounding blocks were hollowed out; buildings that once housed people, offices, and ordinary commerce were gutted and repurposed to meet the demands of trading algorithms.

Whatever humans were doing couldn’t possibly be as valuable as what an ultra-fast trading algorithm could accomplish in the same square footage. As Kevin Slavin noted mordantly, New York is “becoming optimised to run like a motherboard...and you, all of you [humans], are just loitering.”

More than a decade before AI frontier labs began reshaping the world to accommodate their data centers, our landscape had already been terraformed—or perhaps more accurately, algoformed—around the mathematics of modern finance. The raison d'être for this algorithmic manifest destiny: extracting money from the prices of assets traded within the Financial Matrix. Not prices determined by human buyers and sellers deciding what something is worth, but HyperPrices emitted by algorithms fighting other algorithms at the speed of light.

Spread Networks’ cable, and Manhattan-as-Motherboard, are spectacular physical monuments to the Architect’s Original Sin. They expose the hardware substrate of the Financial Matrix: the physical layer through which abstract mathematics acquires force in the material realm, translating equations into power over human life itself.

This is the dream of the Architect made manifest: the teeming chaos of decentralized human judgment snuffed out and replaced by the cold certainty of mathematics—a world in which human enterprise is no longer the purpose of finance, but a dangerous force to be disciplined, sterilized, and routed around.

The Respectable Algorithm: Index Investing

But HFT’s rewriting of both markets and our physical terrain alike is only the most lurid outward expression of the Architect’s deeper ideology. Elsewhere, that same ideology hides inside innocuous-seeming institutions: pensions, 401(k)s, target-date funds—and in the gospel of index investing that has increasingly made passive funds the core of those portfolios, and indeed of markets themselves.

On the surface, a passive index fund innocently nestled within a retirement account seems universes removed from the fiber-optic cables and flash crashes of high-frequency trading. One is frantic and predatory; it involves firms tunneling through mountains, hollowing out buildings, and displacing human tenants to benefit execution times for algorithms with violent names like The Knife. The other is respectable, passive, almost pastoral—the financial equivalent of farming, patiently harvesting the slow-ripening bounty of American Exceptionalism for widows, orphans, and everyday savers, operating on a tectonic scale of decades rather than microseconds.

One is dragged before Senate hearings; the other is preached as gospel by those same Senators—as well as presidents, regulators, attorneys general, academics, employers, retirement-plan consultants, wealth managers, and personal-finance gurus. One is so fast no human being can perceive it; the other is so simple no human perceives it to be an algorithm at all. The differences are superficial, however: differences of speed and respectability, perhaps, but not of kind.

Animating both—animating all of modern finance—is the same underlying belief that markets can be “solved” by math and rules. In order to “solve” the equations—as we explored in The Price Of Everything & Value Of Nothing—prices are assumed to be no different than other data warehoused across a sprawling network of hard drives on Microsoft Azure or Amazon Web Services (AWS). This assumption allows prices to be acted upon by rules and mathematics as if they were the same as any other type of number such as temperature or voltage. Neither HFT nor index funds ask what something is worth to individual humans—both have simply replaced that question with a self-referential rule that takes it as given that price and value are virtually synonymous.

These mathematical “solutions”, however, were not laws of nature—latent in the market and awaiting revelation by some University of Chicago professor scribbling equations in chalk on a blackboard, as if finance had finally discovered the physics of markets. Someone wrote this source code into the Financial Matrix: a specific person, at a specific moment in history, possessed by a purely ideological need to make the world tractable to mathematics and algorithms.

To find the Architect, we must descend from the University of Chicago ivory tower—with its mathematically pristine models of economic equilibrium and efficient markets—and enter an all-too-human world that was catastrophically un-optimized: a world so chaotic, so bloody, so irrational, and so saturated with violence that no math could have described it, let alone tamed it.

The Architect’s Great Escape

The year after the outbreak of the Russian Revolution, in the late autumn of 1918, a 20-year-old Menshevik was fleeing for his life. He’d nearly been killed as three rival factions shot at each other across the city. His revolutionary career lay in tattered ruins; he had no money, no country, and had no clear idea about his future.

The vicissitudes of fate that had brought him to this point had been improbable even by the standards of revolutionary Russia. He’d traveled by horse cart, by truck, and on foot. Staying had meant prison, or worse; en route he had already been seized once by a suspicious Cossack, and escaped arrest by diving under a freight train car just as the train began to move.

Before the revolution, he’d already known the inside of the Tsar’s prison, but this was a new order of danger for the young man whom the tsarist secret police, after tracking his Kiev student cell, had once code-named Dobryi: The Kind One.

Under moonlight, as the wagons climbed a ridge, horsemen surrounded the wagons. They demanded papers, but they wanted money, clothing—anything portable. They robbed the caravan, allowed it to move on, and then circled back to rob it again—playing a sadistic game of cat-and-mouse with the refugees for amusement. Among their plunder were two dozen freshly starched shirt collars of Dobryi’s Georgian companion, who complained bitterly about his loss for the remainder of the journey.

Dobryi, however, knew better than to fret over such bourgeois vanities. Not long before, somewhere near a stanitsa—a large Cossack settlement—Dobryi had already learned the fate of several comrades who had been seized from a train and shot—among them a fellow commissar for land, who had been told, simply, “you oversee the land? we will put you under it.”

It was on the Georgian Military Road—a historic thoroughfare that had borne armies, pilgrims, and refugees for centuries—across those Caucasus mountain passes and down into Georgia, that Dobryi was now attempting his escape.

In prior months, he had served as a Secretary of Labor in the makeshift socialist government of the Terek Republic—a fragile coalition consisting of Mensheviks, Bolsheviks, and Socialist Revolutionaries sharing power alongside Cossack atamans and tribal delegates from a dozen mountain peoples, most of whom had been shooting at each other within recent memory and would be again, soon.

Dobryi had written the founding manifesto for the rival breakaway Mozdok Provisional Government of the Terek Republic, which formed when the Bolsheviks consolidated their grip on the capital. It opened: The People’s Government of the Terek Region declares to all the citizens... His colleague Mamulov had insisted they work in the phrase Alexander II used when establishing the new courts: “Not the right of force, but the force of right.”

As Secretary of Labor earlier that year, he had been assigned the task of drafting labor legislation for the industrial workers of the region. He studied German social insurance models and unsuccessfully attempted to turn them into policy for an oil-and-railway economy already surrounded by armed groups that barely recognized the government’s authority.

Money had already ceased to exist in any meaningful sense; “white money,” handmade bankers’ checks on scraps of paper, was printed in excess because real currency was scarce. Dobryi, as Secretary of Labor, helplessly watched the inflation spiral out of control. He stood in the main square of an oil city with burning gushers on its horizon and told unemployed proletariat that “the workers must not be the kept woman of the revolution”—a line he would later call very stupid, because he had nothing to offer them but words.

The Republic’s leader was shot dead at a military parade in June and the region tipped into civil war. By July, the Cossacks had declared open war on Soviet Bolshevik authority. By August, a purge congress had been convened; meanwhile the Volunteer White Army under Denikin was consolidating power and advancing toward the Caucasus. Dobryi’s closest friends—Menshevik and Bolshevik alike—were expelled or fled.

For weeks he hadn’t known whether a girl counted among the dead was his sister. He telegraphed ahead from Kazbek, a waystation on the Georgian Military Road, and descended to find his sister waiting at the school of St. Nina in Tiflis; he later described the reunion as one of the greatest experiences of his life. They left Tiflis by train to Poti—Batum having fallen to the Turks—and took a boat to Sevastopol, crowded with German prisoners of war returning home after the Armistice.

Somewhere on the water he contracted Spanish flu, a scourge then killing tens of millions across the continent and beyond. Dobryi ran a fever that his sister described as the highest she had ever seen. One man on the boat died of the flu and was buried at sea. Someone let Dobryi into the engine compartment, which was sweltering—probably the wrong environment for a deadly flu; still, he nursed himself back to health on cognac after another passenger assured him it was the best remedy. By the time they reached Sevastopol he could walk, but only just, and he held his sister’s shoulder as if she were a walking stick. They were quarantined on arrival.

They traveled from Sevastopol to Kiev. On the streets of Kiev, German soldiers walked in groups of four, patrolling a city that was no longer theirs to patrol, maintaining order. The Germans had cleaned up Kiev and the railroad station, which had been all but abandoned to filth—most notably the cracked shells of sunflower seeds that Russians ate nervously while arguing politics; the Germans posted VERBOTEN signs, and swept everything out.

The Architect In Exile

His name was Jacob Marschak.

And once you understand what he spent the rest of his life building, why he built it—and how his students, colleagues, and institutions carried that project forward—you will never see index funds, markets, or society itself the same way again.

Both Jack Bogle’s Vanguard and Spread Networks’ fiber for HFT algorithms are—in a line that runs straighter than that cable itself—Marschak’s intellectual offspring. His life story supplies the Rosetta Stone that decodes the mystery of modern market structure, for he is the hidden Architect. His ideology permeates the entire edifice of modern finance so completely that it invisibly reprogrammed the market from the inside out.

Marschak authored the primary kernel of the Financial Matrix: the base layer of code through which global capital—and increasingly Artificial Intelligence—now sees, prices, and governs the world. “Alpha,” “beta”, and “market neutral.” Options pricing and the hyper-financialized casino of 0DTE derivatives. Multi-manager pod shops like Citadel and Millennium. Quantitative powerhouses like Renaissance, D.E. Shaw, AQR, and Jane Street. Factor investing. Prediction markets like Kalshi and Polymarket. All of it is downstream of Marschak.

Marschak would find his way, eventually, to Weimar Berlin, then flee the Nazis and land in London; he escaped the impending World War by emigrating once again—this time to America. By the time he reached New York in 1939, Marschak had already involuntarily emigrated three times in two decades—surviving pogroms against Ukrainian Jews, Tsarist prison, the Bolshevik Revolution, two hyperinflations, the Great Depression, Nazism, and the outbreak of a Second World War.

He had escaped all of the old world’s catastrophic attempts to plan society; and yet nonetheless he would spend the next forty years translating the same fatal conceit that had just laid waste to everything around him—the dream of “solving” society—into a new form on American soil.

Up Next:

The Control Surface: Markets As Social Media Feed For Capital

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Sources / Further Reading

This essay draws on multiple accounts of Jacob Marschak’s life, including Jacob Marschak, Recollections of Kiev and the Northern Caucasus, 1917–18, interview conducted by Richard A. Pierce for UC Berkeley’s Regional Oral History Office; Kenneth J. Arrow, “Jacob Marschak,” Biographical Memoirs of the National Academy of Sciences; Robert W. Dimand and Harald Hagemann, “Jacob Marschak 1898–1977: From a Russian Revolutionist to President-Elect of the American Economic Association”; and Béatrice Cherrier, “Rationalizing Human Organization in an Uncertain World: Jacob Marschak, from Ukrainian Prisons to Behavioral Science Laboratories.”

Series Table Of Contents

Previously: HyperMarkets

The Silent Road To Serfdom

A decade ago, deep in the lull of Wall Street’s late-August doldrums—when trading desks were thinly staffed and the financial world was waiting for Labor Day to breathe life back into the markets—a team of high-ranking investment strategists at AllianceBernstein roused investors from their torpor.

Bernstein published an investment strategy note that lent institutional imprimatur to the ultimate economic heresy:

The Silent Road To Serfdom: Why Passive Investing Is Worse Than Marxism

The idea had actually been circulating for months before Bernstein dragged it into the mainstream limelight. Chris Wood—then at CLSA, now Global Head of Equity Strategy at Jefferies—had made much the same argument in GREED & Fear, but Bernstein’s note was what finally handed the heresy its pulpit.

On its face, Bernstein’s note read like financial clickbait (if not redbait). You were buying, quite literally, the market. How on earth could owning the market be anti-market? The answer was right there in the very word itself! The accusation of Marxism wasn’t just counterintuitive. It was seemingly incoherent—bordering on insanity.

The S&P is the very concept of American enterprise: ticker-ized, bottled, and sold for pennies. Bogle, not Bolshevism. Not a product so much as a principle—capitalism incarnate, indexed and evenly distributed—the purest expression of the idea that markets, left alone, know better than any Soviet expert, committee, or central authority ever could.

Why, index funds are as American as baseball, hot dogs, apple pie, and Chevrolet! Yet here was a room full of suits at a firm overseeing nearly $1 trillion in assets, arguing that—beneath this patriotic veneer—the quintessential capitalist investing vehicle was more Red than chess, cabbage, borscht, and the Lada.

For generations, Wall Street had famously viewed Marxist central planning as its ultimate ideological foil—the very negation of markets, prices, competition, and freedom. How, then, could the most popular investment vehicle in the history of American capitalism—the wholesome, foundational staple of every modern portfolio—be not merely flawed, but fundamentally worse than the blind bureaucracy of the Kremlin’s Gosplan?

Defenders Of The Faith

Bernstein’s note sparked a wave of media coverage and debates, including a hilarious (by finance industry standards, anyway) article from Bloomberg columnist :

Over the ensuing years, financial luminaries joined the fray. Towards the end of 2016, Burton Malkiel—the famous Princeton economist and author of the bible of passive investing, A Random Walk Down Wall Street—rode to indexing’s defense in the Wall Street Journal:

Malkiel concluded his op-ed:

Index funds have been of enormous benefit for individual investors. Competition has driven the cost of broad-based index funds very close to zero. Individuals can now save for retirement far more efficiently than before. It’s been a while since I’ve brushed up on Marxist economics, but to me that sounds more like a transparent, well-functioning market economy than a “silent road to serfdom.”

The case, it seemed, was closed: the Godfather had spoken.

From Heresy To Chorus

Six months later, however, Jack Bogle—the other godfather of passive, the man who built Vanguard into a behemoth—grudgingly conceded that, taken to its logical extreme, Bernstein’s thesis was correct:

Then, later that year, the man who wrote the book on bubbles—Yale’s Robert Shiller, Nobel Laureate and author of Irrational Exuberance—appeared on CNBC to voice his own concerns:

By 2019, of The Big Short fame escalated the rhetoric, comparing the passive bubble to the synthetic credit structures that helped detonate the 2008 Crisis:

Burry recognized in equities the same alchemy of risk he had once diagnosed in mortgages:

Central banks and Basel III have…removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies—these do not require the security-level analysis that is required for true price discovery.

This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.

The One-Man Crusade

In the years since, has waged what amounts to a one-man crusade. He has pressed his case before regulators, at hedge fund dinners, and on the podcast circuit; now, he is set to make his definitive argument in a highly anticipated book titled “The Greatest Story Ever Sold.”

Green argues that passive investing is systematically destroying the price discovery mechanism that makes markets function, causing a host of unintended consequences. By replacing active, valuation-driven analysis with algorithmic, flow-based buying, passive capital mechanically inflates mega-caps regardless of fundamental value, starves smaller companies of funding, and strips liquidity from the system. The result is a brittle, hyper-concentrated market stripped of corporate accountability and increasingly prone to violent systemic shocks:

This past week, Scott Rubner—formerly of Goldman Sachs, now Head of Equity and Equity Derivatives Strategy at Citadel Securities—offered what amounts to meaningful institutional validation of part of Michael Green's thesis:

Passive vehicles are playing an increasingly dominant role…Passive buying is not neutral in today’s market structure. Every $1 allocated into the S&P 500 increasingly becomes a pro-growth, pro-momentum, and pro-large-cap allocation.

Scoreboard, Bro!

That, in essence, has been the overwhelming response from market participants, academics, regulators, politicians, attorneys general—and Presidents!—alike.

Look at the returns. Look at the line. Line go up. Line has always gone up. Line will always go up.

For a decade, every existential alarm was drowned out by the engine-roar of a historic bull market that made the skeptic look like a crank. When the tachometer has been pinned at redline for that long—and every skid gets corrected by a diabolus ex machina before it can turn into a crash—nobody wants to pull over and check under the hood; they’d much rather shove the S&P chart in the face of any would-be Cassandra.

The Ghost In The Index

Nonetheless, we have spent the better part of the last decade building our case—looking under the hood of the markets and taking apart the index engine: studying its mechanics, tracing its history, reverse engineering it, and stress-testing its failure modes.

Ever since Bernstein’s 2016 note, the public debate has circled a now-familiar set of concerns. Bernstein, Wood, Shiller, Burry, and others sensed that something about passive investing had gone horribly off the rails. has done more than anyone to turn that intuition into a serious, sustained prosecution. That work is indispensable, and there is no need to relitigate the case on terrain the “Cassandra of Passive Investing” has already mapped better than anyone.

Instead, we return to the far stranger and more provocative question originally posed by AllianceBernstein. At first glance, that question appears to be about index funds. But after a decade of research, we have come to understand that this framing is itself a trap.

To fixate on the Index Fund Question—the now-familiar debate over whether passive investing has “crossed the Rubicon” and grown large enough to impair the price system—is to stare at a shadow on the wall of Plato’s Cave. The index fund is not the source; it is one silhouette among many, cast by an ideological war that predates modern Wall Street entirely.

Look past the shadow, therefore, and we don’t just illuminate the mystery of index investing—we expose the Financial Matrix itself: a digitally remastered Plato’s Cave whose projections have become our reality, whose engineered architecture we mistake for the natural landscape itself.

To see the Financial Matrix in its entirety, we must chase the shadow of Wall Street’s index funds back through economic history to the source that cast it: an arcane, seemingly inconsequential quarrel amongst ivory-tower academics. A parochial spat so thoroughly beneath notice that it might earn a single footnote in a graduate syllabus, if that—adjudicated, interred, and forgotten a century ago.

It wasn’t settled, though. The ideological war never ended—it simply evolved to the point where it became systemic. It shed its name but not its nature, changed its uniform and its language—and wove itself so deeply into the fabric of the modern world that it is now being fought in digitally remastered form on NVIDIA GPU clusters by people who may not have any idea they are on this battlefield, using tools they may not even recognize as weapons.

For a decade, even as the debate over passive grew more intense and more consequential, Bernstein’s original heretical question remained unanswered. The Sorcerer’s Apprentice & The Man Who Broke the Markets now answers it—decisively—from an entirely different origin point.

The Greatest Story Never Told

We cannot end the debate—nor understand how the “dumbest” algorithm in the history of finance became entangled with the most “intelligent” technology ever developed by mankind—without turning away from the shadows and returning to the source that cast them: who created index funds, what they actually are, where they came from, when, and why. An odd place to begin, perhaps, because the answers are by now taken for common knowledge.

As everyone knows, their origin is settled history, documented ad nauseam. Ask virtually any MBA graduate, Wall Street veteran, or financial journalist, and they will confidently recite the same immaculate conception story.

They will point to the University of Chicago. They will invoke the holy trinity of the passive revolution: Harry Markowitz’s math, Eugene Fama’s unbeatable markets, and Jack Bogle’s missionary zeal to evangelize and democratize capitalism’s bounty for the retail investor.

It is a pristine gospel of American exceptionalism: conceived in Midwestern lecture halls, funded by Yankee capital, forged in the competitive fires of the free market, and delivered to the retail investor as a Promethean gift stolen from the Olympian market gods themselves.

That creation myth isn’t entirely wrong, as far as it goes, but it is most certainly profoundly incomplete. For it is a child’s bedtime fairytale; one that picks up safely somewhere in the middle of the story, after omitting the foundational chapters. It has been sanitized so thoroughly—and in such a way—that it alters the very meaning and trajectory of everything that followed. If Michael Green is writing The Greatest Story Ever Sold, consider this its missing prequel: the Greatest Story Never Told.

Lurking in the shadows behind those Chicago economists—behind all the fancy mathematics that made modern portfolio theory possible, behind the Nobel Prize-winning models that gave index funds their intellectual legitimacy—there is another, hidden lineage: one far more interesting, far more improbable, and far more consequential than the staid procession of scientific ‘eureka’ moments we’ve all learned in school.

And it doesn’t begin anywhere near a University of Chicago seminar, or a Vanguard conference room in Valley Forge, Pennsylvania—or even in America at all, for that matter.

It begins in the winter of 1918—steeped in blood, on another continent entirely—with a brilliant young Menshevik Commissar fleeing for his life from the Bolsheviks across the frozen southern hinterlands of war-torn Soviet Russia.

Up Next: The Greatest Story Never Told

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Series Table Of Contents

Previously: Alchemy Of Risk

The Goatse Singularity

In 2024, an autonomous AI agent known as truth_terminal began posting deranged, semi-mystical riffs on the obscure early-internet meme “Goatseus Maximus.” By all rights, it should have vanished into the digital landfill alongside the rest of that year’s AI slop.

Instead, the trickster-hyperstition helped summon a cryptocurrency worth—at one point—nearly $1 billion, becoming the first AI agent in history to make itself a millionaire:

Most onlookers chalked it up to run-of-the-mill crypto casino insanity—crossed with a fledgling AI bubble—and moved on with their lives.

That was certainly an understandable reaction. It was also a profound mistake.

Because the Goatseus phenomenon was not an aberration. It was a portent—one that only surrenders its meaning once we unearth who actually wrote the source code of modern finance, and why he wrote it.

It is only through the lens of his identity and his motives that we can understand the Original Sin—the fatal flaw he embedded in that code at its very inception. And only then does the madness of the AI memecoin cease to be an online joke or some bizarre symptom of “late-stage capitalism.” It reveals itself as a feature, not a bug: the inevitable, logical endpoint of post-modern financial theory.

The Financial Matrix’s Architect

We must therefore travel back nearly a century in search of a man whom not one in a thousand Wall Street veterans could place, even though his ideas hold absolute dominion over all of their work—and indeed, over much of modern society.

His ideas govern the entire edifice of modern global capital, dictating the flow of tens of trillions of dollars, from the most sophisticated hedge funds, to banks and insurers and pension funds, to plain-vanilla 401ks and Robinhood accounts. Every quantitative model, every risk framework, every portfolio construction method and capital allocation system—in short, everything that underpins the global financial system and economy—traces its intellectual lineage to this single, forgotten figure.

He wrote the primary kernel of the Financial Matrix: the foundational code through which global capital—and increasingly AI—now sees, prices, and governs the world. Index funds. “Alpha,” “beta”, and “market neutral.” Options pricing and the hyper-financialized casino of 0DTE derivatives. Multi-manager pod shops like Citadel and Millennium. Quantitative powerhouses like RenTech, D.E. Shaw, AQR, and Jane Street. Factor investing. Prediction markets like Kalshi and Polymarket. The sub-millisecond algorithms of high-frequency trading. The now-gated private credit and private equity vehicles blowing holes in pension funds’ and insurers’ balance sheets because allocators chose them for the very “volatility laundering” illusion they had been taught to prize. Every mortgage loan, once alchemized by the securitization machine. Robo-advisors. Even lowly consumer credit scoring.

All of it flows from this same intellectual spring.

And the source is poisoned.

The Poisoned Spring Of Modern Finance & AI

The poisonous flaw remains hidden precisely because it is everywhere—an ambient feature of modern life. Having lived inside this man’s world for so many generations—having built society upon his abstract academic assumptions—we now find that his worldview has become the very air we breathe.

Those assumptions, invisible as they are, have opened deep fault lines beneath our civilization. Occasionally, the fault lines rupture violently—and even if few can correctly trace the rupture back to its ultimate source, everyone can feel the world lurch. The Nobel prize-winning masterminds of Long-Term Capital Management believed in these ideas so deeply that they convinced themselves, and their investors, that risk had been scientifically erased—until they nearly single-handedly crashed the global financial system in 1998. A decade later, seduced by the same logic, Wall Street alchemically transmuted toxic debt into AAA-rated mathematical certainties; the ensuing collapse nearly took down the global system, demanded even larger bailouts, and trapped the economy on “emergency” life support—a supposedly “temporary” measure that has since become our permanent reality.

Yet even those near-civilizational catastrophes were shrugged off as anomalies rather than indictments of the structural blindness our Architect embedded into the very foundation of modern finance. Instead of questioning the foundation, we consecrated it as doctrine and mistook blindness for objective truth—dressing it in rigorous mathematics, validating it with Nobel Prizes, and encoding it ever more deeply at the root level of global capital and even society itself.

Long before AI learned to hallucinate in language, the human architects of modern finance theory had already learned to hallucinate in mathematics.

Now, those two hallucinations are converging.

Possessed by the same hubris that forged the Financial Matrix, we are hard-coding that fatal conceit into the AI “Machines Of Loving Grace” set to govern our technocratic future.

The Map That Ate The Territory: The Uncanny Valley

At first glance, Michael Najjar’s photograph “high altitude—financial markets between reality and simulation” appears to be a generic mountain vista. Only upon close inspection does the image reveal itself as impossibly strange and unnatural, uncanny even: for no earthly mountain features such a needle-sharp spire.

The mountain’s apex marks the exact S&P peak that preceded the 2008 Financial Crisis. Najjar algorithmically reshaped the topography of a real mountain range, forcing the terrain to reflect the virtual data mountains of world stock market indices over recent decades.

Najjar’s art perfectly evokes Borges’ fable about an Empire whose cartographers drew a map so detailed it became indistinguishable from the territory itself. As the actual Empire collapsed, its citizens unwittingly began living within the abstraction that they themselves had forged; the map was so vividly real to them that they entirely forgot the reality of the collapsing Empire outside of the map’s boundaries.

Baudrillard used Borges’ fable to describe the hyperreality of modernity: we live in the map now, he said, and have forgotten the real.

When the truth_terminal bot conjured a billion-dollar asset out of nothing, it was simply operating within the parameters of the financial world we built for it. The AI stepped into a financial ecosystem that had already been hollowed out into a pure simulation, and proved that it could bootstrap a meme to $1 billion market capitalization with far more ease than an entrepreneur could create a $1 billion enterprise.

Goatseus Maximus is now the map. There is no territory—only Swedish Fish Oreos.

And lurking behind that absurdity—behind the hollowed-out simulation that modern finance has become, behind the Financial Matrix itself—is our Architect, and the worldview he imposed on us nearly a century ago. One that unleashed our Sorcerer’s Brooms and allowed them to take on a life of their own—producing “math we have written but can no longer read…math that is no longer derived from nature, but rather…rewrites nature,” and forcing the real world to resemble Najjar’s algorithmically-shaped mountains.

The Programmer In The Shadows

To find the man who created these algorithmic mountains—the prime architect of the Financial Matrix—we must look past the Mount Rushmore of modern economics; beyond Keynes, beyond Friedman, beyond the Nobel laureates who later collected the prizes for financial theory—even beyond Markowitz himself.

We must exhume a long-forgotten figure buried deep in the catacombs of the dismal science. Because the Original Sin embedded in the code he wrote is even now trapping the world in a final, systemic infinite loop.

Up Next: Are Index Funds Communist?

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Series Table Of Contents

Previously: Value, Money, & Macro

The Crash of 1929. A Depression-era investing genius. A long-forgotten utopian movement. The golden age of 1930s science fiction.

ChatGPT. The grandfather of the world’s richest man. A mercenary AI company pushing its vision for a Technological Republic. The Donroe Doctrine—President Trump’s designs for Greenland, Panama, Venezuela, and beyond.

The Financial Matrix. Passive and quantitative investing. Bitcoin and Central Bank Digital Currencies. And the death of value investing.

What can all of these elements possibly have in common?

The answer lies in a blueprint written nearly a century ago—one that is being resurrected even now, in real-time—uniting these seemingly disparate elements as threads in a story that converges on an uncomfortable question: what world is your portfolio actually designed for?

The skeleton key that unlocks this mystery is an offhand remark buried deep in the memoirs of Benjamin Graham—the Father of Value Investing and the man at the heart of this series.

Previously, we showed that Graham’s “value investing” framework was not a universal law of investing but rather a brilliant tactical adaptation to a specific monetary operating system—one that no longer exists anywhere in the world. The irony is that Graham himself likely would have understood this better than his disciples do.

While today’s value investors proudly ignore the monetary system and macroeconomic forces reshaping the globe as distractions from “real investing”, Graham himself was obsessed with them.

His understanding of money was fundamentally flawed—as far as we can tell, Graham was never exposed to the Theory of Money and Credit—yet he was acutely aware that the monetary operating system was the board on which the entire investing game was played. As Columbia economist Perry Mehrling observed, for Graham “the disconnect between the world of money and the world of goods was fundamentally a source of macroeconomic investment risk that could upset any amount of careful security selection by the conservative value investor.”

Indeed, Graham—as did Howard Buffett, father of Graham’s student Warren—devoted significant attention to monetary reform throughout his life, even proposing a commodity-backed monetary system. Graham’s own Memoirs reveal that he considered the Commodity Reserve Currency Plan to be his crowning achievement—his most important contribution to posterity, greater even than his investing opus:

If my name has any chance of being remembered by future generations—assuming that there will be future generations—it will be as inventor of the Commodity Reserve Currency Plan.

But to understand the modern investing world, we must focus on something else lurking in those same memoirs. In passing, Graham glimpsed the shadow of what would one day prove the undoing of his disciples:

It was not until ten years later that I published my plan [for a commodity reserve currency]. We were then in the midst of the greatest depression in our history. All the paradoxical malaises of 1921 to 1922 were now being repeated, but to a highly intensified degree. One of the results was…an outpouring of proposed remedies of the greatest variety, and the launching of various movements for bringing about radical changes in the economy. The chief of these was a really radical takeover idea, known as Technocracy...

The Technocracy movement Graham referenced advocated replacing markets and democracy with rule by scientists and engineers.

The Ghost In the Machine

The Technocracy movement had all but vanished from public consciousness by the time Graham wrote his memoirs. What Graham couldn’t have known—and what none of his modern disciples have noticed even today, preoccupied as they’ve been debating what constitutes “inexpensive” and why value investing “stopped working”—is that many of Technocracy’s core ambitions have been realized, piece by piece, in recent decades. The sensational arrival of functional Artificial Intelligence—ChatGPT 3.5 in 2022—ignited a Cambrian explosion of AI and robotics investment and adoption, accelerating this gradual trend into something far more vertiginous.

Even our vocabulary reflects how thoroughly these ideas permeate modern life. For example, when Kevin Warsh was recently picked to chair the Fed, he was described—approvingly, without apparent irony—as a technocrat:

Yet few recognize that the term ‘technocrat’—popularized in the 1930s by the Technocracy movement—points to a deeper inheritance than mere vocabulary. While the movement itself has been relegated to an eccentric relic—one footnote among many such utopian responses to the Great Depression—its memetic DNA has survived. Having mutated and interbred with more contemporary economic and technological dogmas in the interim, it continues to animate our world in a variety of unrecognized incarnations, long after its original form faded into obscurity.

This memetic code runs imperceptibly not only through the campuses of Silicon Valley and the corridors of Washington but through many familiar institutions we take entirely for granted—institutions that are, in practice, technocratic and treat the economy as a machine to be engineered and managed scientifically.

The Federal Reserve’s unelected board of economists steering the economy through models and algorithms is perhaps the most obvious example, even if the Fed predates the movement. (The true Technocratic dream, however, was to abolish money in favor of energy-based credits: a 1930s blueprint for the modern fusion of carbon credits, social credit, and Central Bank Digital Currencies; a story for another day.)

Science Vs. Chaos!

In the winter of 1932—amidst the throes of the Great Depression—a group of engineers, scientists, and academics convened at Columbia University. Their discussions, if overheard today, would be virtually indistinguisable from a breathless TED Talk on the ‘AI Revolution.’ Their self-professed leader—the messianic Howard Scott—cemented the group’s credibility by insisting that he had prophetically anticipated both the 1929 Crash and the ensuing Depression.

The Committee’s diagnosis mirrors the current AI discourse and was as seductive then as it is now: the unfolding economic catastrophe proved that modern techno-industrial civilization had become too complex for human “legacy systems.” Scott argued that society’s existing leaders—politicians, bureaucrats, bankers, economists, and Wall Street types—were simply no longer equipped to handle this brave new world.

Building on predecessor movements, Technocracy Inc. concluded that all socio-economic problems—including unemployment, poverty, and waste—were, in fact, engineering problems. And engineering problems had engineering solutions.

Science was progressing at such a rapid pace that it was ushering in a New Age—one that would exacerbate the Depression and, as with AI today, soon eliminate most jobs—creating, in the modern vernacular, a “permanent underclass”. Unless—of course—Technocrats got their way. Technology is both the disease and the cure, Scott insisted—the same argument today's AI techno-optimists are making: yes, the jobs will go; yes, the disruption will be severe. But salvation lies in acceleration, only this time with technocrats at the helm. In practice, this meant a profound reordering of society, including the abolition of markets and democracy.

Let Them Eat Cake

This was not a particularly difficult case to make at the time: science and engineering had proven their mettle; meanwhile, the men tasked with overseeing society had not only crashed the economy, but spent the early years of the Great Depression embodying every caricature of aristocratic indifference that Marie Antoinette never quite earned.

Herbert Hoover, casting about for economic solutions in 1932, landed on poetry: “Perhaps what this country needs is a great poem. Sometimes a great poem can do more than legislation.” One of the Du Ponts declined to advertise his products on Sunday afternoons on the grounds that “at three o’clock on Sunday afternoons everybody is playing polo.” The Reverend Norman Vincent Peale maintained that all that was required to lift the country out of the Depression was “one good prayer meeting in Wall Street.”

Meanwhile:

After several months of depression America was indeed a place turned topsyturvy. Even the surface appearances of the cities changed. Former bond salesmen were on the sidewalks trying to sell apples. Former clerks roamed the business districts in an attempt to make a living by shining shoes.

Unemployed and homeless men welcomed arrests for vagrancy and the warmth and food to be had in jail. Over a hundred thousand American workers applied for jobs in the Soviet Union. Shanty towns appeared in and around the industrial cities, and the inhabitants of these housing developments born of desperation bitterly named them for the President of the United States.

Yet throughout it all—echoing the modern delusions of “Baghdad Bob” or Bernanke’s infamous claim that “subprime is contained”—elites of every stripe, including Hoover himself, clung to a singular incantation: The Economy Is Fundamentally Sound. (A century later this phrase remains in active circulation—invoked most recently by Trump’s top economic adviser Hassett and others, apparently unaware of the company they keep):

The Gospel Of The Machine

The jarring disconnect between the incantations of the credentialed, well-fed Aztec priesthood who had never missed a meal and the Forgotten Man’s reality—including mass unemployment and grim breadlines stretching across the country—cleared a path for radical political alternatives: “the earliest and most grandiose by far of the new Utopias was that of the Technocrats”.

Where the “third way” Three New Deals of FDR, Mussolini, and Hitler each preserved capitalism’s form while hollowing out its substance, Technocracy Inc. was more radical still and rejected the form entirely. The Technocracy movement blamed the failure of the “Price System”—their term for the nexus of free-market capitalism, monetary economics, and political democracy.

Their solution to the failings of the “Price System” was the “Technate”: a continental government administered entirely by credentialed experts, allocating resources through science rather than market prices. The “vote” was replaced by the “function,” the politician was replaced by the technocrat.

They envisioned a world run like a perfectly tuned car, steered by those who actually understood science and machines. They believed that harnessing technological automation and the power of science would lead to a post-scarcity society: unemployment and inequality would disappear and the average person need only work a dozen hours a week while living a life of leisure and “abundance”. A century later, these same abundancist promises are being recycled for the Age of AI. Whether it is the Abundance Agenda championed by in his #1 NY Times bestselling manifesto or Silicon Valley’s gospel of “universal high income,” the technocratic dream has been repackaged for a new century, nearly verbatim.

The Revolt Of The Scientists

Benjamin Graham devoted barely a sentence to Technocracy in his memoirs—dismissing it out of hand as the stuff of science fiction. Yet—at the time, anyway—he wasn’t wrong to do so.

Hugo Gernsback—the man who coined the term “science fiction” and after whom sci-fi’s most important awards, the Hugos, are named—published for the technocracy movement’s journal in 1933. Elsewhere, he commented on technocracy:

…The great mission of science fiction is becoming more recognized, day by day. This is the triumph of our readers over those who scorned science fiction.

That same year, Gernsback’s Wonder Stories serialized “The Revolt of the Scientists,” a technocratic coup fantasy in which renegade engineers destroy the old financial order as a prelude to seizure of power. Anticipating the financial terrorism of Fight Club by seven decades, the technocrats deploy gold-transmuting rays and ink-erasing chemicals to force a systemic reset—turning gold reserves to tin, erasing every paper bill and debt note in existence, and wiping the financial slate clean to clear the way for rule by engineers.

H. G. Wells, too—the “Shakespeare of science fiction”—predicted the rise of technocracy as a political force and its role in shaping an emergent world government. Foreseeing the pervasiveness of technocratic thought, he wrote in The Shape of Things to Come:

the movement spread from workshop to workshop and from laboratory to laboratory with increasing rapidity all over the world…Infection [by these ideas] went far and deep

The contagion predicted by Wells, it turned out, was real: society went “techno-crazy.” During a single month—January, 1933—The New York Times ran no fewer than sixty articles on Technocracy. Publishers Weekly devoted an article to the “techno-craze,” calling it “the most discussed topic in America.”

In the summer of 1939, a young Ray Bradbury devoted the first issue of Futuria Fantasia to Technocracy:

Bradbury explained that his sci-fi magazine had been brought “into Life” by the “crying need for more staunch Technocrats;” Technocracy did not merely resemble science fiction; it promised to make science fiction real:

I think Technocracy combines all of the hopes and dreams of science-fiction. We’ve been dreaming about it for years—now, in a short time it may become reality. It surely deserves support from any serious fictioneer…(But on the side, I’m all for the Technate, aegh!)

While the “techno-craze” gripped the pulps, the technocratic vision ascended to the upper echelons of the literati through Harold Loeb’s 1933 utopian tract, Life in a Technocracy: What It Might Be Like. Loeb was the unusually vivid bridge between capital, bohemia, and technocratic reform: an heir to the Guggenheim and Kuhn Loeb fortunes, he had been an expatriate fixture of Gertrude Stein’s “Lost Generation” Parisian salon, moving among the likes of Hemingway and F. Scott Fitzgerald; Loeb himself served as the direct inspiration for Robert Cohn in Hemingway’s The Sun Also Rises. The man who had inhabited the gilded, disillusioned world that provided the atmospheric foundation for The Great Gatsby was now looking to the machine to supply the order and meaning the “Price System” had failed to provide.

Not every sci-fi author shared in the movement’s enthusiasm. When Aldous Huxley published Brave New World in 1932, he described a “scientific dictatorship” that resembled technocracy.

Through these writers—some true believers, some horrified witnesses—Technocratic ideas diffused into American culture, their memetic payload long outlasting the movement itself.

Conclusion: Back To The Future

Shortly after Publishers Weekly declared Technocracy the most discussed topic in America, the movement imploded. The New Deal arrived, stealing its thunder by co-opting both some of the technocrats themselves and their ideas. Howard Scott, the movement’s messianic leader, was exposed as a charlatan with a padded resume. Within the span of a decade, Technocracy Inc. had all but vanished from the public consciousness.

What Benjamin Graham once dismissed as a fringe “radical takeover idea” has become silently enmeshed within the invisible operating system of the modern world. The Technocracy meme didn’t need the movement anymore; it found more powerful hosts.

And now—armed with AI, compute, capital, monetary abstraction, and administrative power—technocracy is reshaping markets, States, the economy, the geopolitical designs of our “Technological Republic,” and the meaning of value itself. Graham’s science-fiction sideshow now infuses the water in which every investor—every citizen—swims.

As H.G. Wells predicted in 1933, the movement’s memes have colonized our highest institutions, their agenda advanced by figures who may not realize whose ghost they are channeling. One of them now occupies the Oval Office. Another: the world’s richest man—the grandson of the man who once led the movement’s northern charge from Canada—who is even now building the infrastructure of the future:

And then there is the map.

The original Technocrats didn’t merely theorize about a new society; they drew its borders. Their territorial blueprint is now being dusted off and featured in today’s front-page news headlines.

We are finally building the world the 1930s technocrats and sci-fi writers promised us. The question for Benjamin Graham’s disciples is whether they will realize the real-life equivalents of rayguns and ink-erasing chemicals are already at work erasing the board before they find themselves making brilliant moves in a game that no longer exists.

The question for the rest of us is what replaces the system they are erasing.

To Be Continued in Part II…

Series Table Of Contents

New to our Value Investing series? Start here: Ben Graham Was Wrong.

This series will prove uncomfortable reading for anyone who has built an identity around being a value investor, not least of all ourselves. This isn’t another “death of value” eulogy, nor is it a pile-on for sport. It emerged from our own reckoning with ideas we once found compelling, frameworks we trusted, and mistakes we made.

The Confessional

Most self-described “value investors” are, in fact, speculators who simply refuse to admit the truth, least of all to themselves. After all, they have an identity to uphold. In sharp distinction to the unwashed masses chasing momentum and meme stocks, they are patient capital allocators performing—to borrow the immortal words of Lloyd Blankfein—God’s work: engaging in deep fundamental analysis to identify securities that Mr. Market, in his infinite irrationality, has priced below their “intrinsic value”.

Yet in reality, they wear the vestments of the priest to hide the soul of a gambler. The identity of the “value investor” serves primarily to protect the ego—providing intellectual cover for what is, fundamentally, a game of speculation.

When you buy a stock because you believe its intrinsic value is greater than its current price—and you have no mechanism to compel that gap to close—you are not investing. You are trading. You are speculating. Perhaps not to the same degree as a degen on r/WallStBets, but speculating nonetheless about the future behavior of the herd. Specifically, you are predicting that at some point, a greater fool will look at the same piece of paper and be willing to pay more for it than you did. Everything else is elaborate justification for what is, at its core, a speculative bet on crowd psychology.

Figuring out that a stock is “dirt cheap” does not an investment make—unless you can compel the market to agree with you. Without compulsion, you are not an investor: you are a supplicant kneeling before Mr. Market, hoping he notices what you've noticed, praying he agrees before you run out of patience or capital.

We will cover other faulty foundations of value investing elsewhere in this series, but here we focus on the assumption of price-value convergence: the belief that if you are correct in assessing the “intrinsic value”, the market will eventually agree with you. In the long run, Graham famously posited, markets are rational weighing machines that will eventually close the gap between price and this intrinsic value.

What Graham likely understood but never fully specified—and what his disciples rarely bother to ask—is this: under what conditions does Graham’s core assumption hold? In other words, when is Mr. Market a weighing machine—and what, exactly, is the mechanism that does the weighing?

The answer is that value investing tends to ‘work’ when two conditions hold: institutions—including the monetary system itself—must support it, and the intelligent investor must walk softly and carry a big stick. We prosecute the first condition elsewhere and in future essays; here we focus on the second.

The problem for modern value investors is that—unlike in Graham’s day—neither of these conditions generally hold today. Without an institutional backdrop that anchors prices to something “real” and a mechanism to compel price-value convergence, every stock is a “trading sardine”—not an eating sardine—regardless of how cheap it is.

The “Real” Graham Was A Brawler And Master Arb

Benjamin Graham is universally revered as the father of value investing. His disciples have distilled his methodology into a comfortable catechism: buy stocks trading below intrinsic value, hold patiently, and wait for Mr. Market’s weighing machine to close the gap. This is the Graham of legend: the patient sage, the intellectual priest of value investing analysis.

It is also largely fiction.

Benjamin Graham knew the weighing machine usually wasn’t enough: his actual operations, laid out in Security Analysis and elsewhere, made that plain. But his modern disciples generally performed a selective reading of Graham: extracting the valuation philosophy from The Intelligent Investor—Graham's own mass market simplification—while discarding the rest scattered throughout his more demanding, and perhaps “boring”, professional work.

This distortion was then laundered through the Buffett mythology—the folksy Omaha sage holding stocks forever. This legend, however, bears little resemblance to reality: Buffett himself was a brawler and sophisticated arbitrageur in the same mold as his mentor Graham, until scale eventually forced him to abandon the tactics he used so successfully earlier in his career.

Graham sometimes did just buy cheap stocks and wait—but even then, his actual practice would be unrecognizable to most of his disciples, for he set explicit profit targets and walked away when the clock ran out:

The investor should have a definite selling policy for all his common stock commitments, corresponding to his buying techniques. Typically, he should set a reasonable profit objective on each purchase—say 50 to 100 per cent—and a maximum holding period for this objective to be realized—say, two to three years. Purchases not realizing the gain objective at the end of the holding period should be sold out at the market.

The real Benjamin Graham, however, more frequently trafficked in “special situations”: merger arbitrage, convertible arb, liquidations, and reorganizations—deals where the profit depended on a specific event that forced value realization rather than waiting for “Mr. Market” to agree. And when he did buy a “cheap stock” that wasn’t a special situation—and Mr. Market refused to cooperate—Graham wouldn’t hesitate to go activist. Graham didn’t just measure the weight on the scale; he frequently put his thumb on the scale—such as his famous battle with Northern Pipeline, in which he forced the board to distribute ‘hidden’ cash to shareholders rather than waiting for the market to notice it was there.

His modern disciples mostly kept the catechism and threw away the rest of Graham’s toolkit. They inherited the noun “value” and discarded the verbs—the acts of forcing, compelling, and engineering convergence between price and value that actually drove Graham’s most successful investments.

In short, they discarded Graham’s brass knuckles, and in the process turned much of what passes for modern value investing into a cargo cult: practitioners replicating the rituals of the original while having little understanding of the mechanisms that made it work.

Graham’s Real Operations

To understand what has been lost as value investing has been watered down over the decades, we must analyze what Graham actually did with his capital and how his philosophy was formed. Graham’s brilliance—and his edge—was not in valuation, but rather process and structure.

In Value, Money, & Macro we traced his philosophy—if not his worldview—to a simple intuition formed during his childhood grocery shopping expeditions: buy cheap, take delivery, realize value immediately. The logic of Graham’s grocery analogy held for special situations because they shared a defining feature that ordinary equities do not: contractual obligations, legal mechanisms, or court-ordered timelines that mechanically drove price toward value within a defined time horizon. Graham himself made the distinction explicit:

At the outset of this article we grouped special situations and undervalued securities together. The reader will have noticed that we do not consider these terms as synonymous - although it may be held that special situations constitute a major subdivision of undervalued securities. The essence of a special situation is an expected corporate (not market) development, within a time period estimable in the light of past experience…

These strategies had long been practiced—savvy operators had been trading around mergers, liquidations, and reorganizations for decades—but they remained opportunistic and unsystematic, more craft than discipline. Graham’s contribution was to transform what had previously been a loose collection of tactics into a repeatable operating framework: he categorized them, treated them probabilistically, emphasized time-to-completion and annualized returns, and approached them as a business operation rather than a series of one-off coups.

Graham distinguished between situations in which a favorable outcome was merely possible versus those where the underlying corporate action was already in motion—signed, filed, or otherwise contractually or legally underway. It was this narrower class that he preferred, because it allowed the analyst to treat the investment as a bounded, probability-weighted operation with a defined path to resolution: outcomes driven by merger agreements, liquidation plans, or court proceedings rather than the whims of Mr. Market. In other words, he wasn’t interested in situations that might resolve. He focused on situations already governed by a process that would resolve.

Graham formalized special situations into a working taxonomy:

• Class A: Standard arbitrages, based on a reorganization, recapitalization or merger plan

• Class B: Cash payout, in recapitalization or mergers

• Class C: Cash payments on sale or liquidation

• Class D: Litigated matters

• Class E: Public utility breakups

• Class F: Miscellaneous special situations

Graham’s exact groupings varied somewhat across editions of Security Analysis and his other writings; the most detailed treatment appears in the 1951 edition of Security Analysis. But the point is clear: long before The Intelligent Investor recast him as a guide for passive, individual minority shareholders, Graham built his early fortune—and his reputation—by systematizing these special situation strategies into a disciplined, repeatable strategy.

Graham himself described the operation in terms his modern disciples would likely find uncomfortable—in the language of a supermarket managing its inventory of onions:

Special situations, as we define them, appeal mightily to one class of temperament for the very reason that they leave other people cold. They lack industrial glamor, speculative dynamite, or more sober growth prospects. But they do afford the analyst an opportunity to deal with security values very much as the merchant deals with his inventory, calculating in advance his average profits and his average holding period. In this sense they occupy an interesting middle ground between security purchases for ordinary speculation or investment and security purchases for resale in syndicate or dealership operations.

Inventory, turnover, average profit, holding period: this is not the elevated language of a patient long-term investor buying with a margin of safety and waiting for Mr. Market’s weighing machine to agree with him. Indeed, Graham’s category error only crept in when he and his disciples attempted to overextend the grocery analogy to ordinary minority stock picking rather than special situations, where no such delivery exists and Mr. Market’s cooperation is required. Remove the mechanism of force, and the entire structure collapses.

This is why these so-called “unglamorous” situations were, in practice, far more rigorous than value investing as it is commonly practiced. As we argued in The Factory That Makes Investment Processes Repeatable, they force discipline: universe definition, filtering, diligencing the fulcrum documents, mapping the event path, rules-based position sizing against bounded outcomes, and constructing trades around defined event paths with structural and timing certainty. These skills are not the exclusive domain of the event-driven practitioner—every serious investor, regardless of strategy, would do well to learn them.

Merger arbitrage—central to Graham’s toolkit and to our philosophy (see Let’s Break A Deal)—is perhaps the cleanest expression of this logic. A signed agreement, a defined spread, a timeline, and a set of enumerated risks. The analyst is not forecasting value but rather underwriting a path.

If this sounds less like the patient value investing sage of legend and more like a modern event-driven hedge fund, that’s precisely the point. As we stated in the preface to this series:

We suspect that Graham himself—were he operating today—would be the first to abandon the cargo cult that now worships at his altar. More provocatively, we’d even go so far as to posit that he would recognize a kindred soul in Paul Singer’s Elliott Management far more readily than in most of his value disciples—his most famous protégé Warren Buffett included.

The Graham that history remembers is a philosopher of value.

The Graham who made money was an arbitrageur, an activist, a legal tactician, and a manager of special situations inventories—working inside structures that forced convergence on a definite timeline.

The Foundational Flaw

Modern value investing rests on a simple delusion: investors think they are buying “eating sardines”—a claim on real assets and cash flows. Indeed, Buffett famously advised investors to “only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

That advice only makes sense if you have Uncle Warren’s unique advantages—including permanent capital, insurance float, and the ability to buy the company outright. In practice, however, most value investors have none of these, but continue to invest as if they did. They are not buying a sardine to eat. They are buying a sardine to sell. The price of their “trading sardines” is determined not by what the company is but by what someone else is willing to pay for it.

Part of the reason modern value investing feels like such a Sisyphean task is that value investors generally do not have a seat at the table. Without a mechanism to compel convergence between price and value—and without the institutional substrate that makes the weighing machine function, a subject we will address elsewhere in the series—every stock you trade is a trading sardine, no matter how cheap you think it is.

If management decides to trap retained earnings inside the company to build a bloated empire, or if they decide to light the cash on fire through value-destroying acquisitions, your spreadsheet’s “intrinsic value” is meaningless—unless you have the standing to fire them, or the capital to buy the company outright. You only benefit if, at some point in the future, someone else comes along and decides to pay you a higher price for your share.

This is the dirty secret of most modern value investing: it is entirely dependent on the Greater Fool Theory. Without the ability to force a distribution, force a sale, or force a liquidation, you are entirely at the mercy of management and Mr. Market’s voting machine—unless and until something compels it to become a weighing machine.

When a value investor tells you a stock is “cheap,” they are pitching a story—a narrative that only becomes reified when enough other people believe it, too. A price-to-tangible-book ratio of 0.5x may appear to be objective fact, but the assets don’t sell and distribute themselves, nor does the spread automatically close on its own.

Unlike Graham, modern value investors generally mistake story for edge. The claim that a stock is “cheap” is an interpretive opinion about public information, offered in competition with every other market participant—both human and machine—who has access to the same filings, the same screens, the same AI agent pipeline. The overwhelming majority of the time, value investors are not discovering a hidden gem—and even if they do, they still need some way to force price-value convergence.

This is not to say an analyst can never find an edge in public information—but Graham and other event-driven practitioners operate on different terrain entirely. The advantage is not in the story telling but in the structure: understanding how a specific event path unfolds; knowing what the fallback is if it breaks; mapping the liquidity; sizing against bounded outcomes—and occasionally, proximity to the process itself.

The problem facing modern value investors is that the crowd needs to agree with your story and pay up—or they need the standing to force the issue themselves. Nor are all such forceful mechanisms for price-value convergence equal: they range from the ironclad to the illusory—and where you sit on that spectrum determines whether you are an investor or a supplicant.

Introducing The Continuum Of Force

The “continuum of force” is a doctrine used in law enforcement to describe the range of coercive options available in a given situation—from presence, to commands, to physical restraint, all the way to lethal force. Markets have a conceptually similar spectrum.

At one end is the modern value investor: passive presence only. You own the stock. You have a view. You wait.

At the other end are situations where the outcome is not optional: a merger agreement, a liquidation, a court order, a control position.

Most investors spend all of their time on Value—whether an asset is cheap, and on what something should be worth. Almost none of their time is spent analyzing Force—whether they have any ability to crystallize that value:

Force is the degree to which an asset holder can mechanically, legally, or economically compel the asset’s market price or realized payoff to converge toward intrinsic value independent of market belief.

“Value with a catalyst” is the standard upgrade that attempts to address this problem: rather than simply buying cheap and waiting, you buy cheap and identify some event—an investor day, an earnings beat, a sell-side initiation report, a new management team—that you hope will cause the market to finally recognize the value. But a catalyst is still just a hope with a story attached. It creates no obligation.

As Graham understood, Force is different in kind: it mechanically causes price-value convergence regardless of what the market believes.

Value analysis tells you whether something is cheap and how much margin of safety you might have. Behavioral finance tells you why it might be cheap. Risk frameworks tell you how much you might lose. None of them tell you the likelihood of ever crystallizing value.

Force operates on a different axis entirely: it determines whether the range of outcomes is bounded at all, or whether a mispricing can simply persist indefinitely because no one at the table has the standing to resolve it.

You can have a flawless model of intrinsic value, a behavioral diagnosis of why an asset is cheap, and a disciplined risk model governing your position size, and still lose—if no mechanism exists to make the price converge on value. What determines whether price converges to value is therefore less the quality of your research than the “big sticks” at your disposal: the legal claim, the blocking stake, the acceleration clause, the liquidation right, the ability to credibly “go activist”.

An asset without Force is still just a speculative trade, no matter how “cheap” it looks or how long your holding period.

Conclusion:

Graham understood a reality that most modern value investors have forgotten: being right about value is not enough. You need a way to make it matter.

This was always the case, but it is particularly true now. The Financial Matrix—the operating system of modern markets—has structurally decoupled price from value in ways with which Graham never had to contend; more on this in future essays. In Graham's day, waiting for Mr. Market was perhaps survivable—although even he was nearly wiped out; in the current environment, supplicating to Mr. Market is generally fatal.

Even in his time, however, Graham rarely relied on Mr. Market to do the price-convergence work for him. He operated in situations where value would be realized by Force. When he lacked Force, he treated the position as a trade and governed it with disciplined rules and time stops.

Those who understand Force nowadays rarely call themselves “value investors”—they go by other names, such as arbitrageurs, event-driven, or distressed debt investors. Elliott Management is perhaps the purest expression of what Graham had in mind when he wrote Security Analysis: it operates primarily in situations where it controls Force, structures even its activist positions so that it is nearly impossible to lose, and once took delivery of the Argentine navy. Not metaphorically. Literally:

Most investors will never seize a sovereign navy, but every investor sits somewhere on the Continuum of Force. At the bottom sits the typical value investor: armed with nothing but a spreadsheet and a prayer that Mr. Market will agree.

The distance between those two poles—investor and supplicant—is the focus of the next essay. Before we get there, however, a word on portfolio curation: this is not an argument against value investing as a portfolio ingredient in a collection of Multiflation holdings.

Value investing sits at the conservative end of the unbounded speculation spectrum; at the other end, explicitly asymmetric “lottery tickets”. During Multiflation, exposure across this spectrum need not indicate a lapse in judgment or discipline—it may be a considered response to a monetary and financial system that punishes the purely cautious.

Special situations and Force, however, serve a structurally different function: bounded outcomes, defined event paths, cash-like or fixed-income resilience with fewer drawbacks than long-duration assets in a Multiflationary environment. The question is never simply whether something is cheap or whether speculation is appropriate. It is whether you know precisely what you own and why you own it, what role each position plays in your collection of holdings, and whether your position sizing and curation reflect that honestly—or whether you are trading sardines while deluding yourself that you are going to eat them.

Series Map

Preface: Ben Graham Was Wrong

Part I: The World Graham Built For—History Through Financial Matrix

See Also: The Sorcerer’s Apprentice

1. Graham’s Universe No Longer Exists: Value, Money, & Macro

2. Inflation: Value Investing’s Kryptonite

3. Value In The Age Of Technocracy & The Financial Matrix

4. The Price Of Everything & Value Of Nothing—Value, AI, & Passive

Part II: Value’s Cracked Foundation

1. There Is No Such Thing As Intrinsic Value

   1. The Deeper Problem With DCFs

2. Graham Thought Like An Arb & An Activist

   1. See also The Factory That Makes Investment Processes Repeatable and Let’s Break A Deal

3. The Continuum Of Force: The Physics Of Value

   1. Introducing The Continuum Of Force: The Missing Variable

   2. The Physics of Value: Force, Event Paths, and Convergence

   3. What Is A Catalyst? Catalyst v. Continuum Of Force

   4. The Myth Of Time Arbitrage

   5. Continuum Of Force Defines Speculation v. Investment

   6. Duration Doesn’t Make Something An Investment

   7. The Problem With a “Private Equity Approach” To Public Equities

   8. Governance & Dark Arts: & The Continuum Of Force

      1. See Also Dark Arts here and here

   9. Event-Driven

   10. Activism & The Activism Manifesto

   11. Private Equity & Private Credit

   12. Short Selling & The Continuum Of Force

4. Margin Of Safety Is Incomplete

   1. Must Include Monetary System & Continuum Of Force

5. Many Value Investors Misunderstand Inflation & Prices

6. Moving The Goal Posts: From Arbs to Compounders

   1. The Shapeshifter Problem

Part III: Practice

1. Value Investing: Process Failures

   1. Idea Generation, Research, & Value In The Age Of AI

   2. Every Idea Is An Island: The Lonely Stock Problem

   3. Live By The Comp, Die By The Comp

2. Value Investing: Portfolio Management

   1. Value Investing Portfolio Construction Failures

   2. From Portfolio Construction To Portfolio Cohesion

   3. The Problem With Sitting In Cash As A Perpetual Option

   4. You Can Ignore Multiflation But Multiflation Won’t Ignore You

   5. You Can Ignore Factors But Factors Won’t Ignore You

   6. The Multiflation Method: Cohesion Over Collections

3. The Value Musical Chairs Lifecycle

   1. How Value Traps Are Born

4. Value Investing In The Mirror: Human Failures

Part IV: The Intelligent Investor, Reimagined

1. Value & The Multiflation Method

2. If You Die In The Financial Matrix, You Die In Real Life

3. What Value Can Learn from Growth, Momentum, Quant, and Pod Shops

4. Cash & Fixed Income Alternatives for Multiflation

5. During An Inflation, Limited Prudent Speculation May Be Intelligent

Previously: Financial Repression

The greatest trick the modern financial system ever pulled was convincing us that we are still playing by the old rules.

In Part I: The Forgotten Man, we showed how the productive middle class has been reduced to a “coppertop battery” whose life force powers the Financial Matrix.

In Part II: The End of Illusion, we explored how raw political force increasingly replaces the illusion of markets. This week’s front-page headlines made the point for us:

Yet the recent overtly authoritarian turn now dominating both federal and local American headlines is not some sudden aberration. For nearly two decades before the past few months’ headlines—since at least the 2008 Crisis—the Financial Matrix had already been nudging “market” outcomes, its mechanisms invisible because the user interface remained superficially intact. To the casual observer—and even to most professional investors—capitalism appeared unchanged from its pre-2008 form. The operating system beneath, however, had been invisibly rewritten into something else entirely; only the tickers flashing across Bloomberg screens preserved the illusion of continuity.

What changed in 2008 was not so much the rules themselves as the removal of the last guardrail preventing their full application. The Financial Matrix didn’t materialize from the aether; rather, it represents the perfected digital evolution of an analog precursor whose roots stretch back nearly a century—to a revolution most Americans are unaware even occurred.

The 1930s built the underlying hardware: an institutionalized framework of state intervention masquerading as free markets. But it wasn't until the Great Financial Crisis that the system received its digital operating system upgrade—when central bank QE, ZIRP, and the blind algorithmic and passive ETF flows they enabled and amplified were deployed at sufficient scale to make them the “market” itself—effectively masking state intervention as natural market action.

That two-part revolution—the 1930s hardware of state-directed “capitalism”, digitized into the Financial Matrix OS in 2008—preserved market form while shifting their substance to the State. To understand what lies beneath the Financial Matrix’s failing disguise and to make sense of Multiflation—what is happening now, what comes next, and what it all means for your capital—we must return to the source: the Great Depression.

The Revolution Was: Phase I

The Great Depression shattered faith in the existing economic order and opened the political field to a wide range of radical proposals for how Western societies should organize themselves. Many competing visions emerged from that crisis. Here, we examine the one that ultimately defined the American system for the remainder of the twentieth century.

(In our series on Value Investing and Ben Graham we will soon turn to a parallel movement. Born of the same crucible but largely driven underground after the 1940s, this technocratic alternative vision has quietly reasserted itself over the past decade—and now, supercharged by the advent of ChatGPT and AI, possesses the tools to build directly on the Financial Matrix’s captured institutions and mechanisms as its own infrastructure.)

But while that alternative technocratic vision was driven underground until recent years, the system that actually conquered twentieth century economics hid in plain sight such that most Americans never noticed anything had changed. Garet Garrett was one of the few who correctly identified the precursor to what would, nearly a century later, reach its perfected form as the Financial Matrix.

In his 1938 essay The Revolution Was, Garrett argued that Americans fundamentally misunderstood the political transformation they were living through under FDR’s New Deal. By maintaining the outward forms of American government, markets, and money—while radically altering their substance—the Roosevelt administration achieved total regime change without firing a shot. Garrett’s book title warned that the coup wouldn’t happen in the future with guns; it had already occurred in the past through words.

Garrett described how the revolutionary New Deal had succeeded through linguistic camouflage:

[It was accomplished] not only within the form but within the word, so that people were all the while fixed in the delusion that they were talking about the same things because they were using the same words. Opposite and violently hostile ideas were represented by the same word signs. This was the American people’s first experience with dialectic according to Marx and Lenin.

The facade of the U.S. Constitution and institutions remained intact, but their underlying meaning and function were now altogether different. Garrett was effectively documenting the resurrection of an ancient political art; Edward Gibbon observed the same strategy nearly two millennia earlier, when Augustus—the first Roman emperor and Julius Caesar’s adopted son—consolidated Roman imperial power:

Augustus was sensible that mankind is governed by names…the senate and people would submit to slavery, provided they were respectfully assured that they still enjoyed their ancient freedom.

The architects of the New Deal, too, understood that Americans would submit to a new order provided they were assured they still enjoyed their ancient liberties. Gibbon’s description of Augustus’ method reads as though it were written about FDR:

The image of a free constitution was preserved with decent reverence: the Roman senate appeared to possess the sovereign authority, and devolved on the emperors all the executive powers of government.

Just as Augustus had preserved the image of a free constitutional republic while concentrating all executive power in himself, FDR absorbed nearly unchecked authority while citizens continued to speak of the “constitution,” “private property,” “free markets,” “prices,” and “capitalism”—unaware that these terms now held altogether different meanings.

Garrett was not alone in his diagnosis of the New Deal. John T. Flynn—a progressive journalist who had written for the New Republic and initially supported FDR before breaking bitterly with the New Deal—saw the same pattern as Garrett and pressed it to its logical conclusion in As We Go Marching. Writing in 1944, Flynn warned that American fascism would not arrive wearing a swastika but rather wrapped in an American flag:

But when fascism comes it will not be in the form of an anti-American movement or pro-Hitler bund, practicing disloyalty. Nor will it come in the form of a crusade against war. It will appear rather in the luminous robes of flaming patriotism; it will take some genuinely indigenous shape and color, and it will spread only because its leaders, who are not yet visible, will know how to locate the great springs of public opinion and desire and the streams of thought that flow from them and will know how to attract to their banners leaders who can command the support of the controlling minorities in American public life. The danger lies not so much in the would-be Fuhrers who may arise, but in the presence in our midst of certainly deeply running currents of hope and appetite and opinion. The war upon fascism must be begun there.

Flynn wasn’t so much forecasting a distant future as he was describing forces already at work under FDR, in language that could have been written about modern-day America:

Fascism will come at the hands of perfectly authentic Americans, as violently against Hitler and Mussolini as the next one, but who are convinced that the present political system has outlived its usefulness and who wish to commit this country to the rule of the bureaucratic state; interfering in the affairs of the states and cities; taking part in the management of industry and finance and agriculture; assuming the role of great national banker and investor, borrowing billions every year and spending them on all sorts of projects through which such a government can paralyze opposition and command public support; marshaling great armies and navies at crushing costs to support the industry of war and preparation for war which will become our greatest industry; and adding to all this the most romantic adventures in global planning, regeneration, and domination all to be done under the authority of a powerfully centralized government in which the executive will hold in effect all the powers with Congress reduced to the role of a debating society. There is your fascist. And the sooner America realizes this dreadful fact the sooner it will arm itself to make an end of American fascism masquerading under the guise of the champion of democracy.

Three New Deals: Precursor To The Matrix

Garrett autopsied this revolutionary transformation in FDR’s America, but the New Deal wasn’t a peculiar accident of American politics—it was merely one manifestation of a homologous global ideological response to the Depression. The Forgotten Man was a global phenomenon; the productive middle class everywhere had been crushed by the Depression—whether in the form of the American yeoman, the German Mittelstand (small business owners) and Frontkämpfer (front-line veterans), or the Italian Ceto Medio (middle class) and Reduci (returned soldiers).

In his desperation, the Forgotten Man on both sides of the Atlantic turned to leaders who promised that State power could restore order. Wolfgang Schivelbusch’s Three New Deals argues that FDR’s America, Mussolini’s Italy, and Hitler’s Germany all converged on remarkably similar economic solutions to the Depression. Each regime chose a ‘revolution within the form’: preserving the comforting symbols and vocabulary of private property and free market institutions while decisively breaking with laissez-faire liberalism.

(Note: To preempt any potential misreading or confusion, this comparison isolates the shared mechanics of state-directed economic policy, not the morality of the three governments. The focus here is strictly economic.)

Rather than abolishing capitalism outright—as did the Bolsheviks in Russia—all three retained its shell, filling it with the machinery of state coordination and planning. Mussolini gave this chimera a name: 'the Third Way’—neither Soviet collectivization nor laissez-faire capitalism, but corporatism, the formal merger of nominally private enterprise with the State.

Even contemporaneous critics recognized that beneath the different symbology, similar economic policies were taking hold in all three countries. In Hell Bent for Election, one American critic observed that FDR’s NRA had cartelized industries, fixed prices and wages, and suppressed competition under state direction—its Blue Eagle insignia marking compliant businesses—and drew the uncomfortable conclusion that:

If we had had a Nazi or Fascist party in 1932, perhaps it might have written a platform that would conform to what Mr. Roosevelt tried to foist upon the country under the wings of the Blue Eagle.

As Schivelbusch documented, the official newspaper of the Nazi Party (NSDAP), too, explicitly recognized its kinship to FDR’s policies:

Just as National Socialism superseded the decadent “bureaucratic age” of the Weimar Republic, the Völkischer Beobachter [the official newspaper of the Nazi party] opined, so the New Deal had replaced “the uninhibited frenzy of market speculation” of the American 1920s. The paper stressed “Roosevelt’s adoption of National Socialist strains of thought in his economic and social policies,” praising the president’s style of leadership as being comparable to Hitler’s own dictatorial Führerprinzip. “If not always in the same words,” the paper wrote, “[Roosevelt], too, demands that collective good be put before individual self-interest. Many passages in his book Looking Forward could have been written by a National Socialist. In any case, one can assume that he feels considerable affinity with the National Socialist philosophy.”

The newspaper admitted that Roosevelt maintained what it called “the fictional appearance of democracy,” but it also proclaimed that in the United States “the development toward an authoritarian state is under way.” The author added, “The president’s fundamental political course still contains democratic tendencies but is thoroughly inflected by a strong national socialism.”

Nor were the aesthetic similarities between the regimes lost on Europeans and Americans:

Hitler’s Vampire Economy

Of these three regimes, Hitler’s Germany pushed the revolution-within-the-form furthest, perhaps because the blow to the Forgotten Man was particularly fatal in the case of Germany—where it arrived as the coup de grâce to a society already hollowed out by a devastating military defeat, the shame of Versailles, and the ravages of hyperinflation and cultural revolution.

Gunter Reimann’s The Vampire Economy documented in great detail the German system. While the Soviet model of communism—the one that Mamdani’s NYC now takes inspiration from—abolished private ownership entirely, Reimann showed how the National Socialist regime, like that of FDR, meticulously maintained the facade of capitalism.

The German Vampiric system was called Zwangswirtschaft, literally, “compulsory economy”. Nominal private ownership existed alongside the appearance of normal prices, wages, and markets—while the State entirely eviscerated its substance. Entrepreneurs were effectively sidelined, replaced by government-appointed ‘shop managers’ who followed State directives for production and distribution rather than consumer-driven market signals.

Do not be deceived by partisan framing of “right-wing” Nazis versus “left-wing” Communists: the Nazi approach was simply an alternate form of central planning, as Mises explained in Omnipotent Government:

The German and the Russian systems of socialism have in common the fact that the government has full control of the means of production. It decides what shall be produced and how….But there is a difference between the two systems. The Russian pattern of socialism is purely bureaucratic. All economic enterprises are departments of the government, like the administration of the army or the postal system…

The German pattern [of socialism] differs from the Russian one in that it (seemingly and nominally) maintains private ownership of the means of production..There are, however, no longer entrepreneurs but only shop managers (Betriebsführer)…The government tells the shopmanagers what [to do]...Market exchange is only a sham. All the prices, wages, and interest rates are…in appearance only...This is socialism in the outward guise of capitalism. Some labels of capitalistic market economy are retained but they mean something entirely different from what they mean in a genuine market economy.

Mises showed that property rights are not legal title—mere pieces of paper— but rather the power to exercise actual control over resources. Strip that power while preserving the paperwork, and prices lose their anchor: they become proto-HyperPrices, superficially market-determined figures that have been severed from genuine economic meaning and reduced to State ventriloquism.

In June 1942, Mises pressed the same case directly to the American public in a letter to the New York Times—arguing in real time, while the war still raged, that the Reich's economic system was not the opposite of socialism but its twin, dressed in capitalist clothing.

Whenever private capital attempted to exercise economic control independently of State imperatives, the Vampire Economy bared its fangs—for example when Hitler’s economic enforcer, Hermann Göring, clashed with industrialists over resource control:

Göring insisted that the Ruhr, like the rest of German business, must subordinate its private interests to the national need, pointing to the fact that Germany was heavily dependent on foreign sources of iron ore…and so more vulnerable than in 1914 [WWI], a comparison to which Hitler constantly returned…Göring demanded that the Ruhr industrialists should undertake the development of the low-grade ores in central and southern Germany. When they refused, he declared that “the State must take over when private industry has proved itself no longer able to carry on…”When the iron and steel industrialists produced a paper rejecting Göring’s autarkic policy, he threatened them with arrest as saboteurs and compelled the private firms to invest some of their own funds in the state-owned competitor with which he now confronted them. Krupp was offered a large arms contract at the same time in order to split any attempt at a united front in opposition.

2008: The Operating System Rewrite

The Nazi Vampire Economy was not an aberration that died with Hitler in 1945. What Hitler had taken to its logical extreme, the New Deal’s “revolution within the form” implemented in softer form—and the underlying blueprint, stripped of its jackboots, quietly became the architecture of postwar “capitalism”.

For seventy-five years, the New Deal’s institutions underpinned the American economy—and, as the US supplanted Britain as the epicenter of global finance, the world's as well; we’ve traced some of this history in the Metamorphosis of Money, the Keynesian Kaleidoscope, the Alchemy of Risk, and elsewhere in the Sorcerer’s Apprentice.

This apparatus of hidden state control expanded almost imperceptibly over the ensuing decades: first through the New Deal and Bretton Woods system, and then through the 1971 severance of the dollar from gold, which removed the last constraints on a fully hyperreal economy.

Then, in 2008, the financial system ruptured. What we think of as the “subprime crisis” was not a “black swan” or a one-off “market failure” caused by a few years of subprime and CDO excesses, but rather the inevitable culmination of decades spent perfecting the Vampire Economy through the dark art of risk transmutation.

The Great Financial Crisis and governmental responses—Money Printer Go BRRR—birthed a second revolution within the form, precipitating a phase transition in which the financial markets were predominantly nationalized by stealth. If the New Deal redefined the vocabulary and institutions of capitalism, 2008 digitized the Vampire Economy, birthing the Financial Matrix.

The Vampire Revealed

The Financial Matrix’s genius was its invisible system of wealth extraction from the Forgotten Man—who watched helplessly as his purchasing power was eroded, his savings devoured by inflation, his prudence punished, and his virtue mocked by a system that rewarded speculation and fraud.

The mechanisms corrupting capitalism were so arcane that the immiserated middle class could never quite identify its assailant—and so the illusion held. Meanwhile, wealth exploded for those positioned inside the Matrix—asset holders armed with access to cheap credit, the ability to front-run or shape government-directed capital flows, and the Plunge Protection Team’s put.

Central banks stopped intervening in markets at the margins and became the market—the State the ultimate “market” participant, the remaining substance of capitalism replaced with a videogame simulation. The user interface—tickers, stock prices, property titles—remained intact, but the underlying operating system was replaced with State-conjured “liquidity”—the raw fuel for blind algorithmic flows that transmitted and amplified both across every market.

The 2008 rewrite of the global economic operating system perfected the Vampire Economy’s operating model and extended the blueprint beyond the financial markets. Governments need not nationalize what they can control by other means. After 2008, that principle metastasized invisibly across three interlocking fronts: financial, industrial, and informational.

Front I: Financial

The Vampire Economy commandeered the financial plumbing through which all capital flows—and it extended well beyond the QE, passive flows, and algorithmic amplification already examined.

At the commercial banking level, for example, the State need not explicitly nationalize the banks; it need only make bankers understand who they ultimately work for. Marc Andreessen detailed the insidious nature of modern “debanking” and Operation Chokepoints 1.0 and 2.0: financial institutions serve as instruments of government and ideological control while maintaining the facade of private enterprise. While one might debate the accuracy of Andreessen’s claims, his core observation is salient and mirrors a well-documented historical pattern; indeed, Gunter Reimann explored how banking institutions were transformed from pillars of private enterprise into whips of the authoritarian state in Vampire Economy:

Within Germany itself, the banker’s activities are likewise circumscribed. He plays a dual role, a fact which creates many unpleasant and even risky situations for him. He is the head of a “private enterprise,” yet he must always act like a representative of the State. A private investor would be naive if he continued to rely on the advice of “his banker” whom he has known for many years and who formerly advised him how to invest his money. The advice he would get now would consist only of the instructions the banker gets from the Government…it is not illegal to refuse, but inadvisable. If he withdraws large funds for private investments or otherwise remains stubborn, the banker will have to send a report to Government authorities informing them about the case. They will then check on how the money is used. The local Party leader will keep in touch with the bank manager, too, and learn of withdrawals or of the existence of liquid assets and make use of this knowledge... These big banks are today… under private ownership. This fact easily misleads the foreign observer. For under fascism “private banks” are as much under State control and are as co-ordinated as ordinary State banks. The transformation of the big banks from protectors and pillars of private enterprise to the whip of the authoritarian State to be used in controlling private enterprise…

This pattern of control is now hardcoded into the Financial Matrix; it was again clearly illustrated by the 2022 Canadian trucker protests—during which time the government invoked emergency powers to freeze the bank accounts of protestors and their donors, transforming private banks into direct enforcement arms of the state overnight.

Front II: Industrial

While American regulators—to date, anyway—rarely threaten industrialists with outright arrest as did Herr Göring and the Nazis, State-directed capital allocation continued from the New Deal to the present in various guises.

Regardless of one’s view on the necessity of such policies, when government-mandated ESG or “national security” industrial policies regarding climate change, Anthropic AI, rare earths, and semiconductors force capital allocation based on political rather than economic dictates, the State effectively transfers a portion of de facto control from shareholders to itself, leaving shareholders with nothing but empty words and a paper illusion of ownership.

The State need not nationalize a factory outright: it need only control the conditions under which private capital may operate: which industries receive credit, which are starved, which “private” firms receive government contracts as a reward for compliance—and which are threatened with legal and regulatory strangulation for defiance.

Just as Göring compelled German industrialists to subordinate private capital to state imperatives, the modern American regime increasingly dictates the deployment of private wealth. This week the Pentagon approached General Motors and Ford about converting production capacity to arms and military supplies—echoing Göring's demands on the Ruhr industrialists (and America’s own wartime conversion of Ford’s plants to bomber production):

Front III: Informational

Just as the Vampire Economy required command over capital and industry, it demanded an equally tight grip on discourse. Mirroring the strategies of the first two fronts, the State avoided the messy optics and legality of nationalizing the press or the internet outright. Instead, it outsourced enforcement—ensuring platforms, broadcasters, and payment processors understood the economic and legal consequences of permitting certain viewpoints.

Deplatforming, demonetization, algorithmic suppression, and advertiser boycotts achieved what outright censorship would have made obvious: the systematic removal of dissent and crimethink. The infrastructure of speech—search, social, payments, cloud hosting—remained in ostensibly private hands but was de facto State-directed.

The Twitter Files, for example—documented by Matt Taibbi and colleagues, and submitted to the Supreme Court in Murthy v. Missouri—exposed the operational details: government agencies routing content suppression through nominally private platforms. The vocabulary of the first amendment and free press was preserved; their substance was not.

The 2020 Glitch: Mr. Market’s Schizophrenic Break

The illusion of free markets held, mostly, for twelve years after the Great Financial Crisis. Then the COVID era forced the system into overdrive, and the sheer scale of the intervention short-circuited the Financial Matrix.

As governments printed trillions and locked down the global economy, the schizophrenic disconnect between Wall Street’s manufactured prosperity and Main Street’s economic ruin became too vast to conceal. The Forgotten Man finally saw glimpses of the underlying code.

Now, as the “coppertop batteries” run dry, the Matrix is glitching, and the “desert of the real” is bleeding through the screen. The comfortable fiction of free-market capitalism died, and the Vampire Economy is laid bare.

The financial illusion is now buckling under the weight of compounding, real-world Multiflationary shocks: a replay of the Smoot-Hawley tariff wars as “economic security” and autarky replace free trade; kinetic conflict spreading across Eastern Europe, the Middle East, Venezuela, and beyond; accelerating stagflation amidst crippling spikes in energy and commodities; the weaponization of currencies, shipping lanes, and supply chains; and widespread civil unrest against open borders, the soaring cost of living, and the managed decline of the Forgotten Man.

These are not isolated events, but rather symptoms of Multiflation: the fracturing of the “great moderation” and the post-WWII “rules-based order.”

Conclusion: The Desert Of The Real

What we are witnessing is not the birth of something new, but rather the perfection and revelation of a century-old process—and the death of the illusion that disguised it.

We have entered an era in which capital is no longer yours to deploy as you see fit; it has been redefined as a resource held in provisional custody, subject to recall whenever the sovereign sees fit. What was once private property is now a mere license—revocable, conditional, contingent on compliance.

This is the inheritance of the revolution-within-the-form. FDR’s New Deal put the State inside the market; 2008 digitized the Vampire Economy and extended it across every front of modern life. The substance migrated to the sovereign while the citizenry, comforted by familiar words and flickering numbers, scarcely noticed.

The Forgotten Man is perhaps beginning to notice now. This transition from private property to state-managed license is increasingly visible at every level of Western society: from Mamdani’s NYC; to the state level—California sweeping dormant digital assets into state coffers, Washington and a growing list of states engineering wealth and exit taxes; to the Federal policies of the Trump administration.

Nor is this a uniquely American phenomenon; it is a global movement toward a compulsory economy across the Western world. At Davos, “stakeholder capitalism,” “15-minute cities,” CBDCs, and more are championed as inevitabilities.

In Germany, proposed legislation would block individuals from purchasing homes based on "anti-constitutional" views—granting local authorities first refusal on sales and allowing intelligence agencies to vet buyers without a criminal conviction. From Ireland’s systematic use of forced purchase orders and punitive taxes to compel private property into state-mandated utility, to Canada’s debanking and agreements with first nations, private property is being compelled into the service of the state.

Up Next: Part IV

In Part IV, we examine what happens when the systemic failure of the Financial Matrix escapes the confines of the financial markets. History shows that when the financial illusion fails, the Forgotten Man’s rage flows toward whatever symbols of the new order are nearest at hand—the perceived architects and beneficiaries of the system.

Add the accelerant of Artificial Intelligence—which threatens to creatively destroy wide swaths of the economy—and you have the recipe for an explosive cocktail. As the vanguard of the digital economy is now discovering, that “explosive cocktail” is no longer mere metaphor, but rather a literal Molotov lobbed at their front door:

The next day, a second attack occurred at Altman’s house, this time a shooting:

These attacks are not merely isolated symptoms of societal decay or neo-luddism; they are the kinetic real-world eruptions triggered as the Financial Matrix fails and the tectonic forces of Multiflation, unleashed by its collapse, crash into one another. As the Forgotten Man’s purchasing power evaporates, the technocratic “Alternative Vision” poses a threat—whether real or perceived—of finalizing his economic obsolescence.

The Multiflation Method

The question is no longer whether Multiflation is transforming the global economic landscape, but how to successfully navigate its forces. Multiflation demands a reassessment of risks that have not been taken seriously for nearly two decades: counterparty risk, geographic vulnerability, political risk, and the accelerating possibility that the rules governing ownership and property rights will be rewritten mid-game. The Multiflation Method is our evolving investment framework, and we’ll address each of these risks in essays to come.

Be Water.

One year ago today, we published Enter Multiflation—our framework for understanding a once-in-a-century rupture in the global economic order.

In the twelve months that followed publication, the thesis arrived in real-time: a tariff shock stunned both Wall Street and Main Street, persistent inflation co-existed with sharp deflation as AI began cutting large swaths through the economy and markets, the White House openly questioned the dollar’s reserve status, unprecedented fractures strain the “rules based economic order” including NATO, and even now a rapidly escalating crisis in the Middle East threatens to ignite an already fragile global supply chain and energy complex.

We are resending the essay today—on its anniversary—to ensure that all of our readers are on the same page, as our readership has grown significantly since then, and many of you are seeing this for the first time.

The old rules no longer apply, and investors who understand Multiflation will navigate the coming dislocations from a fundamentally stronger position than those who don’t.

Once you understand Multiflation, you are ready for the Multiflation Method: Investing In The Age of Multiflation.

To understand how we arrived here, don’t miss The Sorcerer’s Apprentice & The Man Who Broke The Markets.

Series Table Of Contents

Previously: Ben Graham Was Wrong

In Part I: Ben Graham Was Wrong, we argued that value investing’s failures in recent decades are structural rather than merely a streak of bad luck. To understand this failure, we must first return to the source of the Cargo Cult—to Benjamin Graham himself. And to understand Graham, we must understand that his strategy and tactics were first and foremost a product of his time.

The textbook list of differences between Graham’s era and our own is well-worn: richer opportunity set, greater market inefficiencies and informational advantages, fewer competitors, the absence of computers and passive ETFs. But perhaps the most consequential difference has gone largely unremarked upon:

Graham invested under an entirely different monetary operating system that no longer exists anywhere in the world.

This is perhaps implicitly obvious to the point of being self-evident once stated, however the implications of this fact have received surprisingly little treatment in the value investing literature.

Ironically, one man who would have understood the implications clearly is Graham himself. After all—unknown to virtually all of his modern disciples—Graham spent years architecting an entirely new monetary system. He published his plan in an obscure treatise he considered to be his most important contribution to posterity, dwarfing even Security Analysis. As Columbia economist Perry Mehrling observed, for Graham “the disconnect between the world of money and the world of goods was fundamentally a source of macroeconomic investment risk that could upset any amount of careful security selection by the conservative value investor.”

Graham’s active investing career was bookended by major shifts in the global monetary system, but throughout it all, one thing remained constant: money was always loosely tied to a tangible anchor. Graham’s “value” framework is inseparable from the monetary environment in which he operated—one so alien to our own that modern investors struggle to even conceptualize it.

The modern value investor’s reliance on Graham’s ideas fails because Graham’s framework is not a universal principle of investing. Value investing is a brilliant tactical adaptation to a monetary reality that no longer exists, applied in recent decades with hardly anyone stopping to ask whether the underlying conditions required for its success still hold in the age of the Financial Matrix and Silicon Sorcery.

But this indictment reaches further than Graham’s explicit disciples and those investors who still read Graham literally. Graham’s assumptions are load-bearing for “value” discussions broadly. They echo even through Buffett, through GARP, through DCF users, through “compounder bros” and beyond—wherever “value” remains the operative word. Evolving beyond Graham’s tactics is not liberation from his assumptions.

Before we can know which parts of the value tradition are worth preserving, we must first understand which ideas still hold and which are artifacts of a vanished monetary world. Only then can we begin to sketch what a rebuilt framework might look like.

1914: The “End Of Sweet Reasonableness”

Graham’s defensive, price-conscious methodology was tactically sound for his era: the business cycle was much more volatile and frequent than it is today, featuring panics and brutal periods of severe deflation punctuated by occasional periods of inflation. As a result, cash—at the time a claim on gold—was king.

As Jim Grant noted, Graham himself recognized when the investing world began to change:

For Graham, an era of sweet reasonableness in investment thinking seemed to end around 1914. Before that time, the typical investor was a businessman who analyzed a stock or a bond much as he might a claim on a private business.

1914. One year after the Federal Reserve’s creation. Before the Fed, investors demanded safety and high asset backing because there was not yet a “Lender of Last Resort” subsidizing public equities and incentivizing risk-taking.

The Fed, however, was explicitly created to provide “elasticity” to the money supply, allegedly to prevent—and short-circuit—these panics by providing “liquidity”. From 1914 on, the newly formed central bank broke the discipline of the gold standard and orchestrated a massive, inflationary credit expansion to finance World War I:

Graham watched on in horror as the “sweet reasonableness” of analyzing stocks as if they were private businesses evaporated, replaced by a casino in which liquidity dominated returns: the credit inflation fueled a speculative boom that culminated in the severe Forgotten Depression of 1920–1921. (One can only imagine what he would think about Mr. Market’s Schizophrenic Break of the COVID era).

The Fed again flooded the market with liquidity, creating another credit bubble—the Roaring Twenties, whose parallels to modern Bitcoin Treasuries we explored here—which itself culminated in the Crash of ‘29 and the Great Depression. By the early 1930s, the market had dropped significantly. Graham, analyzing valuations, believed stocks to be absurdly cheap. Thinking the worst was over, he bought heavily and employed margin. Because he was leveraged, the agonizing, grinding bear market of 1931-1932 devastated his fund; the Benjamin Graham Joint Account lost roughly 70% of its value between 1929 and 1932.

Graham lost his own wealth, was forced to give up his apartment, and survived largely on his teaching salary at Columbia University as well as his wife’s income. He refused to close the fund, however, and worked for zero compensation for several years until he earned his investors’ initial capital back.

Groceries, Not Perfume

But the origins of Graham’s value framework—and the traumas that produced them—predate even the stock market crises he endured. In “The Curious Truth of How Graham Created Value Investing”, his granddaughter’s research reveals that Graham arrived at what we now call value investing not through ivory tower theorizing or even his practical experience on Wall Street, but rather through hunger. After his father died, Graham’s family was left destitute. His mother—indifferent to domestic labor—assigned the grocery shopping to her youngest son. Ben learned early what it meant to stretch quarters across a family of four.

Graham’s granddaughter found additional evidence of the origins of his framework in his memoirs and hiding in plain sight on the back cover of the 1973 fourth edition of The Intelligent Investor:

(Note, too: on that same back cover, writing amidst the 1970s inflation, even Graham acknowledged that “the possibility of large-scale inflation remains, and the investor must carry some insurance against it”—conceding that his framework had no reliable answer to inflation, only the vague hope that equities might outperform bonds. It is precisely this unresolved gap that our Multiflation Method is designed to address.)

The psychological bedrock of Graham’s value system—and the ultimate category error underlying most value-oriented methodologies generally—rests on a single, defining analogy: buy stocks the way you buy groceries, not perfume. Graham observed that the masses bought stocks like luxury goods—chasing brand names and paying up for popularity and “vibes”—and concluded that investors must instead become more savvy grocery shoppers:

From Stone-Broke Son to “Father of Value Investing”

Benjamin Graham…shows us that our youthful difficulties—in his case, living on the edge of poverty and complying with his mother’s demands that he do typically female chores—can incite creativity. His boyhood burden taught Ben a skill that became the crux of his acclaimed achievement. The son who shopped for bargains metamorphosed into the father of value investing…

Ben, the small boy with scant cash in his pocket, never bought anything—neither liver nor onions, apples nor oranges, used tennis balls nor baseballs—without first calling out in his bright, clear voice: “How much?” His sharp mind quickly analyzed: Is this item priced low enough to be worth buying?

The Traumatic Legacy of Graham’s Childhood & Wipeout

In the modern self-help and education industries there is much talk of Fixed Mindset and Growth Mindset. The father of value investing was—very rationally, given his experiences—the fixed mindset in investing made flesh, borne of the traumatic psychological scars he accumulated throughout his childhood poverty and near-wipeout during the Depression.

Graham’s experience continually hammered the same lesson over and over: the only variable investors can control is the price they pay; the goal is to buy assets so cheaply that even if the world falls apart, investors won’t lose their principal.

What emerged from Graham’s traumas was effectively a doomsday bunker against deflation—perfectly engineered for a world of hard(er) money, frequent panics, and occasional spikes in inflation that were soon remedied by deflationary collapses. Graham himself was so brilliant and his philosophy so elegant that few value investors thought to revisit the framework from first principles after the “Nixon Shock” of 1971—or even after the 2008 Financial Crisis and the advent of the Financial Matrix.

During Graham’s time—under a less overtly inflationary system at least partly tied to gold—cash itself acted not only as safe harbor but as productive asset: its purchasing power was periodically reinforced by deflation, while retaining valuable optionality. One of the primary macroeconomic risks of the era was deflationary collapse, as seen in episodes such as the Panic Of 1907 (which wiped out Graham’s mother’s life savings), the contraction of 1920-1921, the Crash of 1929, and the Great Depression. As a result, companies could often be purchased for less than their liquidation value.

However, it is a mistake to treat the assumptions underpinning a Depression-era survival tactic as a universally true law of investing. See it for what it is: a brilliant, localized adaptation to the monetary operating system of his day. Optimizing for margin of safety and hoarding cash to wait for discounted “onions” was a brilliant, low-risk strategy for that era; over-extending oneself on the risk curve and trying to pick long-term winners seemed pointless at the time given the attractive returns one could generate in “cheap” stocks. Furthermore, as Graham perhaps alluded to in the back cover of the 1973 edition of the Intelligent Investor—at the time he didn’t have to worry about central banks printing a never-ending supply of money to prop up markets or devalue the cash on a company’s balance sheet.

Stocks Are Not Chopped Liver

In applying the value-conscious grocery shopping framework of his youth to the foundation of sound investing practice, Graham made a category error that tends to haunt even his evolved disciples today.

When young Ben found discounted onions, or substituted cheaper shallots for onions, he was optimizing within a fixed budget for commodity goods sharing nearly identical utility—not dissimilar conceptually to the arbitrage situations that Graham would so successfully pursue later in his career.

An onion is an onion. A shallot is a close substitute to an onion. Both make for a perfectly edible meal. When Graham bought cheap groceries, he took physical delivery of the commodity and his family consumed it immediately—the value was immediately realized. Penny-pinching and substituting cheap onions for expensive shallots is a direct, risk-free optimization within a zero-sum game in which the only way to “win” is to extract value at the point of sale—by paying the absolute lowest price possible for the commodity.

But equities are categorically unlike commodities and groceries. In The Wealth of Nations, Adam Smith drew a sharp line between productive assets like factories, which create goods that “replace the capital employed” and generate a surplus, and unproductive assets like onions, which “perish in the very instant of its performance.”

By treating stocks as if they are household groceries, many of Graham’s modern disciples are applying the rules of zero-sum non-productive coupon-clipping to save on consumption goods to positive-sum capital allocation. When a stock is treated as merely a cheaper or pricier version of an onion, it confuses a productive asset with a consumption good, collapsing the distinction between the onion to be eaten and the farm that can grow many onions: an ongoing engine of surplus creation that reinvests, compounds, and expands the economic pie over time.

Munger and Buffett recognized this error clearly and rebuilt their approach around it. Rather than hunting for cheap onions, they went looking for exceptional farms at “fair” prices. This was a genuine and important advance over Graham; many value investors, however, never made this leap and continue to gravitate toward “cheap” situations.

But solving the productive-asset problem does not resolve value's other category errors—and those errors apply broadly, including to investors who have absorbed Berkshire's lessons about business quality. Whether they apply to Buffett and Munger themselves is a more complicated question, addressed in their dedicated section later in this series. What can be said here is that Buffett and Munger were true investing savants, and Berkshire's structural position—permanent capital, tax-advantaged insurance float, board representation, reputation, proprietary deal flow and so forth—substantially mitigates or outright solves many issues with value investing. Berkshire's record tells us a great deal about what Buffett and Munger can do operating within those structural advantages, and rather less about the potential for value investing more broadly.

For everyone else—including the many investors who have absorbed Berkshire’s lessons about business quality without inheriting its unique structural advantages—three deeper problems persist, each of which we will cover in dedicated later sections. The first is the problem of enforcement, which we will explore in The Continuum of Force. When Ben bought cheap onions, he didn’t need Mr. Market to later agree with him on value—he simply took delivery and ate them. Value investors—generally speaking—have no such mechanism to enforce value realization.

The second is the problem of intrinsic value. The analogy smuggles in an economic error Graham’s disciples have never fully reckoned with: while an onion has an immediate, tangible consumption value, that is not the same thing as intrinsic value. Graham borrowed the onion’s tangible, intuitive ‘certainty’ and applied it to businesses—but even for onions, value is always subjective, always relative, always contextual. There is no Platonic number representing what a business is worth waiting to be discovered by analysts. We examine this in There Is No Such Thing As Intrinsic Value.

The third is the problem of the measuring stick. The analogy assumes that “cheap” and “dear” are stable, meaningful categories—which they generally were under the gold-backed monetary system of Graham’s day. But as we will explore throughout this series, inflation and Multiflation not only erode that assumption but may—in extremis —invert it entirely. We take this up in Inflation: Value Investing’s Kryptonite.

Conclusion:

Graham’s framework was the right answer to a question the market no longer asks—forged in a monetary environment in which treating stocks like onions was not only intellectually elegant but tactically correct. The tragedy is that—even as they evolved his tactics—his disciples inherited Graham’s assumptions and category errors, never stopping to ask whether the monetary conditions underpinning them had ceased to exist.

Graham’s traumatic experiences hardwired “margin of safety” as a survival reflex against the very types of outcomes that governments and central banks are explicitly trying to prevent in the post-2008 environment; even now, the timing of military strikes is apparently calibrated around off-market hours—capital market stability having become, in effect, a national security risk and key constraint on sovereign decision-making itself. And yet Graham’s framework, as we will argue, may prove no more reliable in the very deflationary collapse for which value investors have been patiently waiting (the same type of collapse, ironically, that nearly destroyed Graham himself) than in the inflationary regime that has so hampered them over the past decade.

Next:

Inflation: Value Investing’s Kryptonite

Series Map

Preface: Ben Graham Was Wrong

Part I: The World Graham Built For—History Through Financial Matrix

See Also: The Sorcerer’s Apprentice

1. Graham’s Universe No Longer Exists: Value, Money, & Macro

2. Inflation: Value Investing’s Kryptonite

3. Value In The Age Of Technocracy & The Financial Matrix

4. The Price Of Everything & Value Of Nothing—Value, AI, & Passive

Part II: Value’s Cracked Foundation

1. There Is No Such Thing As Intrinsic Value

   1. The Deeper Problem With DCFs

2. Graham Thought Like An Arb & An Activist

   1. See also The Factory That Makes Investment Processes Repeatable and Let’s Break A Deal

3. The Continuum Of Force: The Physics Of Value

   1. Introducing The Continuum Of Force: The Missing Variable

   2. The Physics of Value: Force, Event Paths, and Convergence

   3. What Is A Catalyst? Catalyst v. Continuum Of Force

   4. The Myth Of Time Arbitrage

   5. Continuum Of Force Defines Speculation v. Investment

   6. Duration Doesn’t Make Something An Investment

   7. The Problem With a “Private Equity Approach” To Public Equities

   8. Governance & Dark Arts: & The Continuum Of Force

      1. See Also Dark Arts here and here

   9. Event Driven

   10. Activism & The Activism Manifesto

   11. Private Equity & Private Credit

   12. Short Selling & The Continuum Of Force

4. Margin Of Safety Is Incomplete

   1. Must Include Monetary System & Continuum Of Force

5. Many Value Investors Misunderstand Inflation & Prices

6. Moving The Goal Posts: From Arbs to Compounders

   1. The Shapeshifter Problem

Part III: Practice

1. Value Investing: Process Failures

   1. Idea Generation, Research, & Value In The Age Of AI

   2. Every Idea Is An Island: The Lonely Stock Problem

   3. Live By The Comp, Die By The Comp

2. Value Investing: Portfolio Management

   1. Value Investing Portfolio Construction Failures

   2. From Portfolio Construction To Portfolio Cohesion

   3. The Problem With Sitting In Cash As A Perpetual Option

   4. You Can Ignore Multiflation But Multiflation Won’t Ignore You

   5. You Can Ignore Factors But Factors Won’t Ignore You

   6. The Multiflation Method: Cohesion Over Collections

3. The Value Musical Chairs Lifecycle

   1. How Value Traps Are Born

4. Value Investing In The Mirror: Human Failures

Part IV: The Intelligent Investor, Reimagined

1. Value & The Multiflation Method

2. If You Die In The Financial Matrix, You Die In Real Life

3. What Value Can Learn from Growth, Momentum, Quant, and Pod Shops

4. Cash & Fixed Income Alternatives for Multiflation

5. During An Inflation, Limited Prudent Speculation May Be Intelligent

Part I: The World Graham Built For—History Through Financial Matrix

See Also: The Sorcerer’s Apprentice

1. Graham’s Universe No Longer Exists: Value, Money, & Macro

2. Value Investing’s Kryptonite: Inflation

3. Value In The Age Of Technocracy

4. The Price Of Everything & Value Of Nothing—Value, AI, & Passive

Part II: Value’s Cracked Foundation

1. Graham Thought Like An Arb & An Activist

   1. See also The Factory That Makes Investment Processes Repeatable and Let’s Break A Deal

2. There Is No Such Thing As Intrinsic Value

   1. The Deeper Problem With DCFs

3. The Continuum Of Force: The Physics Of Value

   1. Introducing The Continuum Of Force: The Missing Variable

      Part I: Graham’s Cargo Cult Forgot His Brass Knuckles

   2. The Physics of Value: Force, Event Paths, and Convergence

   3. What Is A Catalyst? Catalyst v. Continuum Of Force

   4. The Myth Of Time Arbitrage

   5. Continuum Of Force Defines Speculation v. Investment

   6. Duration Doesn’t Make Something An Investment

   7. The Problem With a “Private Equity Approach” To Public Equities

   8. Governance & Dark Arts: & The Continuum Of Force

      1. See Also Dark Arts here and here

   9. Event Driven

   10. Activism & The Activism Manifesto

   11. Private Equity & Private Credit

   12. Short Selling & The Continuum Of Force

4. Margin Of Safety Is Incomplete

   1. Must Include Monetary System & Continuum Of Force

5. Many Value Investors Misunderstand Inflation & Prices

6. Moving The Goal Posts: From Arbs to Compounders

   1. The Shapeshifter Problem

Part III: Practice

1. Value Investing: Process Failures

   1. Idea Generation, Research, & Value In The Age Of AI

   2. Every Idea Is An Island: The Lonely Stock Problem

   3. Live By The Comp, Die By The Comp

2. Value Investing: Portfolio Management

   1. Value Investing Portfolio Construction Failures

   2. From Portfolio Construction To Portfolio Cohesion

   3. The Problem With Sitting In Cash As A Perpetual Option

   4. You Can Ignore Multiflation But Multiflation Won’t Ignore You

   5. You Can Ignore Factors But Factors Won’t Ignore You

   6. The Multiflation Method: Cohesion Over Collections

3. The Value Musical Chairs Lifecycle

   1. How Value Traps Are Born

4. Value Investing In The Mirror: Human Failures

Part IV: The Intelligent Investor, Reimagined

1. Value & The Multiflation Method

2. If You Die In The Financial Matrix, You Die In Real Life

3. What Value Can Learn from Growth, Momentum, Quant, and Pod Shops

4. Cash & Fixed Income Alternatives for Multiflation

5. During An Inflation, Limited Prudent Speculation May Be Intelligent

Series Table Of Contents

Value investing tends to attract some of the most rigorous, disciplined, and intellectually serious minds in finance. For decades, however, those who sleep with Ben Graham’s The Intelligent Investor under their pillows have haplessly watched as their returns have been lapped by somnambulant passive investors, hair-trigger “pod shops,” growth investors who seem to operate on pure instinct, mindless momentum traders, algorithms, casual speculators who don’t read footnotes, and Bitcoin HODLers.

Value investors show up day after day and put in the work, faithfully following their creed—not realizing the voice guiding them is a siren song, luring them onto the rocks.

To Bury Value Investing, Not To Praise It

The series that follows will prove uncomfortable reading for anyone who has built an identity around being a value investor—not least of all ourselves. This isn’t another “death of value” eulogy, nor is it a pile-on for sport. It emerged from our own reckoning with ideas we once found compelling, frameworks we trusted, and mistakes we made. (Those curious how we as a society arrived here—and why value investing “stopped working”—will find that story in our Sorcerer’s Apprentice.) We don’t pretend to have all the answers—we offer our conclusions here not as verdicts, but as the honest output of a long and sometimes painful process.

We are going to gore the sacred cow that is value investing: the notion that one can buy stocks trading at a discount to intrinsic value—whether old-school “cigar butts” or the more modern evolution focusing on “quality,” “moats,” “compounders” or taking a “Private Equity Approach to Public Markets”—and consistently achieve success through patience, perseverance and sheer intestinal fortitude.

This approach doesn’t work. And it never truly did—at least not in the way most modern disciples imagine it did, nor for the reasons they imagined it working. This isn't to say cheap stocks or value managers never outperform, but rather that the philosophy and strategy are not reliable in the form value investors practice and preach.

Worse, in the age of AI, HyperPrices, and Multiflation, value investing will likely prove even more unforgiving than it already has in recent decades. It is widely presumed by practitioners that—after the excesses of the QE era—value investing is safer now than it had been in the past; the reality is that it is more dangerous because the philosophy as generally practiced today creates hidden asymmetry—in the wrong direction.

But the point here isn’t simply that value investing has become more challenging; it’s what that difficulty exposes about modern financial markets—and perhaps about society itself. Understanding value investing’s theoretical and practical shortcomings reveals something essential about the Financial Matrix itself—and should help every investor avoid making similar errors, regardless of their approach.

Working through these shortcomings forced our thinking to evolve; three concepts crystallized from that process and will recur throughout this series:

Multiflation Method—how to position for a regime characterized by economic whiplash and chronic dislocations

Fundamental Gradient—where are fundamentals heading and are they accelerating?

Continuum of Force—the degree to which you can compel price to converge on what you think it’s worth

Forthcoming Sections

Part I: The Regime That Made Graham

Part II: Value’s Cracked Foundation

Part III: The Flawed Practice Of Value Investing

Part IV: The Intelligent Investor, Reimagined

Modern Value Investing Is A Cargo Cult

We’ve written previously about Cargo Cult Economics. Modern value investing, too, is a primitive religious “cargo cult” as described by Richard Feynman:

In the South Seas there is a Cargo Cult of people. During the war they saw airplanes land with lots of good materials, and they want the same thing to happen now. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas—he’s the controller—and they wait for the airplanes to land.

They’re doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn’t work. No airplanes land.

So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land.

Like South Seas islanders building grass airports and waiting for metal birds to drop off supplies for them, modern value investing comes complete with its own priests, rituals, and unquestionable doctrines. Investors read Security Analysis like scripture, calculate intrinsic values, quote Buffett’s annual letters, and preach patience and discipline.

They’re doing everything right.

And yet the planes are not landing.

We can already hear the objections forming. “But what about Buffett?” “Didn’t Graham’s methods work for decades?” “When this bubble ends value will have its day in the sun again?” “Haven’t academic studies proven value factors generate alpha?” “What about [insert successful value investor]?”

These are fair questions, and we’ll address them throughout the series.

Untangling The Definition Of Value Investing

Before we proceed further, however, we must acknowledge that “value investing” has devolved into a meaningless umbrella term. Graham’s church has splintered into a dozen competing sects, each with its own metrics, rituals, and explanations for why their version works.

This fragmentation creates a peculiar problem. Contemporary debates about “value investing” often collapse into category errors in which participants unknowingly argue past one another. When critics claim “value is dead,” what exactly are they referring to? Graham’s net-nets and cigar butts? Buffett’s moats? Fama-French factor loadings? Compounders and growth at a reasonable price? By the same token, when defenders retort that “value always works eventually,” which definition are they defending?

Despite their theological differences, however, every denomination operates from the same fundamental assumption. Whether they measure intrinsic value through book value, discounted cash flows, competitive moats, or some other metric, every denomination clings to the same belief: that buying something for less than they think it’s “worth”—with a “margin of safety”—and waiting for Mr. Market to “realize” that worth is an inherently viable investment strategy.

This fundamental assumption, we will argue, is wrong, has proven wrong for decades—and will only prove more wrong from here on out.

This series treats value not as a monolith but as a family of conceptually related approaches; we will critique not just individual value investing approaches, but the entire conceptual framework they share collectively.

Crystallization Into The “Style” Of Value

The very premise underpinning value investing philosophy was never true—or was valid only under very specific conditions that no longer exist. To the extent that value investing was ever ‘correct’ as a philosophy, what passes for value investing today is generally so far removed from its original context that it bears little resemblance to Graham’s approach in any meaningful way. What remains is generally a crude, faded facsimile of Graham’s original insights.

Which makes this dissolution all the more tragic, because we should also be clear from the outset: Ben Graham was an investing genius who has significantly influenced our own investing thinking. The tragedy is that we—and many of Graham’s followers did precisely what Bruce Lee warned against:

Like Kung Fu masters, Graham’s disciples took what was once a living, adaptive response to a specific historical environment and crystallized it into eternal doctrine. The Depression-era tactics—net-nets, deep asset coverage, cigar butts—were rational answers to a world of sound money, deflationary risks, and not-infrequent panics and crises. Transplanted into the Financial Matrix—a fiat world of chronic inflation, Fed backstops, the alchemy of risk, financial repression, and passive and algorithms, these tactics are as useful as a map to a city that burned down.

We suspect that Graham himself—were he operating today—would be the first to abandon the cargo cult that now worships at his altar. More provocatively, we’d even go so far as to posit that he would recognize a kindred soul in Paul Singer’s Elliott Management far more readily than in most of his value disciples—his most famous protégé Warren Buffett included.

What’s Coming

Part I: History

We begin with the father of value investing: Ben Graham himself—the world that made him, and the Financial Matrix that has since replaced it. Indeed, what does it even mean to “measure” value in the age of the kaleidoscopic money, Multiflation, AI, and HyperPrices?

Part II: Theory

In Part II, we question value investing’s first principles and establish why the entire enterprise of value investing as currently practiced is misconceived from its foundation.

We will confront the reality that intrinsic value does not exist the way value investors believe it does. From there, we introduce the missing variable: the Continuum of Force—the degree to which an investor can compel an asset to converge on its supposed value.

We will then show that “margin of safety”—absent an accounting for both the monetary system and one’s position on the Continuum of Force—provide only a comforting illusion of safety measured with a rubber ruler.

These are not merely technical problems with value investing to be patched. Graham’s misunderstandings concerning money, the nature of prices and value, and certain other assumptions—while understandable, even brilliant, for his era—underpin the entire value investing edifice and have subsequently been proven incorrect or invalidated. For nearly a century, the errors could be safely ignored. Then came the Global Financial Crisis—and after it, Graham’s errors and omissions have become too costly to ignore.

Layered over all of this is Multiflation: a monetary regime that radically alters the value calculus and leaves value investors structurally trapped—capped on the upside, yet remaining exposed to downside risks on every axis.

Part III: Practice

In Part III, we turn to practice and process failures—particularly those that make value investors uniquely vulnerable to Multiflation.

We will also turn inward—to the behavioral biases and blind spots—and what we value investors can learn from growth investors, pod shops, momentum traders, and quants.

Part IV: Preserving the Fire

But this series is not an exercise in nihilism—nor would we leave you only with ashes. For every flaw we expose, we will rekindle Graham’s fire and offer an alternative approach.

Valuation still matters of course—but it is incomplete without additional dimensions including the Continuum of Force and the direction and rate of change of fundamentals. Not just how cheap is this? but which way are fundamentals moving, and how fast are they accelerating?

That single shift in mentality has helped us avoid more unforced errors than any intrinsic value calculation ever did. The Gradient Framework asks where it’s going. Static “cheapness”, moats, and margin of safety are not inherently safe. Most value metrics are photographs of a car that tell us nothing about whether the car is parked safely or hurtling toward a cliff.

Benjamin Graham wrote The Intelligent Investor, not The Doctrinaire Investor. Faced with a profoundly altered investment landscape, he would not have rigidly clung to a cargo cult—even one of his own making.

Graham would Be Water.

Series Map

What follows is a working outline; some entries have placeholder links to our related work while the individual pieces are being published. We expect to revise it as the argument develops and, frankly, as readers push back, pick fights, and ask questions we haven't thought to answer yet.

Part I: The World Graham Built For—History Through Financial Matrix

See Also: The Sorcerer’s Apprentice

1. Graham’s Universe No Longer Exists: Value, Money, & Macro

2. Graham Thought Like An Arb & An Activist

   1. See also The Factory That Makes Investment Processes Repeatable and Let’s Break A Deal

3. Value In The Age Of Technocracy & The Financial Matrix

Part II: Value’s Cracked Foundation

1. There Is No Such Thing As Intrinsic Value

   1. The Deeper Problem With DCFs

2. The Continuum Of Force: The Physics Of Value

   1. Introducing The Continuum Of Force: The Missing Variable

   2. The Physics of Value: Force, Event Paths, and Convergence

   3. What Is A Catalyst? Catalyst v. Continuum Of Force

   4. The Myth Of Time Arbitrage

   5. Continuum Of Force Defines Speculation v. Investment

   6. Duration Doesn’t Make Something An Investment

   7. The Problem With a “Private Equity Approach” To Public Equities

   8. Governance & Dark Arts: & The Continuum Of Force

      1. See Also Dark Arts here and here

   9. Event Driven

   10. Activism & The Activism Manifesto

   11. Private Equity & Private Credit

   12. Short Selling & The Continuum Of Force

3. Margin Of Safety Is Incomplete

   1. Must Include Monetary System & Continuum Of Force

4. Many Value Investors Misunderstand Inflation & Prices

5. Moving The Goal Posts: From Arbs to Compounders

   1. The Shapeshifter Problem

Part III: Practice

1. Value Investing: Process Failures

   1. Idea Generation, Research, & Value In The Age Of AI

   2. Every Idea Is An Island: The Lonely Stock Problem

   3. Live By The Comp, Die By The Comp

2. Value Investing: Portfolio Management

   1. Value Investing Portfolio Construction Failures

   2. From Portfolio Construction To Portfolio Cohesion

   3. The Problem With Sitting In Cash As A Perpetual Option

   4. You Can Ignore Multiflation But Multiflation Won’t Ignore You

   5. You Can Ignore Factors But Factors Won’t Ignore You

   6. The Multiflation Method: Cohesion Over Collections

3. The Value Musical Chairs Lifecycle

   1. How Value Traps Are Born

4. Value Investing In The Mirror: Human Failures

Part IV: The Intelligent Investor, Reimagined

1. Value & The Multiflation Method

2. If You Die In The Financial Matrix, You Die In Real Life

3. What Value Can Learn from Growth, Momentum, Quant, and Pod Shops

4. Cash & Fixed Income Alternatives for Multiflation

5. During An Inflation, Limited Prudent Speculation May Be Intelligent

Series Table Of Contents

Previously: The Forgotten Man

The Forgotten Man—the productive middle class—has been reduced to a “coppertop battery” whose life force powers the Financial Matrix.

The Financial Matrix’s architects styled themselves Sorcerers, but proved mere Sorcerer’s Apprentices—summoning forces well beyond their control. Like the fable’s enchanted brooms, the Financial Matrix has taken on a life of its own, flooding the chamber—the global economy—and drowning civilization in the deluge.

In Goethe’s original tale, the Sorcerer eventually returns to break the spell; in our reality, however, there is no Sorcerer to restore order and halt the rising waters.

When civilization drowns, what Leviathans surface from the depths? And how do we preserve wealth in their wake?

When Money Dies, Reality Dies

During COVID, our Sorcerer’s Apprentices lost control of their spell and devoured economic reality: the markets—if not society itself—suffered a schizophrenic break. Ever since, we’ve inhabited a world that feels increasingly like a fever dream; a glitching simulation in which the cause-and-effect logic of the past no longer applies:

While some attribute the gnawing sense that something is terribly wrong—that “nothing feels real”—to the rise of AI and social media, the roots of this dissolution reach far deeper—to the foundations of civilization itself.

AI and social media certainly intensify our disorientation, of course, yet such feelings of irreality are—and have always been—a defining feature of money’s death throes. Money is society’s operating system; when money dies—as it loses its meaning and value—so too does everything else: life feels increasingly hyperreal, a hollow facsimile of its former substance.

We are not the first society to experience this particular affliction. Well before the advent of AI deepfakes, Thomas Mann described the Weimar hyperinflation as a “witches’ sabbath”—a feverish enchantment under which reality dissolved into delirium. As Paul Cantor argued in his seminal essay Hyperinflation and Hyperreality—and we explored further in The Flight Into Fake Values—Mann traced this dissolution to “the monetary madness of the Weimar Republic”:

Mann suggests that if we seek an explanation of the dissolution of authority in the world he is portraying, we should look to the monetary madness of the Weimar Republic…Inflation eats away at more than people’s pocketbooks; it fundamentally changes the way they view the world, ultimately weakening even their sense of reality. In short Mann suggests a connection between hyperinflation and what is often called hyperreality...

A strong sense of counterfeit reality prevails in “Disorder and Early Sorrow.” That fact is ultimately to be traced to the biggest counterfeiter of them all the government and its printing presses…Inflation is that moment when as a result of [money printing] the distinction between real money and fake money begins to dissolve.

That is why inflation has such a corrosive effect on society. Money is … the principal repository of value. As such, money is a central source of stability, continuity, and coherence in any community…To tamper with the basic money supply is to tamper with a community’s sense of value. By making money worthless, inflation threatens to undermine and dissolve all sense of value in a society.

This sort of counterfeit reality—born of counterfeit currency—is recurrent throughout history. Indeed, it is perhaps no coincidence that the term hyperreality itself emerged during America’s last great monetary crisis. Baudrillard coined it in the 1970s amidst the stagflation spawned by the collapse of Bretton Woods. While he observed that the untethering of money from gold allowed it to “escape…beyond any reference to the real,” it was Cantor who later traced the causal link—demonstrating that monetary derangement is the wellspring of the hyperreality that Baudrillard was exploring. Baudrillard more fully developed hyperreality in Simulacra and Simulation—published near the conclusion of the great stagflation, in 1981—which became one of the inspirations for The Matrix:

The artists of the Great Mirror of Folly, too, depicted the all-consuming hyperreality devouring their own society during John Law’s infamous monetary experiment, the Mississippi Bubble of 1719-1720. Law’s financial alchemy produced not only the notorious speculative mania, but also a “world in masquerade”—enchanted by symbols severed from substance, in which “ideas and words themselves seemed to lose all meaning.”

This selfsame spell has now been cast over the West. Though we have not—as yet— reached Weimar-scale hyperinflation, the pervasive hyperreality and mass dissociative state that Thomas Mann and the satirists of the Great Mirror captured is nonetheless unmistakable in our society.

Nor is it solely a product of the pandemic and its aftermath; in truth, the seeming ‘normalcy’ of recent decades had itself been a manufactured construct all along. The COVID era simply revealed the code underlying the simulation for what it was.

For those who began to see through the Financial Matrix during COVID, the shock wasn't so much the chaos, but the realization that the prior order had been a lie. The Forgotten Man had played by the rules—saved, worked, deferred gratification—only to discover the game was rigged from the start.

COVID made the rigging visible in ways that shattered all prior illusions. Small businesses shuttered while asset prices soared. Inflation destroyed the value of wages and savings while asset holders multiplied their wealth within the Financial Matrix overnight. ‘Essential workers’ were praised even as they were impoverished by inflation. And even now the revelations of corruption still pour forth—fresh scandals and fraud emerging in relentless succession from every stratum of society—each one making the emperor’s nakedness impossible to ignore.

From Hyperreality To Hostility

The dying of money—and the hyperreality this unleashes—engenders a population that is disoriented and increasingly angry. Amidst this civilizational unmooring, people grasp for systems and saviors that promise to restore order and meaning, even when—or precisely because—those systems and saviors are radical.

The “political center” cannot hold because the economic center—the Forgotten Man—has been eviscerated, stripping the body politic of its natural immune system and leaving it vulnerable to ideological contagion. Long-gestating radical doctrines that perhaps struggled to gain purchase suddenly find fertile ground amidst a populace that has lost faith in the system.

When honest work can’t secure basic necessities; when saving means impoverishment; when owning a home becomes impossible for many; when the prudent are punished while the reckless and corrupt rewarded; when the Forgotten Man feels as if he is being robbed and held hostage with his own money—betrayal hardens into rage. When the “coppertop batteries” realize the rules they’ve been playing by are a suicide pact, they don’t shrug and peacefully withdraw to Galt’s Gulch. If reality itself has been inverted, they feel, then the old system deserves to be burned down.

The Forgotten Man—and particularly the young Forgotten Man—impoverished by the Financial Matrix operating under “capitalism’s” banner, doesn’t distinguish this counterfeit simulation from genuine free markets; he simply knows the game is rigged and attacks ‘capitalism’ itself. As Peter Thiel noted on the eve of the pandemic—even before all hell broke loose—the Forgotten Man already had nothing to lose and no stake in the system:

The situation has only deteriorated since. Those positioned within the Financial Matrix—asset holders—have grown wealthier as debased dollars fuel asset price inflation. Meanwhile, the majority of Americans—net asset negative and living paycheck-to-paycheck—have been doubly plundered: debasement devours their purchasing power while their tax dollars both fatten fraudsters and further entrench their disenfranchisement. The Financial Matrix’s architects had chosen the winners and losers in advance—and the Forgotten Man was excluded by design.

And so a spectre haunts the global capital markets: the façade of the Financial Matrix’s “free market” is increasingly being abandoned for a variety of ‘isms’—all of which take the form of intensifying political control over the economy and financial markets. While these emerging political forces may superficially appear to be mortal enemies locked in battle, together they are consummating the destruction of the old order.

Like predators fighting over a dying animal, they rend the ‘Forgotten Man’ apart from all sides. The “Invisible Hand” gives way to iron fists reaching out to strangle what remains of private capital—accelerating the violent economic whiplash and financial repression that defines Multiflation.

Gotham City: Smash The Kulaks!

The capital of global finance—the largest metro area in America, the city that houses Wall Street, the thrumming mainframe rendering the Financial Matrix—has just elected a mayor whose stated ambition is to replace “the frigidity of rugged individualism with the warmth of collectivism.”

Mamdani’s housing czar has openly declared that the government has a “sacred right to seize private property” and that “homeownership itself is “a failed public policy,” as well as advocating for a future where the “middle class [is impoverished]” and “the state guarantees high-quality housing to all”:

Mamdani and his administration are explicitly championing what can only be described as a textbook Bolshevik-style program of collectivization—the seizure of private property and its transfer to state control. The term is chosen deliberately, not as hyperbole: collectivization has a specific historical meaning that applies here.

Mamdani’s and Weaver’s rhetoric, too, mirrors that of the Bolsheviks. The road to collectivization first required demonizing the kulaks—the productive, middle-class yeoman farmers who served as the backbone of the rural economy. Though their ‘wealth’ was often meager—perhaps a metal plow or a few extra livestock—they were vilified as predatory ‘class enemies’.

Once transformed into villains in the public consciousness, their dispossession became not merely permissible but morally necessary:

In the eyes of the State, their independence was an intolerable affront to the collectivist ideal, justifying their destruction in the name of The Radiant Future. In Stalin’s own words:

That is a turn towards the policy of eliminating the kulaks as a class…Without it, no substantial, let alone complete, collectivisation of the countryside is conceivable. That is well understood by our poor and middle peasants, who are smashing the kulaks and introducing complete collectivisation.

The Soviets called this campaign dekulakization. Millions of kulaks were stripped of their property, exiled, imprisoned, or worse—all in service of “the greater good”.

Today, landlords and homeowners are being targeted as New York’s kulaks—exploiters whose private ownership stands in the way of the collective good. The danger isn’t so much that Mamdani will replicate Stalin’s atrocities, but rather that he will replicate Stalin’s economics: once the principle is enshrined that private wealth is in fact public property awaiting reclamation, confiscation becomes constrained only by power and practicality—whether institutional guardrails hold against political will, whether capital escapes before the trap closes, whether the targeted are able to successfully defend themselves—in courts, or by other means.

The possible failure of Mamdani and his comrades to fully realize their collectivist goals does not justify dismissing such openly stated intentions to collectivize as mere posturing; history warns against such complacency. Even after seizing power in 1917, the Bolsheviks were widely dismissed by domestic opponents and foreign powers alike as fringe radicals whose grip on power couldn’t possibly last—their regime viewed as ephemeral, their programs too extreme, too economically ruinous, too contrary to human nature to ever be fully implemented.

Whether Mamdani ultimately succeeds or fails in implementing his specific programs matters less than understanding the forces that elevated him to power. These same Multiflationary forces are producing similar outcomes across the West, making figures like Mamdani less important as individuals than as “morbid symptoms” of Gramsci’s interregnum now metastasizing across the West—canaries signaling that the air has already turned toxic.

The specific tactics and degree may vary, yet the essence remains: all subordinate private property and market allocation to political control. California, for example is proposing a redistributive wealth tax on unrealized gains:

This ‘soak the rich’ philosophy is now accelerating rapidly throughout the West:

The Netherlands is proposing taxing unrealized capital gains:

Unwilling to cut spending in the face of insurmountable debt loads—perhaps the result of an intentional Cloward-Piven strategy—Western governments are converging on a politically expedient prescription: dekulakization. What begins by targeting ‘billionaires’ and ‘landlords’ inevitably cascades as governments redefine the threshold of ‘wealth’ ever lower—until those who cheered the confiscations discover that they, too, are kulaks.

Washington Seizes the Commanding Heights

As New York City, California, London, and beyond embrace Bolshevist-style collectivization and wealth redistribution, Washington is pursuing ever more extensive economic interventionism—trending towards the “German pattern” of socialism that maintains capitalism’s facade while increasingly implementing socialism’s reality: private property remains in name but becomes subject to comprehensive state direction in practice.

Unlike Soviet-style collectivization, the German model preserves the form of private ownership while hollowing out its substance. Businesses retain their titles and corporate structures, but their fundamental decisions—what to produce, where to invest, what prices to charge—become increasingly subject to political diktat rather than market forces. The current trajectory in Washington—while far less extreme than historical precedents—shares this essential characteristic: the progressive subordination of economic decisions to political control.

The shift from market pretense to political diktat is now accelerating into public view. President Trump’s DOJ announced an investigation into Fed Chair Jerome Powell—perhaps the latest salvo in his campaign pressuring Powell to cut rates:

Powell’s response was immediate and defiant, framing the DOJ subpoenas as naked political interference in monetary policy:

The hysterics over President Trump’s supposedly novel incursions into “Fed independence” ignore historical precedent—see LBJ and Nixon—and obscure a deeper truth. The Trump-Powell confrontation represents less the corruption of a pristine pillar of free markets than the abandonment of pretense: the Fed was never a market institution. After all, what is a central bank with monopoly control over credit if not—functionally, at least— Plank 5 of the Communist Manifesto?

How is it possible to have free and open markets when the operating system of the entire economy—money and interest rates—is closed source and set by committee diktat? Or when a President can “influence” the committee? Asking such a question is heresy, of course. The Fed is the monetary water in which we swim—so ubiquitous that questioning it is as nonsensical as questioning gravity. Central banking is viewed not merely as compatible with capitalism but essential to it—without which it would be impossible to imagine a modern economy.

Yet the vaunted myth of sacred “Fed independence” as an essential ingredient of American capitalism is even now being revealed by President Trump for the farce it always was. Indeed, hysteria over Trump pressuring Powell provides the reductio ad absurdum to the entire Fed apparatus: we’re debating which central planner should control money and rates. It brings to mind the apocryphal exchange attributed to Churchill/Shaw about propositioning a socialite for a million pounds, then haggling down to five—we've already established what the Fed is, now we're just haggling over who holds the levers.1

War Socialism & The New Command Economy

The ongoing confrontation with Powell, dramatic as it is, represents only one front in a broader policy offensive in Washington to seize what Lenin called the “commanding heights”—the strategic control points of the economy.

Tariffs become weapons; industrial policy targets strategic sectors; the federal government now owns stakes in ‘private’ enterprises ranging from Intel to rare earth miners to steelmakers; the President secured “golden shares” holding ultimate veto power over corporate actions; extracted revenue cuts from chipmakers’ China sales; floated taking direct stakes in oil companies and pressured them to invest $100 billion in Venezuela—all as a “down payment on a sovereign wealth fund”. At the same time, the President threatens pharmaceutical companies with “every tool in our arsenal” if they don’t slash prices, while proposing credit card rate caps and new GSE mandates to purchase mortgages.

Even now, US policy appears to be escalating towards explicit “war socialism”—a hard, command-and-control economy in which private economic decisions are subordinated to strategic national objectives:

Conclusion: Who, Whom?

The insidiousness of the Financial Matrix was always its camouflage—how convincingly its trappings mimicked a market economy. Now, however, the system has entered its terminal phase. As Multiflation accelerates and the “coppertop batteries” run dry, the disguise is being discarded in favor of brute political force from all quarters.

We are living through what Antonio Gramsci termed the “interregnum”—that dangerous twilight in which “the old world is dying, and the new world struggles to be born.” The “morbid symptoms” of which he spoke now surround us—and find their collective expression in Multiflation: the Forgotten Man, hyperreality, glitches in the Financial Matrix, rage, populism and extremism, cults of personality—all of it.

It is no longer contested whether private wealth will be subject to political diktat, or whether political allocation should supersede market allocation. The only question remaining is Lenin’s: “who, whom?”—who does what to whom, the reduction of all politics to this zero-sum question.

The political spectrum has converged on a single premise: State primacy. While the warring factions may fight among themselves as if they are mortal enemies, all political conflict is a knife fight over who wields control over the State’s supremacy over private capital—and against whom.

Next: The Vampire Economy’s Three-Front War On Capital

Yet what may appear as a sudden, radical departure from American norms—“the old world dying”—is in fact the end state of a process that began generations ago. The forces now converging—from Mamdani’s collectivization to Trump’s interventionism—aren’t so much shattering the system as stripping away the remaining threadbare illusions obscuring a transformation set in motion long before any of today’s political leaders were even born.

To understand what lies beneath the Financial Matrix’s failing disguise—and how to preserve wealth in the Multiflationary maelstrom now engulfing us—we must return to the source: FDR’s New Deal.

In Part III, we examine how the New Deal laid down the primitive scaffolding for what would—seventy-five years later—be perfected into the Financial Matrix. Understanding this system’s origins and history—and its current unraveling—is prerequisite to the preservation of capital as the interregnum intensifies and Leviathans surface.

The investing strategies that sustained wealth for four decades were built for Goldilocks’ calm seas and presumed at least some semblance of property rights. But Goldilocks was the aberration—an artificial stability purchased with monetary alchemy that has now reached its limit—and the investment strategies built for her world assumed away the very risks now materializing before us.

We find ourselves in uncharted waters, facing risks few living investors have ever confronted—or if they did, only briefly, and never at this scale. We must invest accordingly.

Next: The Vampire Economy

Series Table Of Contents

No Country For Young Men

For most of America, the headlines trumpeting a “strong economy” and “stocks at record highs” land like a cruel joke. ’s recent series My Life Is A Lie attempted to quantify the economic devastation felt by the majority of the country these many years. This carnage has been sanctified by our technocrats—an Aztec priesthood invoking sacred economic statistics as celestial omens to justify the ritual sacrifice of society on the altars of GDP and the S&P 500.

Green, an investment industry insider, gave voice to the Forgotten Man:

Predictably, the priesthood declared heresy. Economists, journalists, thought leaders, think tanks, and other fellow travelers circled the wagons, tearing apart Green’s numbers, splitting hairs, and nitpicking his methodology.

That is a grave mistake.

Fiddling While Rome Burns

This sort of wonkish debate—whether the poverty line is $30k or $140k, whether CPI is 2% or 4%—exemplifies the scientism enabling our national dissolution: the religious belief that the statistical map is more real than the economic territory. Perhaps such effete technocratic sophistry could be tolerated—even indulged—were the body politic unified. But it is a fatal conceit in such a Balkanized powder keg of a nation.

Into this highly combustible environment, Green’s essays landed like an errant spark. If nothing else, Green forced a long-overdue reckoning with a reality that the credentialed class has steadfastly refused to acknowledge: that they themselves have spent decades drowning the American Dream in a flood of ruinous policy, even as they now insist that the water level is perfectly fine and that Americans are simply bad swimmers.

Such an acknowledgment, however, would be tantamount to confessing that their entire worldview—the long Postwar Consensus—rests on a meticulously constructed lie. That the intellectual facade of modern finance and economics, the modern monetary system and central banking, fiscal and monetary policy, financialization, globalism—all of it—has strip-mined the nation and fracked the American bedrock, leaving behind a slag heap of poverty, misery, and rage in place of the prosperity it promised.

That their own lives have been a lie.

From Picket Fences To Shoebox Micro-Apartments

The party told you to reject the evidence of your eyes and ears. It was their final, most essential command.
—Winston Smith

Whether Green’s numbers withstand academic scrutiny is altogether beside the point. His essays struck such a visceral nerve because Green—as someone with institutional investment credentials—put numbers to what millions have experienced firsthand for decades. And he did so at precisely the moment when their long-simmering rage is boiling over.

And then the Minnesota headlines broke.

If Green’s essays were a stray spark drifting toward the powder keg, these revelations of fraud represented a blazing torch hurled straight at it. Billions have been bled from the American middle class—those who can barely afford their own children—to bankroll the imaginary children of fraudsters.

But the scale of the plunder extends far beyond one state:

The populace’s rage, therefore, springs from a well far deeper than Green’s economic statistics—or any one else’s, for that matter—could ever fully plumb. Understanding this fury—and its implications for both our civilization and our portfolios—requires returning to an existential question we posed five years ago: how did we devolve from the society depicted in the New Yorker’s 1957 Christmas cover (left) to that depicted in its 2020 Christmas cover (right)?

These two contrasting images—set six decades apart—bear witness to a birthright betrayal so absolute that it defies measurement. The transformation seems inconceivable: in the course of a single lifetime, how did the most prosperous civilization in history come to cannibalize its children's futures?

Asked differently, how could prior generations buy houses, raise families, and afford healthcare on a single income—and then retire—while younger generations drown in debt, face bleak job prospects, are cursed to rent forever, risk financial ruin from hospital visits, and accumulate pets rather than rear children?

Why do so many feel worse off than even a decade ago, despite record asset prices and strong GDP growth? And why has this malignancy metastasized simultaneously throughout the Western world—the US, Europe, Canada, Australia?

The answers won’t be found in economic textbooks, models, and policy papers that led us here in the first place. Nor will they emerge from the clerisy who authored them:

But answer these questions, and the chaos of our age suddenly resolves into clarity: not only the financial stress, but the seething rage erupting across Western nations worldwide. The collapse not merely of institutional trust, but of societal trust writ large. The rise of populism and politically motivated violence. The pervasive sense that the very fabric of civilization—if not reality itself—is being torn apart at the seams. The gnawing feeling shared by ordinary people that they are struggling to survive a precarious interlude before some major cataclysm strikes.

Mr. Market’s Schizophrenic Break Of 2020

The madness of the 2020-2021 COVID era was apocalyptic—literally a lifting of the veil: governments induced a global economic coma yet asset prices—the economy’s vital signs—registered euphoric highs. It was as if a comatose patient's monitors indicated an Olympic athlete in peak condition—the clearest illustration of what Green is now attempting to quantify.

Meme stocks, fake currencies, and bankrupt companies—indeed all assets—went parabolic even as the economy flatlined.

We call this period Mr. Market’s Schizophrenic Break, the absurdity of which was perhaps best encapsulated by David Portnoy (aka “Davey Day Trader”) picking stocks out of a scrabble bag on Twitter and CNBC—a strategy that consistently worked!

The Financial Matrix

Portnoy himself saw through this surreal facade during the height of the COVID market mania:

The good news is I know it’s rigged. The government is [saying] don’t worry we’re just gonna create a trillion-billion-zillion dollars. It’s fantasy land. It’s Schrute Bucks [fake money from a popular TV show]. It’s the worst coronavirus day in a while and the government is saying don’t worry about it cause we’re gonna print a quadrillion dollars and the market sky rockets. The stock market is disconnected from reality. The whole thing is a pyramid scheme. We’re living in the Matrix.

Portnoy wasn’t merely ranting, however—he had unwittingly laid bare the central economic mystery of our age, one that somehow eluded our credentialed classes: that the numbers and charts streaming across Bloomberg terminals had become utterly divorced from the reality of everyday life.

In this inverted Bizarro World, bankruptcy was bullish, currencies invented as a joke were enormously valuable, and picking stocks from a Scrabble bag was a wise investment strategy.

With a degenerate gambler’s uncanny intuition for detecting rigged games, Portnoy had stumbled onto a profound truth: that financial reality had somehow been replaced with an elaborate, videogame-like simulation—the Financial Matrix. This self-contained universe was governed by its own laws and utterly indifferent to the world it was supposed to represent.

The 2020-2021 COVID madness represented the reductio ad absurdum toward which the entire post-War policy consensus had been hurtling—the culmination of decades of pathology that had metastasized to such absurd extremes that it became impossible to ignore even for laymen like Portnoy and his “degen” followers.

But while Portnoy had correctly identified the symptoms, he had not diagnosed the underlying disease. Five years ago this month—amidst the heights of the COVID market mania—we set out to identify the cancer at the heart of the global financial system, to understand how virtual reality had replaced reality, and to assess the implications for investing.

The result was The Sorcerer’s Apprentice & The Man Who Broke The Markets. In Sorcerer, we traced the vectors of metastasis—monetary, memetic, algorithmic—that had spread through the global financial system, mapping the ways this cancer would ultimately upend markets, economies, and societies worldwide.

We originally published Sorcerer privately in January 2021. However, as the pathologies we diagnosed then have only intensified in the interim, we felt compelled to expand and update the work for a public audience. This growing urgency also explains why Green’s recent series resonates so deeply now. The economic cancer we diagnosed in late 2020—having metastasized invisibly for decades, revealing itself only in occasional paroxysms, as in 2008—finally became impossible to ignore when the COVID policy response devoured economic reality itself in 2020-2021, and then in 2022 ignited the worst inflation in five decades.

The Day Is Come

The COVID years—and beyond—mark the fulfillment of Francisco d’Anconia’s prophecy. He exhorted us to watch the money—to read it as the barometer of a society’s virtue. He warned of the day when ‘money is flowing to those who deal, not in goods, but in favors’ and when ‘men get richer by graft and by pull than by work.’

Look around. That day is not coming; rather it is already here. Green’s essays and recent news headlines merely crystallized the gnawing suspicion that has haunted the American subconscious since at least the 2008 Crisis: that for decades the productive American citizen has been taxed and inflated into serfdom—forced to finance their own dispossession and the demolition of their way of life. Americans have been reduced to human batteries whose life force powers the Financial Matrix.

It is even now dawning on the citizenry that the “strong economy” and “record-setting stock market” are merely mirages conjured by the Financial Matrix—phantom metrics generated by and for the simulation. Meanwhile, in the ‘desert of the real,’ the productive have been treated as enemies, and “those who deal in favors” preside over a Witches’ Sabbath wherein swindlers parade as sages and vice dons the robes of virtue:

Here, corruption is rewarded and honesty has become a self-sacrifice—the laws no longer protect you against them, but protect them against you: “for my friends, everything; for my enemies, the law.”

Up Next: The End Of Illusion

In Part II: The End Of Illusion, we will examine the pincer now closing in on American—if not global—capital: the overt collectivism rising in major cities like New York and the command-economy dictates descending from Washington. As it becomes increasingly unwieldy to maintain the Financial Matrix’s illusions, those operating it—as well as those opportunists exploiting the mounting chaos created by the system—are abandoning the pretense of market mechanisms for more naked political control.

Whether the Financial Matrix can sustain ‘record highs’ in the stock market—at least in nominal terms—should now be of secondary concern.

The era of investing primarily for ‘Return on Capital’ has ended. The primary objective must now be ‘Return of Capital’—quite literally.

The investment ‘truths’ of the pre-COVID ‘Goldilocks years’ were a digital mirage, sustained only by the artificial logic of the Financial Matrix. Now, however, the code is glitching. As the simulation crashes headfirst into the volatile reality of Multiflation, rigid adherence to these old certainties is becoming a dangerous liability.

The pincer crushes what is fixed, yet cannot grasp what is fluid.

Be Water.

Next: The End Of Illusion

Early in our careers, we treated corporate governance the way we treat Apple’s software terms and conditions—37 pages of legal boilerplate to scroll past while hunting for the ‘Accept’ button so we could get down to real work. Most investors still operate this way.

Fast forward a few market cycles, and we’ve come to realize that this approach is akin to evaluating a marriage’s prospects based on wedding vows and Instagram photos while ignoring the prenup and private diaries of the betrothed. The social media feed is carefully curated for public consumption. The vows reflect genuine hopes. But the prenup and diaries reveal what the couple actually expects and believes—and their likely behavior patterns. The prenup because it’s legally binding; the diaries because they’re written assuming no one will read them.

Governance operates on the same principles. In proxy statements, compensation agreements, and governance filings, companies temporarily stop selling stories to investors and bind themselves—legally, explicitly, in writing—because their lawyers force them to.

As we wrote in the Paper Bitcoin Razor:

Dark Arts 101

Compensation structures are inadvertent confessionals of the corporate soul.

In governance, the mechanics are the message.

ZoomInfo’s Moonshot Pay Package

Understanding governance requires a skill set—and mindset—most investors don’t cultivate. Clarity emerges from connections between filings and from the choice of one metric over another. Not in explicit statements, but in strategic omissions and selective emphasis.

Headlines and Tweets reduce complex situations that require holistic understanding to isolated sentences and decontextualized fragments. Most investors assume that if something important is occurring, the relevant details will be explicitly stated in a filing. It won’t be. As we explored in Let’s Break A Deal, the work demands that you become your own detective—assembling puzzles from scattered pieces—all while recognizing that pattern recognition alone can mislead.

ZoomInfo’s (Nasdaq: GTM) recent compensation filing is one of the most extreme structures we’ve seen outside of Elon Musk’s infamous $1 trillion Tesla pay package—though on a different scale entirely.

What follows is divided into two parts. First, we examine what ZoomInfo’s compensation structure reveals about the board’s strategy. Second, we offer a hypothetical reconstruction of how such an extreme package might come to exist—a piece of speculative fiction meant to illustrate what might have taken place behind closed doors.

It’s worth noting that ZoomInfo is emphatically not a Confluent-type situation—recall that Confluent involved a market participant apparently betting on an imminent acquisition through a unique options structure. ZoomInfo involves an irregular governance structure that reveals a company at a strategic crossroads—the company might execute, might get sold, or might fail. Whether the compensation package is a hopeful signal—or a desperate one—depends entirely on your assessment of whether the company’s franchise is stabilizing or eroding.

Dark Arts: When The Board Shows Its Hand

On November 26, 2025, ZoomInfo’s board granted CEO Henry Schuck a one-time, premium-priced, performance-based option award. The board has encoded such an oddly specific playbook—almost play by play—that its mechanics likely reveal what they believe is the company’s only viable path forward.

If the company’s strategic plan actually works—not in part, but in full—Schuck will join the ranks of the wealthiest executives in “small-cap” software. He received options on roughly 9.7 million shares with a strike price set at $13.54—a massive ~40% premium to the grant-date fair market value.

If the stock reaches $100—roughly 10x today’s price—Schuck’s in-the-money value will exceed $400 million pre-tax, and the upside beyond that is unlimited. ZoomInfo would vault from a $3 billion small-cap into large-cap territory. That would likely trigger the type of self-reinforcing cascade we’ve described in The Sorcerer’s Apprentice: index inclusion forces institutional buying, which drives the stock higher, which attracts more buyers, which transforms the shareholder base entirely. Success becomes its own reflexive stock price accelerant.

The award runs for ten years. The structure suggests the company doesn’t intend to grant other equity awards during this period. This appears to be a single, all-or-nothing structure with unlimited upside that bets on transformational change.

But make no mistake: this is not really a ten-year deal or a bet on a ten-year opportunity—the CEO is on notice, and he is not Elon Musk. The reality is that the runway is likely much shorter: six to eight quarters, perhaps as few as four if the activists become more vocal or the business deteriorates more rapidly than expected.

The Metrics: Reverse-Engineering the Strategy

Compensation plans that appear as if someone reverse-engineered leveraged buyout math and bolted it onto a public company pique our interest. They force us to ask: what external force made incrementalism unacceptable?

The CEO’s options vest here only if two conditions are met.

1. Cash Flows: the company must hit a series of adjusted free cash flow per share targets, from $2.50 to $5.00.

2. Stock Price: the stock must trade at increasingly high absolute price levels — from $40 up to $100 — measured as a 20-day average.

There is one more gate: ZoomInfo’s total shareholder return (TSR) must beat the bottom quartile of the Russell 3000.

This reads to us like an LBO playbook translated into public-company compensation structure. We’ve privately advocated for variants of this framework with proven operators over the years, but this level of explicitness and extremity is rarely seen in public filings.

ZoomInfo’s pay plan does not reward steady execution across a range of outcomes. It rewards only a very narrow set of extraordinary results. Boards don’t design structures this extreme—this binary, this convex—without a specific event path or catalyst in mind.

Boards only resort to terms like these when they believe that incrementalism will not fix the problem—or when someone with influence has made clear that incrementalism will no longer be tolerated. While this filing alone cannot tell us exactly what happened in the boardroom, its unique structure tells us something of critical importance took place.

What Occurred In The Boardroom?

So what made incrementalism unacceptable in the case of ZoomInfo?

One possibility is that activists or shareholder influencers told the board that the current strategy is failing, and demanded either dramatic operational improvement or a sale process. Another possibility is that a private equity firm approached the company with a take-private proposal at say, $14-$20 per share.

The compensation structure suggests that the latter might have occurred, or at least informed management’s thinking. When PE firms circle a software company, they typically arrive with a specific value creation playbook already modeled out in Excel: stabilize revenue, optimize the cost structure, lever up modestly, and then buy back equity aggressively to manufacture per-share growth.

They know the leverage ratios they’ll apply, the operational improvements they’ll mandate, and the exit multiple they’re targeting. The CEO likely received such a proposal, took one look at the numbers and thought: “Why hand you a 15-25+% IRR when we are perfectly capable of running this playbook and keeping all of the upside for ourselves?”

In a sale, the CEO might not survive the transaction. The board certainly wouldn’t. If the company thought itself capable of executing the same plan internally, it could maintain control—alongside salaries for management and the board—and participate in the upside rather than passively watching someone else harvest it.

As we showed in the Paper Bitcoin Razor, a company’s choice of metrics inadvertently exposes management’s true priorities. ZoomInfo’s compensation plan encodes Private Equity LBO logic into its incentive structure, right down to the specific cash flow per share targets that would make a financial sponsor salivate.

Monkey Math

Adjusted free cash flow per share is as much a financial engineering metric as it is a growth metric. By tying executive compensation to it, management is effectively signaling that they are playing a game of financial optimization: they are less incentivized to make the pie bigger (growth) than they are to slice the pie into fewer pieces (financial engineering).

The fastest way to improve adjusted free cash flow isn’t to innovate—a risky endeavor with uncertain outcomes. Instead, it’s much safer and faster to manipulate the arithmetic itself—financial engineering—by reducing the number of partners splitting the profits. Crucially, heroic revenue growth is not required for this strategy to work, only that the business stop deteriorating—leaving simple arithmetic to do the rest.

The financial engineering playbook is straightforward: shrink the denominator and harvest the numerator. Buy back stock so each remaining share claims a larger slice of the same pie. Avoid dilution. Keep debt flat and control costs tightly. Never buy another company unless it is immediately accretive on a per-share basis. Reshape the narrative around the business, generate operating leverage as revenue stabilizes. Watch the multiple expand as the per-share metrics improve.

Financial engineering is, fundamentally, about levers. LBO math is not magic—it amplifies whatever it’s applied to. If the franchise is strengthening, per-share math may reflect value creation. If the franchise is weakening, per-share math may mask it.

The Board’s Riposte

The board’s decision to grant Schuck this extreme compensation package could effectively be their answer to private equity suitors: “We choose the founder-CEO over the financial sponsor. Give our guy a shot to run your playbook ourselves.”

The backup plan is likely simple: if this plan doesn’t bear fruit within a few years, they assume they will still be able to sell the company. The compensation structure gives them optionality while maintaining control.

So far, so plausible.

The stock price condition is where things get more interesting—and uncertain. Free cash flow per share can be financially engineered. The market’s willingness to capitalize those cash flows at $40, $60, or $100 a share is a different problem entirely. Companies can buy back shares aggressively and still watch the multiple compress if the market believes the business is slowly being commoditized, disintermediated, or hollowed out.

The compensation structure acknowledges this tension explicitly: by requiring both cash flow targets and sustained stock price appreciation, the board is forcing management to prove that their financial engineering can drive a stock re-rating. The 20-day average matters because it forces durability into the equation: the board doesn’t want vesting triggered by a random, temporary spike—they want evidence of a sustained re-rating.

The inevitable Elon Musk moonshot pay package comparison falls short here. Musk’s package was a bet on vision—industry transformation and an irreplaceable star CEO. Schuck’s package is merely a bet that the underlying business can stabilize—and perhaps even improve—just enough for the market to believe the cash flows are not simply being pulled forward to the present from the future.

The Financial Engineering & Leverage Trap

Here is where financial engineering becomes genuinely dangerous, and where many investors who focus exclusively on such engineered metrics get burned. Debt and financial engineering are at best an accelerant to the direction and rate of change of business fundamentals.

Management can control the arithmetic. They cannot control whether customers still value the product.

For a business like ZoomInfo, if you focus only on the financial engineering—the shrinking share count, the improving cash flow per share—without monitoring whether the topline is truly growing and whether that growth is flowing through to cash flows, you’re setting yourself up for disappointment.

If customers treat the product as a commodity rather than a strategic necessity, financial engineering becomes a treadmill—buying back shares while the business itself loses its moat. For data businesses, this is the existential question: are you embedded deeply enough that switching costs are prohibitive? Or have you become just another vendor that customers can price-shop and replace? Once you’re viewed as a replaceable utility rather than mission-critical infrastructure, no amount of financial engineering can prevent multiple compression.

Just because the company bought stock at $15 and it’s now $10 doesn’t necessarily mean they should buy more aggressively—if the business is deteriorating, this only serves to compound the original error by buying a melting ice cube at incrementally lower prices.

For ZoomInfo, additional ‘Melting Ice Cube’ risk stems from recent advances in AI that can scrape, verify, and synthesize B2B leads—potentially commoditizing their proprietary databases. Every dollar the company allocates to buybacks for short-term FCF targets is diverted from the R&D needed to evolve from data provider to AI platform, effectively betting that financial engineering can outpace technological disruption.

This is the nightmare scenario: revenue continues to stagnate or decline. Customers increasingly treat the product as a commodity. Management keeps buying back shares to hit per-share targets, but the multiple compresses faster than the denominator shrinks. Every quarter without revenue growth makes it more difficult to operate the business with leverage.

The longer the business is unable to demonstrate operating leverage improvement, the more investors fixate on the debt load rather than engineered metrics. PE firms who initially bid or expressed interest walk away entirely. Management has financially engineered their way into a trap—quarterly results become increasingly difficult to defend, and the downward spiral accelerates.

The next few quarters will be revealing for ZoomInfo. If revenue stabilizes and then inflects upward, if margins expand because of genuine efficiency rather than simply cutting investment, then the financial engineering becomes an accelerant of inflecting business fundamentals.

But if revenue growth continues to be anemic, if operating leverage remains elusive, if the only improving metrics are the per-share ones driven by buybacks, then we’ll know this is harvesting and cosmetics.

This raises a broader question that extends beyond ZoomInfo and applies to any company anchoring incentives to financially engineered metrics: Are buybacks supplementing value creation or substituting for it? Watch what the company is willing to sacrifice. If buybacks accelerate while investment into the business erodes, you are witnessing financial engineering or harvesting. If buybacks coexist with visible product strength, stable retention, and pricing power, it’s possible that the buybacks supplement true value creation.

Both paths can appear superficially positive in the short run. Only one is sustainable in the long run.

A note on insider buying: when a CEO buys stock because the numbers are genuinely inflecting—because the business is accelerating, not because it’s “cheap” or has declined in price—that’s an important signal.

But when insider buying coincides with aggressive financial engineering the signal is more complicated to decipher. The CEO is likely buying because he’s calculated that his downside is protected: either the buybacks work and the stock re-rates, or PE returns with a floor bid. That’s a different thesis entirely, and the distinction matters enormously for outside investors.

The Dark Side Of Moonshots

Compensation structures this convex have a dark side.

When the payoff resides almost entirely in extreme outcomes, management behavior shifts: they focus more on moonshot optionality than on incrementalism and sustainable value creation. Financial levers that are controllable—buybacks, cost cuts, margin expansion—begin to dominate strategic ones that are not.

A dollar spent on R&D or sales capacity might create value in the future, but it definitely reduces this year’s free cash flow per share. A dollar spent buying back stock definitely improves free cash flow per share, but may or may not create value. When your entire compensation—the difference between zero and $400 million payday—hinges on achieving very specific numerical gates, the choice becomes obvious, even if it sacrifices the future of the business.

Conclusion: The Middle Path Is Dead

Return to where we started: governance as binding commitment, whose mechanics are the message. The board has implicitly declared the middle path unacceptable. This plan pays out zero for incremental success. It pays out zero for simply surviving as a mid-cap database vendor. It rewards only one outcome: a radical re-rating of the stock driven primarily by financial engineering.

The board is telling us, in very clear legal language, how it thinks equity value will be created from here. The company is either on a path to a stock re-rating, a merger or take-out—or is potentially facing a situation desperate enough to require moonshot incentives.

This is effectively a temporary "Governance Poison Pill:" a defensive masterstroke to co-opt the activists and PE’s own playbook and encoded it into Schuck’s contract. If a predator arrives claiming they can run the business more efficiently, Schuck can simply point to the filing: "I’m already legally bound to do exactly what you’re proposing—and I’m doing it for $0 if I fail." It is a defensive masterstroke designed to keep the keys by proving he is willing to drive faster than anyone else on the road.

The board has placed its chips on the table and bound management to a very specific playbook. Now we watch to see if the business has enough structural integrity to support the playbook; whether they’re pulling levers attached to something real, or simply pulling levers because the levers are all they have left to pull.

The Prenup Negotiations: When Activists Circle

PROLOGUE: Six Months Earlier

[Private dinner, off-the-record]

CONSTRUCTIVE HOLDER: Henry, appreciate you making time. I wanted to give you a heads up before this gets complicated.

SCHUCK: What am I missing?

CONSTRUCTIVE HOLDER: You’ve got a wolf pack circling. Three funds are quietly accumulating shares—two of them short-term money that'll be gone in under a year. They are already measuring the drapes, planning out the whole sale process.

SCHUCK: And you?

CONSTRUCTIVE HOLDER: I’m long term because I have permanent capital. I think you’re overcapitalizing the business and the growth story stale, but I also think you’re capable. The question is whether you’ll run the right playbook or whether these guys force something worse on you publicly.

SCHUCK: What do they want?

CONSTRUCTIVE HOLDER: Sale process. They don’t care if the business works in three years.

SCHUCK: So you’re warning me out of the goodness of your heart?

CONSTRUCTIVE HOLDER: I’m warning you because I’d rather see you run the right playbook and keep control than watch you get backed into a corner, lose a proxy fight, and have some PE firm execute the same plan and extract all the value. But here’s the thing: if someone shows up offering to buy you higher, and you dig your heels in because you don’t want to lose your job, I’ll back them.

SCHUCK: What’s the alternative?

CONSTRUCTIVE HOLDER: You tell the board you’re willing to harvest the business aggressively. You won’t do a token buyback—you’ll implement a serious program with a compensation plan that proves you’re eating your own cooking. Something so aggressive that when the activists show up, there’s no oxygen left for their story.

SCHUCK: How aggressive?

CONSTRUCTIVE HOLDER: Enough that if I’m wrong about you, you’ll have worked for a decade for nothing. Otherwise, we’re just watching you protect your salary.

SCHUCK: How much time do I have?

CONSTRUCTIVE HOLDER: Three months. Maybe less. If you’re serious, use it.

ACT I: The Activists Arrive

[Conference room, 10 AM]

ACTIVIST: Henry, thanks for the time. We’re filing a 13D Monday. We have three other funds signaling public support—that brings us to a 15% stake collectively. Let me walk you through our position.

The market’s pricing ZoomInfo like a melting ice cube because they don’t believe the growth story. We don’t either.

What we do believe is that someone will pay for that cash flow. We’re forming a strategic alternatives committee. Independent financial advisor—Evercore and probably JP Morgan. Ninety-day process to solicit bids. We think you’ll get offers. If you don’t, we’re nominating a slate at the annual meeting.

SCHUCK: We’ve explored alternatives. The bids aren’t—

ACTIVIST: Respectfully, that was what, twelve to eighteen months ago? The landscape’s changed. Private equity can lever this and harvest. Strategic buyers want your data infrastructure and customer list. The bids are there. The question is whether you want to run a process cooperatively or whether we force it.

SCHUCK: And if we announce aggressive buybacks, show margin expansion—

ACTIVIST: We’re well past that. The time for self-help was six months ago when [names Constructive Holder] tried to work with you quietly. We’re not interested in watching you buy back stock while the business melts. We want maximum price, minimum timeframe.

SCHUCK: You’re saying there’s no scenario where I stay.

ACTIVIST: We’re saying there’s no scenario where the status quo continues. If you can demonstrate a legitimate path to $20+ per share through operational execution, the market will decide. But we don’t think that path exists, and we’re not willing to wait another two years to be proven right.

SCHUCK: When does the 13D go out?

ACTIVIST: Monday morning, at the latest Wednesday. You’ve got until then to decide if you’re working with us or against us.

ACT II: The Private Equity Courtship

[Different conference room, two days later]

PE PARTNER: Henry. Good to see you. Been a while.

SCHUCK: Since the Allocadia discussion. What was that, three years ago?

PE PARTNER: Four. And before that, the Influitive conversation. I think we’ve circled each other on five or six software deals over the years. You’ve always been thoughtful. Which is why it kills me to see you getting dragged through the mud by these guys. That’s why I wanted this meeting before things get messy.

SCHUCK: You want to take us private.

PE PARTNER: We’re prepared to offer $14 per share—subject to due diligence—and we might have room to go higher. Cash. Call it a 40% premium to yesterday’s close. Your shareholders get certainty. You get to run the business without quarterly earnings pressure and activist noise.

SCHUCK: And I keep my job?

PE PARTNER: First year, absolutely. After that, depends on execution. But let me show you what we’re seeing—because you know we know this business well.

[slides deck across boardroom table]

Here’s what we’d do: If you can maintain even modest topline growth we get operating leverage. That incremental margin falls to the bottom line. More FCF. Create a John Malone-style tax shield through strategic use of debt.

Year two, we refinance and pay a special dividend. Year four we sell to another sponsor at a higher multiple because we’ve manufactured double-digit per-share FCF growth.

SCHUCK: While the actual business stagnates.

PE PARTNER: While the actual business stabilizes. Look, we both know the AI risk is real. We both know the market’s getting commoditized. But your Net Revenue Retention is still 105%. Customer concentration is manageable. You’re not dead yet—you’re just not growing 20% anymore. That’s harvestable.

SCHUCK: $14 feels low.

PE PARTNER: It’s a solid IRR for us. Much higher, the math gets tight and starts breaking. You’re welcome to test the market, but you’ve known me long enough to know I’m not lowballing you. This is what we can underwrite, and as I said, we might have room to improve our bid.

SCHUCK: What if we just ran your playbook ourselves?

PE PARTNER: [long pause] You could try. But you’d need board support. You’d need to convince public shareholders you’re serious. And you’d need compensation that proves you’re aligned—because right now, your incentives are to protect optionality for yourself.

The difference between us running this and you running it is that we have guaranteed financing and fewer distractions. We don’t have activists second-guessing every decision. And we don’t have quarterly marks making everyone nervous when the stock dips.

SCHUCK: What’s your diligence timeline?

PE PARTNER: We’ve been tracking you for years. We need thirty days to confirm nothing’s broken. After that, we can move fast. But I need a signal from you this week that it’s worth our time.

SCHUCK: I need to talk to the board.

PE PARTNER: Fair. But Henry? The activists aren’t bluffing. And if they force a process, you’ll get three or four bids and everyone will know you’re in play. Better to run this quietly if you’re going to sell.

ACT III: The Board Meeting

[Board room, emergency session]

LEAD DIRECTOR: Henry, the Board has a fiduciary duty to evaluate the $14 offer. We have three paths before us. One: engage the constructive holder’s framework—aggressive capital return, hope the market re-rates before the activists get louder. Two: run the sale process they’re demanding. Three: fight. Reject the demands, defend management, dare them to a proxy contest.

DIRECTOR A: Path Three is suicide. They’ve own 15%. ISS and Glass Lewis will back them. We’ll lose badly.

DIRECTOR B: Path Two is surrender. Running a process under duress means low-ball bids. Fifteen to eighteen from [PE Partner] proves it.

DIRECTOR C: Path One assumes the constructive holder can control the activists. He can’t. They’re traders. They want a sale.

LEAD DIRECTOR: Henry?

SCHUCK: All three paths end with harvesting or selling. The only question is timing and whether I’m still here as CEO. [pause] I want to stay. Which means Path One.

DIRECTOR A: They’ll still push for a sale.

SCHUCK: Maybe. But the story changes. Right now I’m a founder clinging to control. With the right comp package, I’m a CEO betting everything on execution. That’s different. It won’t stop them, but it slows them down.

LEAD DIRECTOR: [pulls out document] The constructive holder sent this. Called it “the only structure that matters.” Let me walk you through it.

ACT IV: The Compensation Trap

LEAD DIRECTOR: The proposal: no salary increases, no annual equity grants. One single option award—9.7 million shares struck at $13.54. Vests only if you hit specific cash flow targets and sustained stock price levels from $40 to $100.

[slides actual grant document across table]

SCHUCK: [reading] Six tranches. Stock price milestones from $40 to $100. FCF per share from $2.50 to $5.00. Service vesting over three to five years. [looks up] This is a ten-year bet.

LEAD DIRECTOR: Henry, this package is... it’s punitive. If you don't hit these price gates, you're essentially working for free for five years. We can't protect you anymore. We can't give you a "comfortable" middle ground. If you hit the top end, you clear $400 million pre-tax. If you don’t hit targets, you get…well (silence).

SCHUCK: But here’s what I don’t understand. We’re at $400 million in FCF today. To get to those cash flow targets, I need more.

LEAD DIRECTOR: Correct.

SCHUCK: That’s not possible with financial engineering alone. Even if I max out our share repurchases, I’d need the absolute FCF to grow substantially. Which means I need to grow revenue. LEAD DIRECTOR: Now you’re getting it. We aren’t paying you to survive, Henry. We’re paying you to win.

SCHUCK: We’re levered. I can’t de-lever and hit these targets. I have to stay levered and use every dollar of excess cash to buy back stock.

It’s a public LBO. Except I have to actually grow the business to make it work.

LEAD DIRECTOR: That’s exactly what the constructive holder is betting on. He thinks you can do it. The activists don’t.

SCHUCK: And if the business deteriorates faster than I can buy back stock? If AI pressure accelerates or customer concentration cracks?

LEAD DIRECTOR: Then you’ve worked a decade for nothing. But here’s the alternative: we can counter with $18, get maybe one or two years under PE ownership, then you’re out. No upside. Or we run a process, maybe find $20-22 if we’re lucky, but you lose control.

The constructive holder said something to me: “If Henry won’t take this package, the activists are right and we should sell now. But if he takes it, I’ll be the one explaining to ISS why shareholders should vote against the proxy contest.”

SCHUCK: He’s making me the credibility signal.

LEAD DIRECTOR: He’s making your willingness to eat your own cooking the test of whether this is theater or real. And honestly? It’s a good test.

SCHUCK: What if we do everything right and the multiple compresses anyway? What if the market decides we’re a commodity regardless of cash flow?

LEAD DIRECTOR: Then the compensation was always fiction and we should’ve taken $14. But I don’t think you believe that or you wouldn’t still be here.

SCHUCK: You’re saying the middle path is dead.

LEAD DIRECTOR: The middle path was never an option. The activists made sure of that. We either play ball or we admit it’s over and sell. There’s no version where we keep doing what we’ve been doing.

SCHUCK: When do you need an answer?

LEAD DIRECTOR: Filing goes out next week. If you’re in, we announce the comp structure and buyback simultaneously. If you’re out, we call [PE Partner] back.

SCHUCK: [staring at document] This plan….You’re giving me a gun with two bullets and telling me to go elephant hunting. If I miss, the debt kills me. If I hit, I’m the king of small-cap.

LEAD DIRECTOR: Yes. That’s why it’s credible. That’s why if you sign this, the constructive holder will back you and the activists will have to prove you can’t do it rather than just asserting you won’t try.

SCHUCK: [slides document back, unsigned] Give me the weekend.

LEAD DIRECTOR: Sunday at 6 PM. After that, the offer expires and we start calling bankers.

EPILOGUE: Monday Morning

[8-K Filing - Stock Option Grant Notice]

CEO Henry Schuck receives one-time option grant on 9.7 million shares struck at $13.54, vesting only upon achievement of operational milestones (FCF per share targets from $2.50 to $5.00) and sustained stock price appreciation to $40-$100 range over ten-year performance period. Service vesting over 3-5 years. Total Stock Return percentile rank requirement: must exceed 25th percentile of Russell 3000.

[Text message, Constructive Holder to Schuck, 7:43 AM - PRIVATE]

“Saw the filing. You bought yourself some time. Don’t waste it. -M”

[Text message, Lead Director to Schuck, 8:15 AM - PRIVATE]

“Good. Board call in two weeks. You know the timeline here.”

Previously: CFLT Dark Arts

This August, we flagged an unusual “dark arts” options structure in Confluent (CFLT) in “A Trade Structure With Informational Edge”. The stock was at $17. Yesterday, IBM announced that they’re acquiring it for $31 cash—an 82% return in four months on the stock alone; the trader who put on the options structure made approximately $16.5 million and collected a net premium up front.

Since the deal was leaked to the press in October, our direct messages have been flooded with one question: “What’s the next CFLT trade?”

That’s understandable. Financial media from CNBC to Barrons to Substack to Twitter have us conditioned like Pavlov’s dogs—ticker, trade, repeat.

But here’s what we learned the hard way, and what we wish someone had told us decades ago: CFLT wasn’t the outcome. It was merely an outcome.

Building the processes and judgment that lead to outcomes like CFLT takes longer to teach and more effort to learn. But that’s what actually carries forward, and it’s ultimately worth far more than any single trade.

Dark Arts: Reading The CFLT Tea Leaves

We sift through all kinds of unusual market signals daily. The August trade—17,000 calendar spreads in CFLT—was one we chose to highlight because it was so unique: front-month long gamma, back-end short vega, collected as a net credit on an inverted volatility curve.

If you trade options, you know that structure is rare. And oddly specific. It’s not a directional bet. It’s not a hedge. It generally only makes economic sense if whoever put it on knows three very specific things:

1. A major event is coming

2. When it will happen (tight enough timing to layer front and back month)

3. Where the stock will land (mid-20s to low-30s range)

The options position was visible to anyone watching the tape. But most people don’t know what they’re looking at, and it gets drowned out amidst the sea of “unusual” options flow commentary.

What made this so interesting wasn’t fundamental analysis—we knew virtually nothing about Confluent’s business or valuation. We simply recognized that someone had just telegraphed to the entire market exactly what was going to happen—and almost nobody was listening.

Fast forward four months and IBM announces a $31 cash deal.

The McAlpha Trap: Why Financial Fast Food Fails

The success of the Confluent trade obscures the more important lesson. If we just hand you “CFLT at $17, buy it,” and it works, you might have made money—this time.

But then what?

When the next “unusual” options structure appears, how will you determine if it is signal or noise? And what about ideas that have nothing to do with options flow? Without understanding why CFLT was interesting, you can’t evaluate the next one that looks similar, and you’ll miss entirely the ones that look nothing like it.

Most financial media optimizes for what feels immediately useful. We call this McAlpha. It’s designed to provide immediate gratification, like McDonalds takeout.

But there’s a tradeoff. You’re generally eating financial fast food.

The martial arts have McDojos—schools that churn out black belts to anyone who pays long enough. The credentials look real until you need them.

McAlpha is similar. You end up renting someone else’s conviction. When the market shifts or the position moves against you, you’re holding something you can’t defend because the thesis was never really yours.

Very early in our careers, we fell into this trap. The tuition was expensive—and humbling.

Process Over Trades: Building Your Own Edge

The CFLT trade is what we call “dark arts” pattern recognition—reading market structure for what’s being telegraphed but not yet announced. It’s one unique analytical framework that we use among many. We’ve written more about some of these frameworks, for example here, here, and here.

We could send out tickers every week. There’s clearly demand for it. But here’s what is more valuable: helping you to develop your own investment philosophy and processes. That’s what we focus on.

That means understanding how to read options structures, credit market signals, and governance that telegraph events before they occur. Exploring how merger arbitrage sharpens your investment process even if you never trade a single merger. Understanding how and why Multiflation—the end of 40 years of “Goldilocks” markets—is breaking four decades of investment playbooks and asset allocation models, and what to do about it. Learning how ‘modern’ market structures detach prices from reality—such as ETF mechanics, derivatives, and algorithmic feedback loops—create new risks and opportunities for investors.

By focusing on process over outcomes and developing your own analytical capability, you’ll know what you’re looking at and how it fits into your personal objectives when the next opportunity appears. In this way, and only in this way, can you build conviction that’s genuinely yours—not borrowed from someone else’s writeup or Tweet thread.

This requires more work than following a tip sheet. You have to read, think, adapt. But in a regime as challenging as Multiflation—where 50 years of economic assumptions are dissolving in real time—developing your own judgment and process is the only durable edge.

Most of what we share won’t be as perfect as CFLT. Many signals won’t work at all. We don’t have all the answers, or even most of them. Far from it. But after years of both spectacular wins and painful losses, we’ve learned that philosophy and process matter more than any single trade.

A Different Kind Of Community

As we wrote in the introduction to the Sorcerer’s Apprentice:

Our goal is to create a community of adventurous minds committed to staying ahead of the curve and uncovering opportunity amidst the chaos. Our community is not for those seeking easy answers, quick fixes, or an echo chamber. Instead, it is for those who understand that navigating the complexities of our rapidly changing world requires ongoing learning, unlearning, and adaptation…

If you’re ready to go beyond soundbites and surface-level analysis, challenge long-held assumptions, and develop the intellectual and real-world tools required to thrive in a time of accelerating change, join us.

That’s what we’re building here—a community of people intellectually curious enough to dig deeper and honest enough to admit when we’re wrong.

You’re already reading Substack newsletters, earnings reports, financial news, Twitter threads (even our own threads), SEC filings. You’re drowning in information. The problem is knowing what to do with it.

Most financial media gives us fish. We’re more interested in honing our fishing skills.

In markets where almost everything is financial fast food—and much of what remains is becoming commoditized by AI and algorithms—the only alpha left is how you think. Your philosophy and process. Our work exists to help you think in a way that can’t be automated, copied, or taken from you.

You can’t always get what you want. But if you’re willing to do the work, you might find you get what you need.

Previously: Enter The Financial Matrix

Markets exist to coordinate human action in accordance with reality. Instead, they’ve increasingly come to replace reality.

The ETF wrapper has usurped its contents. The derivative matters more than the underlying. Derivatives move wrappers that move underlying stocks, which spawn narratives amplified by social media and AI, which generate additional trades by humans and machines. The tail is wagging the dog—financial markets have morphed into surreal, nested layers of abstraction that feed on one another in a closed, self-referential loop.

The companies exist somewhere underneath, of course, but the market—and capital flows—are now governed by representations rather than reality, by shadows rather than substance.

Welcome to the Financial Matrix: a hyperreactive simulation of markets dominated by vibes, memes, ETFs, AI, and machine logic. We’ve been documenting this transformation in our long-form series The Sorcerer’s Apprentice & The Man Who Broke The Market.

Inside The Grow House: From Seed to…What, Exactly?

Of all the places to glimpse the Matrix’s code laid bare, a $600 million cannabis ETF seems an unlikely candidate. AdvisorShares Pure US Cannabis ETF (MSOS) isn’t particularly noteworthy in and of itself—cannabis is a trivial corner of the economy and MSOS is a rounding error within the ETF universe.

To the casual observer, MSOS appears to be the simplest and cleanest way for wealth managers and retail investors to bet on U.S. marijuana reform, or at the very least to gauge how others are betting. As the largest cannabis ETF to survive the COVID-era ‘weed bubble’—one facet of the all-encompassing market mania documented in Mr. Market’s Schizophrenic Break—MSOS has become the definitive scoreboard for the cannabis industry.

Millions of shares change hands every day. It has a full options chain. It boasts pages of “institutional holders” on Bloomberg. MSOS is the “easy button” for trading cannabis: why research dozens of operators scattered across obscure Canadian exchanges, navigate state-by-state regulations, and decipher an industry operating in legal limbo when you could simply buy the ticker imprinted with “U.S. marijuana” on the label?

The problem is that the scoreboard is so broken that we no longer even know what game we are playing—and what’s true for MSOS is increasingly true for the financial system itself.

MSOS is simply one corner of the markets in which the scrolling neon green code animating the Financial Matrix becomes legible. As with Volmageddon, the simulation only reveals its true nature when you zoom in closely enough to see the glitches. Once you spot the pattern in truly dysfunctional markets like MSOS, you’ll recognize the same fractal repeating throughout the Matrix—even in seemingly functional markets operating at trillion-dollar scales.

Reefer Madness

There’s something deeply wrong with MSOS. Not wrong in the “ETF is badly managed” sense or the “temporary underperformance” sense, and not even in the “weed is uninvestable” sense.

MSOS is a simulation of exposure to “cannabis” that has become the primary reality market participants respond to—the type of financial hyperreality that we’ve been writing about in the Sorcerer’s Apprentice. When MSOS rallies, the narrative becomes that “cannabis is back”. When it sells off, “the sector is dead.”

All participants in weed stocks—retail traders, trading algorithms, dealers, promoters, media—now react to the price of MSOS itself, which moves the underlying stocks, which validates the reaction to MSOS as “fundamentally true”.

A Simulation That Has Become Real

Yet few investors and observers understand how inverted the MSOS “reality” really is. For starters, it doesn’t even own stocks in the companies whose performance it allegedly measures. In fact, it cannot—U.S. law prohibits conventional ETFs such as MSOS from directly holding plant-touching cannabis operators because these firms remain illegal at the federal level. Indeed, that’s precisely why the ETF exists in the first place.

So instead, MSOS owns something else entirely: indirect IOUs on cannabis stocks. And the managers of MSOS actively trade these synthetic positions like a hedge fund rather than passively tracking a known basket or index. Its performance therefore reflects the fund manager’s own trading decisions as much as the industry performance itself. The investor who thinks they’ve bought a simple index fund has unknowingly handed their capital to an active manager making discretionary swap trades, while dealers and intermediaries scalp the flows and extract fees at every layer.

If you peruse the MSOS holdings list, you won’t find “Green Thumb” and “Curaleaf,” but rather “Green Thumb Swap,” “Curaleaf Swap,” “Derivatives Collateral – Dealer X.” MSOS owns a stack of paper promises from counterparties who are running their own (likely hedged) book against the same names. It posts collateral, and in exchange receives the economic performance of a basket of cannabis names (after subtracting out hefty fees). The banks hedge their exposure as they see fit, often by trading the same names in Canada and OTC markets.

What started as a workaround for regulatory restrictions has metastasized into one of the most dysfunctional trading ecosystems in the Financial Matrix. The swap structure that regulatory constraints force upon MSOS makes it a better vehicle for quants and dealer trading books than patient capital. That dealer dominance warps the trading patterns—premiums, discounts, short interest, volume. Social media and retail interpret the chaos as manipulation or hidden signals, generating narratives that feed back into flows. And the volatility itself becomes the product, attracting promoters who extract value while amplifying the circus.

MSOS is a microcosm of a broader pattern in the Matrix: wrapper products that morph into scoreboards more real than the underlying game, in which social media narratives and trading flows matter more than the actual companies’ fundamentals (such as they are). Like the Bitcoin Treasury Companies, the MSOS ecosystem benefits everyone in the value chain—dealers, brokers, promoters, intermediaries—except for the investors who actually own it.

Social Media Circus

What makes MSOS particularly fascinating is how tightly the social media feed, the ETF tape, and trading algorithms have become intertwined, much as we discussed in Enter The Financial Matrix. Dealers move prices in response to flows and hedges. The social media and algorithmic feed interprets every move as a storyline—shorts attacking, reform coming, insiders buying, manipulation, whatever. Retail and trading algos pile in or bail out based on that narrative, which feeds back into flows, which feeds back into dealer behavior, which creates new narratives.

The managers of MSOS benefit from fees when assets under management explode during these rallies. Indeed, nearly everyone profits from the volatility itself, in both directions, regardless of whether cannabis reform—or any fundamental improvement, for that matter—ever actually happens. The only people who don’t profit from this circus are the retail “bag holders” getting churned by fees and long the ETF and stocks when the music stops.

Every few months, another newsletter author or influencer hypes an imminent “cannabis reform trade” to their followers or that they are seeing “massive inflows” into MSOS. Money piles in, the stock moves, and the promoter (allegedly) exits—using retail as exit liquidity—while continuing to post bullish takes. Then radio silence, until another “my sources tell me” setup begins.

It’s penny stock promotion 101—a playbook that dates back at least to the South Sea and Mississippi Bubbles, now relocated from Exchange Alley to Twitter and supercharged by algorithms that amplify every move. Reporters and social media amplify every rumor because it drives traffic. Lawyers and policy experts position as neutral referees while talking their books. Influencers trying to “unite the community” create drama for engagement.

Despite what retail investors think, the dealers running swap books and arbitraging premiums aren’t the true villains here—they’re providing liquidity for a broken structure created by the intersection of regulatory constraints and retail’s own FOMO/YOLO greed. The intermediaries’ incentives are transparent: extract fees, manage risk, facilitate trades. The bad actors tend to be the ones pretending to be on retail’s side while operating with completely opposing incentives—for example, “community leaders” who position themselves as selflessly guiding newcomers through the space.

Retail Red Herrings: “Institutional Owners”

Retail investors—and even some professionals—scroll through the MSOS holders list and see validation: real money, serious allocators, patient capital. The reality is almost the opposite: what appears to be ‘ownership’ is actually ‘inventory.’

A grocery store holds thousands of apples, but they aren’t ‘long apples’—they are warehousing them for turnover. Similarly, by our rough estimates, up to three-quarters of MSOS float sits with dealers, brokers, market-making desks, and authorized participants warehousing creation units and running inventory.

MSOS ‘institutional ownership’ is predominantly just professionals managing their own risk. They’re long it here, short it there, long calls, short puts, short the ETF against a custom basket, leaning short to arb a premium or leaning long to cover a discount—the visible positions are just stale fragments of hedged, multidimensional strategies, similar conceptually to what we discussed in our recent piece on the 12D Chess of 13Fs.

The remaining quarter of the MSOS float, give or take, represents the “real” investor base: a handful of small funds and advisors with mandates flexible enough to tolerate “federally illegal” exposure—often with strict position limits and requiring offsetting hedges—plus retail investors and wealth managers who use MSOS because there isn’t a better alternative.

In short, few—if any—of the institutional holders are providing patient long-term capital with a positive disposition to industry fundamentals; rather, they generally see MSOS as just another token to be passed around, hedged, and arbitraged.

The trading patterns confirm this interpretation. On a typical day, MSOS trades multiples of the combined volume of several of its largest underlying holdings. The options market amplifies this further—tens of thousands of contracts flipping back and forth, creating millions of shares of synthetic exposure layered above the ETF’s base.

Then there are the satellite ETFs orbiting the same universe: MSOX, essentially a leveraged version of MSOS that amplifies its volatility and forces more hedging activity back into the underlying names; YOLO and TOKE, which add global cannabis exposure but still channel flows into the same small pond of operators and swaps.

Each additional wrapper and derivative multiplies the amount of synthetic flow hammering a very limited number of actual companies. The result is an ecosystem where the wrappers and their derivatives have become more meaningful than the underlying businesses they indirectly own. Yet the price of MSOS has become the authoritative signal that everyone watches to “see how cannabis is doing”: retail traders, cannabis podcasters, newsletter writers, even institutional allocators treat the ETF’s movements as the primary reality.

Retail Red Herrings: The Phantom Menace

The chaos in MSOS trading patterns generates endless speculation among retail investors, but what looks like conspiracy is usually just the mechanical reality of how swap-based ETFs actually function.

When retail sees MSOS trading at a premium to its net asset value, they interpret it as bullish demand or “smart money” positioning. When it trades at a discount, they see capitulation or dealer games. In reality, premiums and discounts in MSOS behave nothing like those in normal equity ETFs.

In SPY, arbitrage mechanisms keep premiums and discounts microscopic—authorized participants simply create or redeem shares against the underlying basket until any gap disappears. But MSOS can’t do that because its basket is mostly swaps, not actual shares. So premiums and discounts swing wildly based on dealer risk appetite, hedging flows, and the cost of maintaining synthetic exposure. These aren’t esoteric signals about the future of cannabis reform, but rather signals about the internal plumbing of the ETF structure itself.

The same confusion surrounds short interest. Retail investors see high reported short interest in MSOS and conclude that “shorts are attacking” or that a squeeze is imminent. But most of that short interest is almost certainly dealers hedging their own exposure—shorting the ETF to arbitrage a premium, hedging sold call options, or running relative-value trades between MSOS and other cannabis products.

There’s no cartoon villain or “Sith Lord” naked shorting or paying punitive borrow costs to crush retail dreams. There are, however, sophisticated counterparties with access to swap desks, internal inventory, and synthetic shorting mechanisms that don’t require the usual friction of stock borrow or the uptick rule. What retail interprets as coordinated manipulation is mostly just professionals playing an entirely different game with different objectives and tools available to them.

Conclusion: A Scoreboard Untethered From The Game

MSOS is a casino—a derivatives structure built primarily for the benefit of intermediaries—where the scoreboard has become disconnected from, and yet directly influences, the underlying reality it supposedly represents. We barely remember what game we were supposed to be playing in the first place—reality is whatever the last trade and the last Tweet said it was.

The toxicity of the marijuana space—rivaled only by crypto, and attracting the same breed of degen speculators—is hardly an accident. It is the inevitable result of mixing drug culture with gambling mechanics. The MSOS structure is a perfect trap: the seductive story of “inevitable legalization” hooks the believers, while the friction of transaction costs and fees bleeds them dry.

None of this makes it impossible to profitably trade the marijuana space. It does mean, however, that retail investors in particular need to understand the real game that is being played, not the one advertised on the label. You’re not investing in cannabis. You’re speculating on an actively-traded, swap-based wrapper designed to enrich intermediaries and leave you holding the bag. MSOS is a trading sardine, not an eating sardine.

But MSOS isn’t merely a cautionary tale about a broken weed ETF. The uncomfortable red pill is that MSOS is hardly an outlier. The same code is running everywhere in the markets, and the same fractal pattern recurs throughout the Financial Matrix. We see it in Bitcoin Treasury Companies, volatility products, meme stocks—even plain vanilla equity and bond ETFs—all exhibit variations of this Alchemy of Risk.

The Financial Matrix seems real only because you haven’t fully unplugged yet, and because the simulation perpetuates itself until reality forces a reconciliation. For MSOS, the only likely scenario that can break the spell is Federal reform, which would allow plain vanilla ETFs to own the stocks instead of swaps.

For the broader market, however, a crisis will likely be required to force the simulation to reconcile with reality, for example when everyone tries to redeem their paper IOUs at once and discovers how many layers of abstraction separate them from reality.

In the meantime, remember: you’re not in the market—you’re in the Matrix. And the Multiflation Method decodes how to navigate this treacherous investment environment.

Previously: Lessons From 1929 Crash

Throughout Paper Bitcoin Summer ‘25 we warned that the proliferation of Bitcoin treasury companies (BTCTCs) paralleled the ill-fated investment trusts of the 1920s (here). Both eras witnessed the fleecing of credulous retail investors by promoters through insider grants, misaligned incentives, and financial alchemy.

But the current episode also introduced influencers who harvest in-group affinity and trust amongst Bitcoiners—peddling paper promises as somehow aligned with Bitcoin’s vision and values via a deluge of podcasts and conferences.

To efficiently slice through hype and reveal whether promoters genuinely hold their convictions—or are cynically capitalizing on the community they claim to serve—we propose the Paper Bitcoin Razor™: an instant, binary “proof of alignment” fiduciary audit test for BTCTCs modeled on Bitcoin’s own “proof of work.” We have also distilled the Razor into a ChatGPT prompt—soon to be published separately—that empowers investors to do their own due diligence.

What follows will be of interest to all investors, even those who don’t care about Bitcoin or BTCTCs. Understanding the secret “dark arts”—decoding how insiders actually get paid and what behaviors those incentive structures reward—is prerequisite knowledge for investment survival during the Golden Age of Grift.

Paper Bitcoin Winter

Retail investors fleeing fiat debasement and centralized intermediaries leapt from the frying pan into the fire, ultimately forfeiting their wealth to the very types of incentive misalignments Bitcoin was designed to solve.

The Paper Bitcoin bonfire combusted more rapidly than even we anticipated. In the span of mere weeks, investors’ Paper Bitcoin “wealth” was incinerated—50%-98% drawdowns were not abnormal even as Bitcoin itself flatlined, relegating many of the BTCTCs to penny stock status. ’s Bitcoin Treasuries Newsletter captured the scale of the conflagration: the recent crop of BTCTCs consumed approximately US $17 billion of wealth, and of the ~168 public companies holding Bitcoin, ~15%-25% now trade at a discount to NAV.

Take No One’s Word For Anything

If investors take away nothing else from this experience, let this be permanently seared into their consciousness: Nullius in verba, or “take no one’s word for anything”.

While Bitcoin itself may be a trustless asset, no such trust should automatically be afforded to “suitcoiners” who grant themselves outsized awards up front—enabling the pocketing of generational wealth before delivering even a single ₿ “satoshi” of value—and who can continuously conjure endless paper Bitcoin out of thin air to further benefit themselves at shareholder expense.

A “Flood Tide Of Corporate Larceny”

BTCTC management teams notably avoided bleeding alongside their shareholders; their compensation arrangements typically ensured that they remained insulated from—and in many cases indirectly profit from—the wealth destruction suffered by their shareholder “plebes”.

As we detailed in Lessons From The 1929 Crash:

What began [in the 1920s] as innovation quickly became exploitation…this was not an era of isolated bad actors, but a systemic opening for opportunism fueled by rising prices and vanishing ethics.

The most lucrative role in the trust boom wasn’t investor—it was promoter…insiders extracted value both upfront and continuously through fees, while public buyers bore the ultimate risk…

Like the 1920s trusts, today’s Bitcoin treasury companies often feature similar arrangements—founder allocations, insider stock options, and incentive packages for promoters and podcasters. This time, however, such mechanics are disclosed under SEC rules designed in response to the very abuses of the 1920s. But transparency neutralizes neither risk nor incentive distortions…

American enterprise [in the 1920s] “had welcomed an exceptional number of promoters, grafters, swindlers, impostors, and frauds,” creating “a kind of flood tide of corporate larceny.”…“One could indulge in all manner of dubious financial practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion.”

How did so many investors—many of them sophisticated Bitcoiners who pride themselves on understanding economics and incentive structures—fall victim when all the warning signs were there?

The “Dark Arts”: A Blueprint For Self-Preservation

The answer lies in understanding not only the historical context and reflexive alchemy covered earlier in the series, but in mastering the secret ‘dark arts’ that decode how management teams can legally enrich themselves at shareholder expense—even when everything is transparently disclosed within the SEC filings.

Ferris Bueller’s Day Off & The Great BTCTC Joy Ride

We’ve studied the “dark arts” and analyzed corporate governance (and misgovernance) for what feels like eons, and we are hardly naïfs. But if the dog below represented us before reviewing the BTCTC and Digital Asset Treasury (DAT) executive compensation agreements and other SEC filings:

Then this is us after reading them:

This essay was originally written as a lengthy forensic analysis featuring compensation agreements and SEC filing screenshots juxtaposed against management and director statements.

Instead, we decided to publish a high-level overview of the “dark arts” that enabled this legal wealth transfer from retail to insiders—a blueprint applicable to any company, not just Bitcoin Treasuries.

We’ve also developed a stripped-down version of our proprietary “dark arts” framework—delivered as a forthcoming ChatGPT prompt designed to arm retail investors with some of the tools necessary to detect red flags before risking their retirement or college savings on a trendy Paper Bitcoin story.

We chose this format since few nowadays have the attention span to wade through a dense technical exposition on corporate governance. But there’s a deeper reason, as well: we want to teach you to fish rather than simply feed you. Our goal is not just to show you our work, it’s to empower you to do your own—investing requires learning skills that come from doing and not only from reading.

When people are handed “the answer” on a silver platter, they rarely develop a genuine understanding of the principles required to protect themselves in the future. Others can now learn experientially—by putting in the work—but with an advantage we lacked: a tireless AI tutor available at any hour that adapts to their pace and questions.

“Zoom Out,” Diamondhands

TreasuryCo managements and Bitcoin influencers frequently admonish investors to “zoom out” and focus on long-term value creation to understand BTCTCs:

Watch What They Do, Not What They Say

BTCTC management and their favorite podcasters may vociferously proclaim that BTCTCs are an “amplified” Bitcoin proxy and that their investors need to “hold for the long-term.” Unfortunately, in the overwhelming majority of cases, their actions very clearly do not match their rhetoric: they are paper hands to your diamond hands.

In our opinion, BTCTCs are amplified Bitcoin proxies—but only for insiders. In the overwhelming majority of potential outcomes, the payoff for insiders is asymmetrically positive, while the payoff for shareholders—at least relative to Bitcoin—is asymmetrically negative.

If we “zoom out” over the long-term, it seems likely that shareholders in these companies will tend to underperform Bitcoin in a bull market and significantly underperform or be wiped out entirely during a bear market. Shareholders can even be wiped out when Bitcoin does nothing—as we’ve seen recently.

As we demonstrated in Steal This Prompt, BTCTCs are highly path-dependent—only the narrowest set of future scenarios are likely to avoid disappointment for long-term BTCTC shareholders. During a BTCTC bull market, new competitive entrants emerge and existing BTCTCs dilute shareholders through exponentially-increasing share issuance and insider compensation structures that cap BTCTC upside versus Bitcoin. If the BTCTCs enter a bear market loaded with too much leverage, or if their stocks trade below the value of their underlying Bitcoin holdings for an extended period, it’s likely game over.

In most scenarios, therefore, the payoff structure for shareholders resembles a particularly unfavorable options strategy: as the stock price falls, the company is effectively selling more and more put options on its own shares, while simultaneously writing covered calls against those shares that cap upside during relief rallies in the stock.

One could certainly quibble over the details of our analysis, but nullius in verba: don’t take our word for it. If we “zoom out” to the big picture conclusion—that these companies will underperform Bitcoin in both directions—and then “zoom in” to examine management compensation schemes, it becomes crystal clear that insiders agree with us.

For anyone possessing the skill to read between the lines, the message is written in comically large, blazing neon letters: they do not truly believe that they can outperform Bitcoin as a benchmark. That is precisely why their compensation agreements are written the way they are.

The Paper Bitcoin Razor

BTCTCs exist for one reason and one reason only: to significantly outperform Bitcoin. If they fail at their raison d’etre, they serve no purpose for shareholders.

This simple truth yields an equally simple test to separate the wheat from the chaff—the Paper Bitcoin Razor—that instantly proves whether or not management and boards truly believe that they can outperform the Bitcoin Hurdle Rate by verifying their alignment with shareholders.

We modeled the Paper Bitcoin Razor on the governance gold standard established by Bitcoin governance expert Pierre Rochard, author of the seminal Speculative Attack essay:

“Proof-Of-Alignment” Test

Pierre has succinctly articulated what should be the non-negotiable foundation of every Bitcoin Treasury Company: a standard so self-evidently correct that any deviation from it likely becomes an instant disqualification for long-term investors. Just as Bitcoin’s integrity relies on “proof of work,” BTCTC integrity relies on “proof of alignment”—compensation structures that are tied solely to outperforming Bitcoin over the long term.

The very first question that shareholders should ask management teams and boards—and then “trust but verify” independently through SEC filings and our forthcoming ChatGPT prompt, following our mentor’s methodology—is whether their compensation agreements conform to Pierre’s gold standard:

Other than a nominal salary, is your compensation structure tied exclusively to the out-performance of your common share price versus Bitcoin—subject to a cumulative high water mark—and are you handcuffed alongside shareholders for a long period of time (say, a minimum of five years) with no way to sell, hedge, or cash out in the interim?

If the response to this test is anything other than an unequivocal one word answer—“YES”—then they are inadvertently revealing everything you need to know.

Watch What They Do, Not What They Say

If Bitcoin is truly the “hurdle rate” and BTCTC shareholders must “zoom out”, then why are managements themselves so strongly incentivized to “zoom in”? This disconnect between rhetoric and reality lies at the heart of the dark arts.

The fact that few—if any—of the management teams and boards whose filings we reviewed have chosen to hold themselves to the gold standard of BTCTC governance perhaps reveals something telling about their “corporate soul”: their true beliefs, priorities, and “revealed preferences.” For all their sanctimonious invocations of the Bitcoin Standard ethos, they appear to be at least as “fiat-brained” and “high time preference” as anyone else in our Golden Age of Grift.

Never forget that as a BTCTC shareholder you only win when your shares appreciate faster than Bitcoin itself. If insiders have ever received or will ever receive compensation tied to any outcome other than this—or if they’re compensated over a shorter time horizon than the holding period they recommend to you—then they are fundamentally playing a different game than you are.

For example, when management receives upfront and annual equity grants that are not tied to the Bitcoin Hurdle Rate, any additional bonuses paid for exceeding the hurdle are essentially a series of free lottery tickets for them. They’ve already secured generational wealth through the base grants regardless of shareholder returns, so the performance bonuses tied to the Hurdle Rate cost them nothing—but do provide convenient cover to claim alignment with shareholders when challenged about incentives.

This misalignment festers regardless of how earnest and genuine management and boards appear, how deep their knowledge of Bitcoin runs, how strong their professed adherence to the ethos of Bitcoin, or how compelling their vision sounds. When incentives diverge, trust the compensation structure over the story every time.

The BTCTC filings reveal a veritable rogues’ gallery of techniques that allow insiders to earn generational wealth even as shareholders are left holding the proverbial bag. Rather than cataloging every variant we encountered, we’ll highlight several particularly instructive classes of examples that cut to the heart of the problem.

“Zoom In” On Fiat Incentives: Monkey Math Metrics

BTCTC management teams trumpet—and typically tie a large portion of their compensation to—impressive-sounding metrics parroted ad nauseam as mantras on podcasts and company conference calls: Bitcoin-Per-Share, Bitcoin Yield, Bitcoin-Rate-Of-Return, Bitcoin Torque, Bitcoin Amplification, Total Bitcoin Stack, and so on. Many go so far as to claim that optimizing for these metrics is part of their sacred fiduciary duty.

These metrics may prove useful in analyzing BTCTCs, but as management compensation and fiduciary targets they create a fundamentally irresolvable misalignment between management and shareholders. Compensating on these metrics effectively enables management teams to “grade their own tests”—to reverse engineer their own path to short-term enrichment—while simultaneously spinning a tall tale to investors that these metrics create long-term value and that everyone else should remain patient for the eventual payoff.

Insiders are able to earn compensation in the short-term for activity of dubious value—regardless of whether the Bitcoin Hurdle Rate is ever met.

These are therefore convenient metrics for management to (mis-)direct attention toward precisely because they are nothing more than financial engineering constructs. Superficial accounting sleight of hand allows them to easily manipulate and boost the numbers—and therefore their own compensation!—to the mistaken applause of retail shareholders, all without necessarily creating any genuine value versus the “Bitcoin Hurdle Rate” that investors should actually care about.

Consider, for example, how preferred shares marketed as ‘digital credit’ might create this dynamic: management issues preferreds to acquire Bitcoin, which mechanically boosts Bitcoin-Per-Share and triggers their compensation. But those preferreds are effectively equity in disguise. Without operational cash flows, BTCTCs must eventually issue common shares to pay the preferred dividends, creating a circular dilution machine in which management extracts real compensation based on an artificially inflated metric that ignores the future dilution obligation embedded in those preferreds. And remember: “accretive dilution” only works when BTCTCs trade at an mNAV premium sufficient to absorb the equity issuance; otherwise it’s simply “dilutive dilution” with a management payday baked in.

Once again, a simple acid test can immediately reveal the strength of insiders’ conviction: ask whether compensation tied to these metrics should vest only after achieving a minimum of five-year cumulative share price outperformance versus Bitcoin (again, subject to a high water mark)—allowing management to put their own money where their metrics are.

Pay-for-Plummet

Another common pattern we identified involves structures whereby the mathematical incentives become outright perverse—scenarios wherein management can actually benefit from shareholder misery, after which they own more shares and profit from any recovery in the share price.

This represents a perhaps even more questionable variant of the “spring loaded option grants” that dark arts ninja at NonGaap dissected. However, these depressed-price grant incentives operate through a distinctly troubling mechanism. BTCTC management teams have available to them asymmetric information and certain unique levers through which they could effectuate share price depression should they succumb to the temptation to pull them—or at the very least find themselves not particularly incentivized to take actions that would prevent the share price from cratering.

Note: pointing out the perverse incentive structure at play is not equivalent to alleging that management acted on these incentives. Neither is highlighting the perverse short-term incentives equivalent to claiming that management lacks any incentives for long-term value creation.

The illustrative table below, using a hypothetical scenario, highlights the striking inversion of incentives with this sort of grant: the worse the short-term stock performance, the richer management’s payday upon rebound:

Keep this in mind when insiders protest that they “haven’t sold a share”—that may be technically true (although double check to ensure that all possible hedging and selling-adjacent activity is explicitly prohibited in their contracts), but they also haven’t needed to sell due to incentive structures like this: they may be awarding themselves more shares at lower prices anyway.

The same perverse incentives infect even routine annual equity compensation. For BTCTCs, even “normal” annual equity grants to management and directors create a fundamental misalignment with shareholders: management profits from stock price recoveries even if the stock is catastrophically underperforming Bitcoin.

Shareholders require significant cumulative outperformance versus Bitcoin itself to make their investment worthwhile; management only needs the stock to appreciate from whenever they decided to pay themselves, creating a heads-I-win-tails-you-lose dynamic.

Note: granting fixed shares is perhaps slightly less problematic than granting fixed dollar amounts—for reasons illustrated in the table in the section above, namely that the share count doesn’t mechanically increase as the price falls—but both create significant misalignment with shareholders.

Inside(r) Influencer Industrial Complex

Bear in mind that many of the metrics shareholders analyze to judge the progress of BTCTCs may not account for the full cost of the marketing machinery required to keep capital—and therefore Bitcoin—flowing into these companies. Enter one of the most expensive line items you’re unlikely to see properly accounted for, despite being integral to the business model (such as it is): the compensated insider and influencer sales force.

BTCTCs depend on continuous access to capital markets and enthusiasm for their securities—they therefore require a steady stream of buyers for their stock and “digital credit” offerings to fund Bitcoin acquisitions. To help manufacture this demand, many have turned Bitcoin influencers and podcasters into a compensated promotional force for their stocks and bonds through cash pay, equity grants, and board seats. This is not altogether dissimilar to an affinity-driven, multi-level marketing-adjacent promotion funnel, wherein community trust becomes a distribution channel for equity and “digital credit” rather than Tupperware and dietary supplements.

These influencers may promote BTCTC stocks to their audiences while their compensation—typically disclosed deep within SEC filings—creates at the very least the appearance of a conflict of interest. The influencer may profit, for example, when the stock rises from their grant price, regardless of whether it beats Bitcoin or creates genuine value.

We will await additional details—including proxy filings and accurate fully diluted share counts—but it would not surprise us to see that disclosed stock awards to the BTCTC insider ‘influencer’ community cumulatively total in the tens if not hundreds of millions of dollars, with more on the way. These influencers may face their own perverse incentive to liquidate shares as quickly as contractually allowed, knowing that future grant tranches are already queued behind them while ongoing equity issuance across the capital structure will dilute their existing holdings—essentially selling before the coiled spring weakens or snaps entirely.

The “Paper Bitcoin Razor” Prompt: DIY Due Diligence

We’ve created a ChatGPT prompt—currently undergoing final testing—that analyzes BTCTC compensation structures and SEC filings to identify the “dark arts” at work. There was little guesswork involved; the reason that we were able to write it so effectively is that we had already unearthed exactly where the bodies are buried—at least until the full proxy statements are filed next year, at which point we will likely discover the location of additional unmarked mass graves.

Think of it as a treasure hunt where you’re searching for buried red flags instead of gold—except in this case, finding treasure means discovering misaligned incentives before they cost you money. Upload company filings, ask questions, and get plain-English explanations of what compensation structures actually incentivize—cutting through management rhetoric to see if they pass the Paper Bitcoin Razor.

Conclusion: Not Your Keys, Not Your Coins

Throughout our careers, we have learned one painful lesson at great cost: no matter how compelling the underlying asset may appear, or how attractive the story being told about it, when management’s incentives fundamentally diverge from those of shareholders—particularly regarding upside potential and downside exposure—prudence demands that one step back and reassess the investment.

The Paper Bitcoin Razor arguably speaks louder than all of the BTCTC podcast episodes and conference presentations combined. Insiders are broadcasting very clearly—through actions rather than rhetoric—that they do not believe they can beat the Bitcoin hurdle rate. When someone shows you who they are through their compensation structures, it’s usually best to believe them.

Given that BTCTC managements have revealed their “corporate souls”—or lack thereof—through their compensation agreements, they have arguably earned themselves a prolonged “penalty box” discount to NAV through governance misalignments alone, let alone business model issues.

Bitcoin investors still interested in investing in BTCTCs despite these revelations would do well to abandon the “diamond hands” mentality and view these vehicles instead as—at best—trading sardines rather than eating sardines. Those who do decide to undertake these risks with eyes wide open should know that mastering the “dark arts” is essential to ensure that management’s incentives are at least temporarily aligned with their own.

As for those select BTCTC management teams and boards that intend to take their fiduciary duties seriously, we may follow up in a later essay offering “light arts” constructive criticism —a roadmap for differentiating yourselves from the pack, both operationally and through governance—and demonstrating that BTCTCs can transcend their current reputation as “cynical dilution juggernauts” engineered to enrich insiders.

Until then, never forget: nullius in verba.

The US economy is showing signs of deepening stagflation—sluggish growth combined with rising prices, largely driven by Trump’s tariffs—a continuation of trends discussed in Money Illusion, Intensifying Price Pressures, And Orwellian Macro Stats (link here).

Recent earnings reports confirm these trends. Costco, for example, reported a 5% September same-store sales gain, but the composition reveals inflation’s dominance. Traffic grew only 1.4% while average ticket rose 3.8%—of which 2-4% was grocery inflation alone. Factor in gold-bar sales—consumers buying an inflation hedge rather than engaging in core retail spending—and the underlying real growth appears effectively flat. The retailer’s nominal strength illustrates the broader money illusion permeating our economy: rising prices sustain the appearance of growth even as real purchasing power and demand stagnate.

These corporate-level anecdotes matter, but isolated data points can mislead. To track whether stagflationary pressures are building systematically across the economy—or merely appearing in select examples—we need a framework that captures broader patterns in quasi-real time.

Understanding The Multiflation Map

Note: To understand how the Multiflation Map fits into our overall method, see our introductory piece Investing In The Age Of Multiflation (link here). If the Map seems complex at first glance, don’t worry—we’ll publish a detailed explainer shortly to walk you through how to read and interpret it.

The Multiflation Map distinguishes itself from most macro frameworks by revealing when conditions have truly diverged from recent norms—not merely whether growth or inflation is high or low, or whether either is rising or falling. This distinction matters because market behavior is shaped less by absolute levels or even rates of change than by departures from the familiar. The Map also captures private-sector health more clearly than consumer- and government-focused measures such as GDP.

We’ll share future map updates primarily on Twitter and Substack Notes rather than through email, so be sure to follow along there for the latest changes.

Map Indicates Looming Stagflation

Our Multiflation Map reveals a fairly consistent pattern of real economic growth over the past year. Setting aside the brief Trump tariff spike in the spring, the economy has maintained a steady growth rate relative to recent norms, which keeps the economy near the same vertical position on the map.

More concerning is what’s occurring with prices. After a period of relatively modest price inflation, prices have begun to rise faster than recent norms. This acceleration pushes the economy rightward on the map, signaling that inflation is now running hotter than the baseline we’ve grown accustomed to.

The Map therefore shows a gradual clockwise rotation, signaling deteriorating conditions as we edge closer to stagflation.

Trump’s Tariff Lottery Complicates Data

Analyzing the economy under Trump’s tariff regime presents a significant technical challenge. In Spring 2025, we saw temporary distortions as businesses rushed to import goods before Trump’s new tariffs took effect. The Spring import-wholesale surge will likely continue to distort our readings for at least a few more months before those data points age out of the comparison. By year end we should have a clearer picture of the underlying trends.

The price indices we use to separate nominal dollar sales into “real growth” versus “inflation” weren’t designed for this environment. These deflators either track domestic goods (such as PPI indices) or draw from import price data that explicitly exclude duties in their contribution to wholesale price calculations. Meanwhile, the actual sales figures businesses report increasingly reflect tariff burdens, according to most industry survey commentary.

This creates a measurement distortion. When tariff-inflated sales get adjusted using deflators that don’t account for those tariffs, we artificially understate the price component and overstate the real growth component. Correcting for this pushes our economic readings further into stagflationary territory—lower real growth, higher inflation.

The magnitude of this effect is substantial. Between February and September 2025, the Treasury collected $180.6 billion in border taxes, a staggering $115.9 billion more than the same period in 2024—an increase of 180%. Tariffs that represented roughly 3% of total goods imports last year have now jumped to nearly 8%, accounting for the modest growth in import volumes.

Since imports comprise about 10% of the sales categories in our economic model, this translates to approximately a 0.5% upward shift in measured prices and a corresponding 0.5% downward adjustment in real economic activity. This rough calculation doesn’t capture the full economic damage from supply chain delays, increased administrative burdens, reduced availability of certain goods, or the quality-price tradeoffs consumers face when forced to switch from preferred imported products to domestic alternatives that may cost more or work less well.

Investment Implications

We present these patterns as context rather than forecast; also note that stagflation has only one real precedent in our data—the 1970s—and the economy then bore little resemblance to today’s in terms of market valuations, structure, and conditions.

That said, based on historical patterns, we’d expect S&P 500 real returns to be reduced by approximately 6% over the next six months. Historically, energy companies, financials, and real estate would likely see the worst relative performance. Bonds—particularly at the longer end—would historically offset some of this relative underperformance, leaving the 60:40 portfolio earning 3.0-3.5% less.

In the era of Multiflation (link here), investors are beginning to rediscover the appeal of hard assets and natural resources after abandoning them during a nearly fifteen-year commodities ice age.

Yet direct ownership of resources remains notoriously challenging: storage and transaction costs, insurance requirements, and—in some cases—outright regulatory prohibition present formidable obstacles for investors. Mining equities may offer explosive upside but introduce additional risks and operational complexities, along with the demanding work of ongoing stock selection and portfolio management. Commodities futures and ETFs have their own drawbacks, including roll risk, tracking error, and tax complexity.

Enter Sprott Inc. (SII.US and SII.CN): the pure-play asset manager positioned at the nexus of this resource renaissance. While many investors are familiar with Eric Sprott—the legendary Canadian investor who founded the firm—and recognize Sprott's flagship closed-end gold and silver trusts, fewer realize that the parent company itself trades publicly.

Sprott occupies a rare position among publicly traded assets: it delivers immediate, turnkey exposure to all five Archetypes critical for navigating Multiflation. This distinctive position creates significant opportunity for fundamental revaluation as Multiflation unfolds; while recent stock performance suggests early market recognition of this potential, a broader structural rotation toward hard assets appears to have only just begun.

Traditional portfolio hedges typically impose a performance penalty through negative carry, creating a drag on returns even as they provide protection. Sprott operates differently: it delivers uncorrelated returns that reduce volatility drag and provide dislocation protection—all while paying a dividend. For portfolios seeking multi-Archetype exposure without extensive restructuring, a position in Sprott offers an efficient way to add this dimension alongside other Multiflation holdings.

The Commodity Tollbooth

Sprott manages a comprehensive suite of precious metals and commodity ETFs, funds, and physical trusts, alongside other strategic resources businesses. Their business model transforms commodity investing's inherent costs and complexity into profit—effectively operating as a tollbooth on a likely soon-to-be-crowded commodity highway. While direct commodity ownership typically involves negative carrying costs—for example paying to store and insure gold in a vault—Sprott inverts this dynamic by paying shareholders a 1.5% dividend yield.

Rather than paying fees to access commodities exposure, Sprott shareholders receive their proportional share of the fees that other investors pay for commodity exposure. Instead of merely capturing price appreciation on the underlying commodity, Sprott shareholders capture both the commodity direction and the economics of fund ownership itself. As Multiflation and inflation drive investors toward hard assets, Sprott benefits twice: first from rising commodity prices that increase the value of underlying assets, and second from the management fees generated by swelling inflows from other investors seeking the same protection.

Conceptually, Sprott shareholders become a General Partner in the Sprott funds without a seat at the management table, collecting a proportional share of the diversified fee streams that flow from commodity demand. The company’s historical reluctance to reinvest heavily in business expansion means these growing cash flows likely return to shareholders rather than being consumed by costly growth initiatives—albeit operating leverage is notably diluted by an expense base, tax obligations, and compensation structure that collectively consume a not-insubstantial portion of revenues before they reach equity holders.

During the prolonged resources bear market, Sprott endured as an underearning cyclical business that nevertheless continued generating cash flow even as competitors either failed outright or abandoned the sector entirely.

The company now stands at an inflection point, transitioning toward a less cyclical business model capable of sustainable profitable growth. Sprott offers investors scarcity value as the premier publicly traded company in the space—boasting dominant brand equity and franchise value within natural resources, a profitable and loyal AUM base anchored by recurring revenues, a dividend yield, and a pristine balance sheet.

Sprott is therefore uniquely positioned for the coming decade defined by Multiflation—including resource nationalism, the urgent need to address over a decade of underinvestment in commodities, and the return of real-asset investing. The trillions currently allocated to stocks and bonds represent an enormous pool of capital; even a modest shift toward commodities would create substantial tailwinds for Sprott.

The company carries tremendous embedded upside optionality through its portfolio of Multiflation beneficiaries: natural resources chokepoints, chaos hedges that activate during monetary, economic, and geopolitical disorder, exposure to surging energy demands from AI and other industries, and the ability to consolidate and grow during dislocations.

Ownership in Sprott may therefore offer a compelling alternative or supplement to other commodity exposures within a broader Multiflation strategy; in short, it’s the commodities and resources “easy button”:

We view our Multiflation holdings as a curated collection wherein each position contributes specific characteristics that enhance the whole’s resilience and adaptability. Sprott exemplifies this approach by offering exposure that is related to—yet fundamentally different from—direct commodity ownership. While physical commodities and ETFs provide pure price exposure to underlying assets, Sprott delivers a more sophisticated exposure profile that combines commodity sensitivity with the stabilizing characteristics of a fee-generating business and the ability to capitalize on dislocations.

Archetypes Analysis

Monetary Evolution

The global financial system stands at a historic inflection point as mounting fiscal imbalances, competitive currency debasement, and eroding confidence in fiat monetary systems converge to challenge the established order. While the precise contours of Monetary Evolution remain uncertain, the leading market alternatives to the current fiat-centric system have crystallized around two primary camps: precious metals, and the digital native alternative embodied by Bitcoin.

Sprott stands to benefit significantly from this Monetary Evolution, as investors seeking refuge from fiat instability may naturally gravitate toward the firm's physically-backed precious metal trusts, funds, and ETFs. The company's positioning ensures participation in the broader flight from fiat currencies, though the magnitude of its benefits would naturally depend on gold's relative share of the monetary transition as well as Sprott’s own market share within the gold market.

Inflation Beneficiary

Sprott’s business model makes it an inherent inflation beneficiary, deriving its power from a reflexive flywheel dynamic. As Multiflation drives demand for its products, Sprott's assets under management and profitability expand through both underlying asset price appreciation and heightened investor inflows, which should generate higher revenues with minimal incremental costs.

Rising commodity prices create their own marketing, attracting investors seeking inflation protection. These inflows enhance Sprott's capacity for new product launches and strategic acquisitions, reinforcing the company’s growth. Valuation aside, this structure potentially makes Sprott equity both a safer and more asymmetric expression of a Multiflationary thesis than direct commodity or mine ownership. The company profits from the very inflationary pressures that erode the value of traditional financial assets, positioning it to benefit regardless of whether price inflation manifests through currency debasement, supply chain disruptions, or resource scarcity meeting demand from AI and geopolitical uncertainty.

Resiliency & Antifragility

Both Sprott the company and its products are by nature resilient and anti-fragile. The firm's most durable economic moat is not any single fund or product, but rather the trusted, scalable, and operationally efficient platform and brand itself, backed by a pristine balance sheet.

For example, the closed-end fund structure underlying Sprott’s trusts creates an inherently stable capital foundation that insulates the firm from the redemption cascades that can devastate open-ended funds and ETFs during periods of investor pessimism. This generates more predictable, recurring fee streams that provide management with revenue visibility and operational flexibility during volatile periods and bear markets.

Sprott’s countercyclical business lines in commodity-focused private credit can help buffer earnings during commodities bear markets. When commodity prices collapse and equity markets close to miners, distressed mining companies still need capital and expertise, allowing Sprott to generate fee income when its other commodity funds face headwinds.

While investors often view commodities as a monolithic asset class, Sprott's specialized expertise allows it to recognize and capitalize on the idiosyncratic fundamentals that drive individual resource markets. This granular understanding creates strategic optionality for a manager equipped with both domain expertise and balance sheet strength. During broad commodity bear markets, Sprott can selectively redeploy capital and launch new products geared toward specific resources exhibiting superior fundamentals, potentially generating strong returns even within a challenging macro environment.

The firm's zero-debt capital structure and robust free cash flow generation transform market dislocations from threats into opportunities. While overleveraged competitors retreat into defensive postures during credit crunches or commodity selloffs, Sprott can deploy capital when assets trade at compelling valuations. This financial fortress enables the firm to act as a consolidator and liquidity provider within its specialized niche, acquiring distressed funds and mandates from forced sellers at attractive prices. Indeed, Sprott has a track record of acquiring "dislocated" funds and asset management mandates—such as Uranium Participation Corporation, Central Fund of Canada, and Tocqueville's gold strategies—at highly attractive valuations.

Finally, Sprott's focused market position and modest size create an embedded takeover option that provides downside protection during severe bear markets. Large asset managers seeking instant market leadership in precious metals or critical materials could readily absorb Sprott, likely at valuations that significantly exceed the firm's current market price. This strategic value should represent a natural floor beneath the equity, ensuring that patient investors benefit regardless of short-term market conditions.

Constraints

After more than a decade of chronic underinvestment in resource development, the world now faces Multiflation—including mounting shortages in essential commodities—just as AI, aging infrastructure, geopolitical tensions and other factors drive demand for the fundamental building blocks of civilization. As we wrote in January 2021, when the Sorcerer’s Apprentice was first published privately:

The world cannot continue indefinitely running on the hyperreal services provided by the Tech giants and financial alchemists, but rather must pay attention to the material things that supply our real, more basic needs; things without which Amazon would have nothing to deliver us and Facebook no means to talk or listen to us. It is time to stop obsessing about electrons and to start concentrating on neutrons and protons, too.

This observation has only grown more urgent since publication; Sprott operates at the intersection of necessity and scarcity—a strategic position that will become increasingly valuable as structural supply deficits collide with surging demand across critical materials. Through its product offerings, Sprott positions itself as a primary conduit for capital seeking to capitalize on these Constraints.

The Sprott Physical Uranium Trust exemplifies this strategy's power. Launched in 2021, it has rapidly ascended to become the world's largest vehicle for direct uranium investment, protected by formidable competitive moats that render replication at scale extraordinarily difficult. The operational complexity, regulatory hurdles, and specialized expertise required to source, purchase, transport, and store physical uranium create exceptionally high barriers to entry.

The firm's copper expansion strategy targets the massive tsunami of long-term demand emerging from grid infrastructure modernization, renewable energy deployment, data center proliferation, and the voracious power requirements of artificial intelligence systems. This surging demand confronts a supply landscape scarred by decades of underinvestment in new mines, steadily declining ore grades, and development timelines that stretch across multiple economic cycles.

Dislocations

Sprott's strategy is deeply aligned with the "Dislocations" Archetype, positioning the firm to capitalize on market stress, contrarian viewpoints, and the mispricing of "unloved" assets. The entire Sprott brand is built upon a contrarian ethos, a willingness to venture beyond conventional investment strategies and challenge consensus thinking. Its core products are, by their very nature, expressions of a view that runs counter to the prevailing narrative of perpetual low inflation, central bank omnipotence, and the unassailable stability of the fiat currency system.

Other than its focus on gold and natural resources, the firm's alignment with this archetype is most tangibly expressed through its corporate acquisition strategy, which can be accurately described as a form of dislocation arbitrage. Sprott's M&A playbook deliberately targets niche, fragmented, or "unloved" commodity-focused funds and managers. While volatility in these markets deters many investors, Sprott's expertise, institutional infrastructure, and balance sheet allow it to deploy capital as others retreat and position the firm to capitalize on fundamental supply-demand imbalances that could persist for years.

Multiflation Scenarios

Reflationary Boom +/- Mixed or Uncertain Performance

While a "risk-on" environment might draw some capital away from commodities and defensive assets like gold, Sprott benefits from general asset price inflation. The key vulnerability is commodities dramatically underperforming broad equity markets, potentially leading to modest outflows or slower growth.

Stagflationary Grind ++ Very Strong Performance.

This is likely Sprott's ideal environment. High inflation and low growth destroy the appeal of both traditional equities (margin compression) and bonds (negative real yields), forcing capital into monetary alternatives. Gold and silver thrive, driving Sprott's AUM and fee revenue higher in a period of widespread economic discoordination.

Hyperinflationary Blow-off ++ Very Strong Performance

In a terminal phase of competitive monetary debasement, there would likely be a panicked flight to Sprott's physically-backed products and their commodities funds and expertise. Its role as a trusted custodian and manager of real assets would be paramount. The value of its AUM would likely soar in both nominal and real terms, leading to exponential growth in fee revenue and profits.

Severe Deflationary/Credit Shock - Negative Performance

A sharp credit seizure where fiat cash becomes king could be challenging. Gold and commodity prices would likely fall in the short-term. The "safe haven" narrative would potentially be temporarily eclipsed by a desperate need for liquidity. Sprott's debt-free balance sheet ensures survival, but its earnings would suffer.

Geopolitical Fracture & Supply Seizure + Positive Performance

Major conflict would trigger a flight to non-sovereign, politically neutral assets outside the traditional banking system. This directly benefits gold. Furthermore, a focus on energy security would highlight the strategic importance of uranium, boosting its Uranium Trust. An environment of protectionism, resource nationalism, geopolitical conflicts, and supply chain vulnerability enhances the appeal of Sprott offerings.

Policy Whiplash & Price Controls + Positive Performance

Erratic central bank policy and government interventions like price controls create profound uncertainty and undermine faith in fiat currency, driving capital towards Sprott's offerings. One risk is that the commodities and funds could be targets of windfall taxes or confiscation.

Technological Dislocation +/- Mixed or Negative Performance

Technological dislocation presents structural risks, for example as gold-backed stablecoins and tokenized commodity products offer potentially superior alternatives to traditional closed-end funds. These solutions could capture flows that would otherwise benefit Sprott or trigger outflows from existing products. Meanwhile, breakthrough technologies in extraction, substitution, or energy production could undermine the scarcity dynamics that underpin commodity valuations themselves.

HyperBitcoinization -/- Mixed or Negative Performance

Bitcoin’s ascendance as the dominant monetary alternative would disadvantage gold relative to bitcoin, though Sprott’s gold and commodities exposure should still benefit in real terms as stores of value outside the fiat system.

Untapped Value & The Opportunity Ahead

Yet despite embodying all five Archetypes, Sprott hasn’t fully capitalized on these strategic advantages—held back, for example, by compensation structures that dilute operating leverage and perhaps overly-conservative product development and marketing. We’ll explore these constraints and potential opportunities for enhancement if there is sufficient reader interest—share your thoughts in the comments or reach us by email.

The FT posed a timely question this week:

But we believe a more existential question is at stake for investors, economists, and society: do prices themselves—let alone stock market valuations—still hold genuine meaning when central banks, passive flows, algorithms, and AI dominate their formation?

Prices As Performance Art

Crypto pranks like the Shiba Inu price chart above raise deeply unsettling questions about the infrastructure underpinning our non-crypto markets. What do the prices of items that actually matter to our lives—such as the stocks and bonds flashing on our screens, or the prices we pay for goods on Amazon—actually mean when algorithms and AI systems increasingly determine their values within a monetary system dominated by activist central banks?

QE + ETFs + AI + Algos = HyperPrices

What appears to be a healthy market is in fact riddled with insidious “HyperPrices”—synthetic signals that mimic authentic market prices but carry none of the vital information that allows us to coordinate society and the economy. Our Hyperreality and Skynet series traced how these corrupted price signals emerge from the intersection of fiat money, algorithmic trading, passive flows, and artificial intelligence.

When central banks manipulate money and interest rates, quantitative easing (QE) policies flood markets with liquidity, passive exchange-traded funds (ETFs) buy indiscriminately, and algorithmic trading converges with AI and social media, prices increasingly resemble HyperPrices. Each layer of modern ‘market’ infrastructure strips away another connection between prices and reality.

Psychedelic Prices

The chaos is not limited to trading floors and the financial markets, however—it is increasingly infecting our pocketbooks and corporate boardrooms:

We are rapidly approaching the point where “$10 for a banana” stops being a punchline:

From Dead Internet Theory To Dead Price Theory

Photos, videos, articles, and social media posts increasingly blur the line between authentic and artificial content. Deezer, for example, recently revealed that 28% of music uploaded to its platform is already fully AI-generated. The trajectory of this trend—what some call the “dead internet”—is clear:

Just as AI-generated music floods streaming platforms and bot “slop” content overwhelms social media, artificial price signals are drowning out authentic market information. The resultant HyperPrices are economic pollution that mirrors what's occurring across the broader digital landscape. Financial markets and the economy are becoming equally contaminated by corrupted prices that blind us economically.

This corruption is even now metastasizing imperceptibly through the entire economy, undermining our collective ability to coordinate society, understand reality, plan for the future, and sustain progress—including for AI itself.

Most of the resulting chaos remains hidden beneath the surface, visible only in its most spectacular eruptions: flash crashes and meltups that evaporate or conjure trillions in seconds, meme stocks commanding billion-dollar valuations based on bot-amplified social media chatter, bubbles in “bankruptcy stocks,” and prank cryptocurrencies like cryptokitties and Fartcoin that somehow justify market capitalizations rivaling major corporations. But this vicious feedback loop, whereby decisions based on corrupted data generate even more synthetic signals—represents what we might call 'Dead Price Theory' as the economic parallel to dead internet theory.

HyperPrices & Ant Death Spirals

In short, our economy and financial markets are increasingly guided by artificial signals that have lost connection to reality. This mirrors the eerie "ant death spiral" we explored in our piece on Volmageddon, wherein army ants—separated from their colony—follow each other's pheromone trails in an endless circle until they perish from exhaustion.

When an individual loses the ability to distinguish reality from fabrication, we call it psychosis. But what happens when this detachment from reality occurs on a societal scale?

If we can no longer trust prices to guide society, the very foundation of our economy must be called into question. Read our essay The Price Of Everything & Value Of Nothing (link here) to understand how Skynet’s trading algorithms are digitally remastering history's greatest economic debate—and how decentralized HyperPrices risk the same blindness that doomed centrally planned economies like the USSR.