Summer Vacation

Two Truths and a Break

Hi everyone, two quick things.

First of all, I’m going to take a couple weeks of summer break from the newsletter, and we’ll be back for the second half of the year in the back half of July. In the meantime, if you’re looking for some great summer reading material, Patrick O’Shaughnessy started a great thread of influential essays and you should check it out. There is some really great stuff in the replies too, and Will Haynes made a Notion page to keep track of essays mentioned in the replies.

Second of all, I’ve been absolutely (happily!) overwhelmed with how many of you responded to the Google Form I put out last week in the newsletter to see who’s interested in working for Shopify Money. I believe all of you who filled it out should have heard back from me by now, although for many in impersonal bcc form - sorry to make it mass-produced, but I wasn’t expecting hundreds of replies!

For everyone where there’s potential fit (you’re in the right time zones / you’re a good craft fit for positions that we’re hiring for right now, especially technical roles), hopefully you’ll hear from us soon. I’m sorry I can’t promise anything more directly, but I immensely appreciate all of the responses so far, and I hope I get to meet and work with some of you in the near future.

Have a great few weeks,


Craft is Culture

Two Truths and a Take, Season 2 Episode 23

I've now been at Shopify for two months. One month in, the leadership team announced that we're moving to "Digital by Default": permanently. The era of office centricity is over; it's time to figure out what comes next.

I've had mixed feelings about this announcement. On the one hand, I was disappointed. I like having somewhere to go for the day, and having done so much travelling over the last several years for work, I was even excited to have a "regular commute". I was especially looking forward to building up a new base of shared culture with a team. I'm sure I'm not alone in wondering how shared culture will translate to a virtual-by-default office. 

But on the other hand, it's the right thing to do. Working digital by default is going to change a lot of things about the way Shopify works, and how businesses work in general - some of these changes will be tough to absorb. But it's also going to free us up to rebuild some of the basic practices around how businesses ought to work. I think the biggest change will have to do with hiring.

If we want to understand what the next 10 years of transition into Digital by Default will look like, there are two important lessons from the 90s. The first lesson is California.

Up through the 80s, the centre of gravity for tech was Cambridge, Massachusetts, and the planets orbiting around it were sprawled across the Route 128 corridor in greater Boston. Then from the 90s onward, Silicon Valley took over. There are many reasons why the west coast won, but one of the most widely agreed-upon was the fact that California state law forbids non-compete clauses. Tech workers can move between competitors at will. It sounds like this would be bad for commercial innovation (many people still seem to think so!), but the truth turned out to be the complete opposite.

When employees pass freely from company to company, they bring process knowledge along with them. They can’t bring explicit IP, but employee movement helps circulate know-how and best practices faster than if individual companies had to discover or evolve them on their own. This levels up everyone’s game: excellence inspires excellence. Engineers were free to be more loyal to their craft than even to their employers. When you let great process circulate freely, good things happen to the whole industry that outweigh any loss of trade secrets or exclusivity for individual firms.

Over time, networks of excellence and dedication to the craft become gravitational attractors for talent. The West Coast was where the world’s best software got built, and if you cared deeply about that kind of excellence, that’s where you had to go. If you cared about the craft of software, you want to be in an environment that celebrates that craft. This kind of attitude produces better software: built right, because it’s what you do. Silicon Valley today still functions on a strange but highly effective kind of “honour system”, which could not work without that rich history of doing the right thing by your craft, and by your peers.

The second important lesson from the 90s was the importance of message boards. As the whole world got connected, craft practitioners found one another on forums and message boards, and obsession flourished. The free software community, which got off the ground as the internet was born, started coming together around bigger and bigger projects, eventually building Linux.

Linux broke every rule we thought we’d learned about how to motivate and manage knowledge workers. Software development was not supposed to work like this: adding engineers to a project is supposed to make it more delayed and worse, not get built faster and better. Eric S Raymond wrote in his timeless essay The Cathedral and the Bazaar:

Linux was the first project for which a conscious and successful effort to use the entire world as its talent pool was made. I don't think it's a coincidence that the gestation period of Linux coincided with the birth of the World Wide Web, and that Linux left its infancy during the same period in 1993–1994 that saw the takeoff of the ISP industry and the explosion of mainstream interest in the Internet. Linus [Torvalds] was the first person who learned how to play by the new rules that pervasive Internet access made possible.

While cheap Internet was a necessary condition for the Linux model to evolve, I think it was not by itself a sufficient condition. Another vital factor was the development of a leadership style and set of cooperative customs that could allow developers to attract co-developers and get maximum leverage out of the medium.

Linux proved that there is no upper limit to how much value you could extract out of a message board or email list, if you got the social dynamics right. The internet made it easy for craft practitioners to find one another, fraternize and argue over methods and best practices, almost like artists. The fact that none of these people had ever met in person, or had any shared culture or life experience, made zero difference. Their craft was their shared culture.

So we have these two examples from the 90s which at first appear to contrast with one another. On the one hand, the rise of software as a craft meant that strangers who found each other on internet message boards could bond and work so successfully together that they could build incredible things without ever meeting in person. On the other hand, that same rise of software as a craft created a tremendous local network effect in the Bay Area, which prompted a huge talent influx into several dozen square miles along the peninsula.

But really, they're not in conflict at all. They're both the same force, and they were both ahead of their time.

Since then, the cost of finding and engaging in your craft of choice has gone to zero, thanks to the internet. You can learn anything on Youtube. You can find any subculture of people, interested in the same minute set of interests, on Twitter. As this happens, people are waking up to the idea that mastering a craft is how you find professional and personal fulfillment. This creates an irresistible draw: people want to go where their craft is celebrated, just like you're drawn to where your culture is celebrated. 

Today, we're opening a chapter of the world where many of us will be working remotely by default. This is exciting, but scary: as a prospective employee or employer, you have to complete against the whole world for talent. Employers and employees both value stability, so extreme liquidity in the talent marketplace is scary for everyone. In a hiring environment like this, one question becomes paramount: is this a company where your craft is celebrated?

It seems obvious to me that this world we're entering is just a more intense, and more widespread, application of the lessons we learned 30 years ago in the early California tech industry and on the early internet. Hiring and craft become the same thing. The more effort you invest internally into craft development and celebration, the more people will want to work with you. (On the flip side, in a remote work world, craft and process knowledge are even more important than they used to be, because we have to trust each other a lot more.)

I suspect that within a few years, we (and others) will go through a complete rethink of how hiring works, that's re-oriented around craft: how do we celebrate it, how do we communicate the ways that we celebrate it, how do we find people who crave celebration of that very specific thing, and then how do we hire them, wherever they are? 

One obvious thing that I suspect will happen everywhere, and which we're already doing on Shopify Money, is that everyone who practices a craft (which is to say, everyone) has recruitment and hiring as a part of their job. Knowing how to source, do hiring interviews, manage bias and prioritize diversity, and all these other skills are becoming an explicit part of everyone's job, because it's inseparable from craft excellence. Another essential part of our jobs, which I bet will be made explicit before too long, is knowing where the highest-quality pockets of craft practitioners are. "I know you from this message board; you're someone who cares a lot about our craft" will beat any resume line or work credential. Forums will unbundle LinkedIn, for any job where craft matters. 

The internet made this possible, and digital by default made it practical: there are no barriers anymore to learning where your craft is celebrated, and then applying to work there. The software community has been ahead of the curve here, but the rest of the world will catch up soon.

I'm lucky to be at Shopify right now. This company takes the idea of craft incredibly seriously; not just for software development and product management, but for everything. Even something like customer incident response, which at most companies is treated as a regretful chore, is explicitly celebrated as a craft here. That's why I'm not so worried about whether Shopify will be able to continue creating or perpetuating our culture in a remote-first world. Craft is culture. If you care about craft, you've done the hard part. 

One small but meaningful change I'd wish for in tech: I hope we get rid of the phrase "culture fit" and replace it with "craft fit." Culture Fit has come to stand for a lot of not-so-great things in hiring: our tendency to hire people just like us, who make us comfortable, and who don't challenge us in meaningful ways. I'd love it if we got rid of that idea entirely, and replaced it with the idea of Craft Fit. For the things we want, craft is culture anyway. But for the things we don't want in hiring- bias, homogeneity, risk aversion - I hope that framing a hiring choice in terms of craft fit helps redefine a choice in terms of what alignment actually matters, and along what dimensions we ought to be challenging ourselves to reach out. 

On that note, Shopify Money is hiring. Come work with me! I mean it. If you want to work with us on Shopify Money, and celebrate our craft with us for many years to come, we would love to talk to you. I made a Google Form you can fill out here, or just email me directly. We’re especially looking for engineers and technical people (I mean, who isn’t), and we’re hiring across the Americas time zones (GMT -3:30 to -8.) So if that’s you, please do email me. If you’re after the sublime satisfaction that comes from mastering a craft and building something special for merchants everywhere, and you want to be on a team that is just absolutely going to get the future of work right, drop me a note. 

For more on how to work with me on Shopify Money: go to

Permalink to this post is here: Craft is Culture |

Thank you for the tons of emails and thoughtful questions about last week’s email on thermodynamics and loops; I apologize I haven’t had the time to respond to all of them. Thank you especially to Bob Hacker for bringing Thermoeconomics to my attention. I’ve never heard of this concept before, but I immediately loved it and I plan on really digging into it when I can find the time. It looks like the book is hard to print and hard to find (reselling for $500+ on Amazon) so if anyone finds somewhere it’s on sale for cheaper than that, I’d love to hear from you. (Waterstones in the UK might have it; somewhere North America side would be nice to know about.)

And finally, this week’s Tweet of the Week: something I just can’t stop staring at in total confusion / awe / disbelief:

Have a great week,


The Most Famous Loop

Two Truths and a Take, Season 2 Episode 22

Kevin Kwok had a great essay the other day on Figma, and how its runaway success is based on hundreds of successful loops baked into its product and business model:

Why Figma Wins | Kevin Kwok

It got me thinking about loops. Loops are important and they are everywhere. Businesses are fundamentally made out of them. It’s obvious to say that a business is a collection of repeatable processes; but it’s worth going the next step to specify: if a process is truly replicable, then it must be a loop, because you have to end at the same place you started if you want to do it again. If you don’t see the loop, then either you don’t understand the loop, or it’s not truly repeatable. 

So this seems like a good week to talk about an idea about loops I’ve been chewing on for a bit: if we want to learn about how loops work, one interesting place to look might be thermodynamics. Furthermore, there may be an important (although highly abstract) business lesson embedded in arguably the most famous loop in scientific history: the Carnot cycle. 

The most famous loop: the Carnot Cycle

Until the 1800s, the dominant way we thought about science, technology, and industry was framed in terms of Newton’s classical mechanics. When people thought about conservation of motion and mechanical force, they’d picture something like a waterwheel. Waterwheels transform the force and power of falling water into a different sort of force and power, a spinning wheel that could power a loom or a factory. We thought about a lot of natural and even political science in these kinds of mechanical terms: the world as a set of interlocking gears, transferring energy and power from one place to another. 

Then a paradigm shift took place. The Watt Steam Engine (originally built in 1775) reached mass adoption, and we began think about heat, and the heat engine as an energy source that powered movement and industry. We established a new kind of science, with a completely new field of unknowns to work out: thermodynamics

If you look back in art and culture, you see a shift around this time in how we thought about the order and logic of the world. We left behind the idea of the world as an intricate mechanical machine, like a ticking clock. We found new imagery: the world as a furnace belching steam. 

The common thread between mechanical engines (like a water wheel) and heat engines (like a steam piston) is that they both preform a recurring loop of work, over and over. That loop has to do two jobs. First, it has to perform useful work on the outside world. Second, it has to return to its initial state, to start the loop again. “Efficient” machines go through this loop with as little energy wasted as possible. 

In 1824, Sadi Carnot considered this question: what makes a machine efficient? What are the principal causes of inefficiency and loss? By applying the physics of his time, and some common sense, Carnot reasoned that an inefficient machine is one where moving parts smash into each other at high speed and opposing momentum, resulting in loss of useful energy. Efficiency, in Carnot’s framework, means that no part of the machine ever comes into contact with another part that’s moving at a different velocity

Carnot took this thinking a step further, and into scientific immortality, by reasoning that the same principle should apply to heat engines. The driving source of a heat engine is the difference in temperature between two reservoirs: a hot coal furnace versus the cool outside world. Carnot figured that the equivalent of mechanical engine parts smashing into each other would be hot and cool temperature reservoirs that directly touch each other, and spoil their useful energy potential. 

So an ideal heat engine has to pull off something tricky: draw useful work out of a difference in temperature between two bodies, while never letting them actually touch each other. For this to work, we’re going to need a loop that has more than two steps. Why? A two-step loop that goes back and forth between hot and cool will necessary be inefficient, like a machine that smashes against itself continuously. There needs to be some other quantity, other than temperature, getting exchanged in the loop.

Carnot figured out the first half of this puzzle, describing an ideal system (which we now call a Carnot Engine) where a gas in a piston can expand and contract as it moves back and forth. As steam gets exchanged between a hot energy reservoir (like a coal furnace) and a cool outside world, it goes through four steps of a cycle. Two of them are held at constant temperature, as the gas expands and pushes (or contracts, as it's pushed by) a piston doing work. In the other two, further expansion or contraction will cause the gas to cool down, or heat up, until it reaches the same temperature as the cool (or hot) reservoir. This theoretical loop pulls off the paradox of theoretically efficient transformation of heat differential into mechanical differential. The math works out to a perfect, closed cycle.

But Carnot himself didn’t actually understand the most important part of how we achieve this in real life. That took the insight of Rudolf Clausius, who focused on the part of the system Carnot ignored. For a heat engine to work, fuel gets burned. Something irreversible happens, even though his loop is completely conserved. Clausius worked out the concept of entropy: the amount of disorder in the gas, which is distinct from temperature, and goes through the cycle “perpendicularly” to heat transfer. 

You can see this illustrated in the graph on the right. The amount of heat in the gas and the amount of disorder in the gas are not the same - an efficient heat engine exploits this difference. Steps one and three are isoentropic: if you heat a gas from low to high temperature while also compressing it at the same time, the amount of entropy in the gas will stay constant. (Same in reverse.) Meanwhile, steps two and four are isothermic: at constant temperature, as a hot gas expands, its disorder increases. 

The cycle is conserved: the loop ends up back at its starting point, every time. Yet something irreversible happens: when we burn fuel to create heat, entropy increases. The secret of heat engines, which Carnot articulated without realizing it, is that they capture this increase in entropy in the expanding gas, and then later on dump the entropy on the outside world. We have a four-step loop: in addition to “heat in” (1) and “heat out” (3), we have two new steps: “disorder in” (2) and “disorder out” (4). 

In real life, you’ll never encounter a Carnot engine in the wild, because actual heat engines differ in two important ways: first, they have to deal with mechanical realities like fixed volumes. (The thermodynamic Otto Cycle, in your car engine, is kind of like a Carnot Cycle turned 90 degrees sideways, and with fixed volumes not temperatures.) Second, they reflect the reality of entropy getting continually created and dumped on the outside world, which the Carnot cycle doesn’t actually acknowledge. 

Let Disorder Happen

Still, there is a deep idea here. “Disorder” and “Efficiency” are not at odds with each other. One is actually required for the other: expansion and contraction of disorder is an essential part of efficient loops. 

This got me thinking about business loops, like the kind Kevin is talking about in Figma and in other successful products. (Or, just as well, the internal loops that continually run inside of companies as they function. Eugene Wei once described these to me as ‘circadian rhythms’, and the concept has stuck with me since.) 

It seems reasonable to me that all loops should try to obey three simple properties:

  1. They start and end at the same place. If they didn’t, they wouldn’t be loops. All loops generate useful work output, but also require different work as input, so you can end up where you started.

  2. They pass through a difference in ‘potential energy’. If they didn’t, then they couldn’t accomplish any useful work. Potential Energy here can mean whatever you like: resources, motivation, attention, invested effort, whatever. 

  3. They acknowledge that disorder gets created. If they didn’t, then they’d be kidding themselves. 

We can attempt to draw this out, as if it were a heat engine. I’m not going to bother too much with faithfully interpreting every axis, but I’m going to substitute “high and low temperature” in a heat engine with “high and low potential energy” - whatever it is we contribute, like priority, resources or human effort, that drives useful work as an output. Furthermore, our equivalent for Volume moving back and forth (like the piston in our heat engine) is substituted for “Getting work out of the system” (like a piston expanding) and “Putting work back into the system” (contracting). 

I realize this is super abstract, but I think there are a couple important ideas expressed here. First, it acknowledges that there are two ways you can get work out of a loop. The first is to spend potential energy, no surprise. But the second is to let disorder increase. Not forever; ideally only in the controlled circumstance of your imaginary heat engine. You can get a lot of work done if you freely let disorder run its course. You will have to pay it back later, but it will work. 

In practice, these are both ways that you can get work out of a loop. Of course, in order to get back to where you’ve started, you’ll have to clean up the disorder eventually. You’ll need to clean up that code base, and work through the management debt you’ve accumulated. Or maybe in a smaller scale loop, you have to constrict a range of possibilities you’d opened up somewhere else. 

The second insight in here is that if you allow the ebb and flow of disorder, your loop can pass between high and low potential energy states a lot more efficiently. I think of this in terms of the Andy Grove line from High Output Management, “Let chaos reign, and then rein in chaos.” It’s useful to think of this advice as taking place perpendicularly, but across the same loop, as investing and then harvesting time and resources. 

If you don’t allow for that ebb and flow of disorder, you’re going to lose a whole lot of effectiveness across your loop, although you may not see it. You’ll be forcing the high potential energy part of your loop in direct contact with the low potential energy part, and you’ll spoil the efficiency of your loop. To imagine why you might not want this in practice, replace high potential energy and low potential energy with well-resourced and under-resourced, high morale and low morale, high focus and low focus, or any number of discontinuities. 

I’ll think about this more, I need to fill in a lot of gaps in this idea, but I do think they’re something correct about this. 


My reading recommendation this week is Jack Gecawich’s long piece on social audio platforms like Clubhouse and Roadtrip:

Social Audio: Connection over Community | Jack Gecawich

And this week’s Tweet of the Week, which made me laugh (and reminisce) the hardest, is this whole thread but especially the kickoff tweet:

Have a great week,


Never Hertz to Ask

Two Truths and a Take, Season 2 Episode 21

Obviously we’re going to talk about this today:

Ok, so. Up until this year, I would’ve told you that there are two general kinds of financial bubbles. 

The first kind of bubble is where everyone believes the future will be like the present. Think credit bubbles and real estate; think 2007-2008, where the fundamental belief that drove the bubble forward and into ruin was “We’ve figured this out. We can’t lose. The risk has all been worked out. Lever up, cowboy. We will never die.” 

There are two reflexive feedback loops at work here. The first is the positive feedback cycle between that belief, “We have the future figured out”, and rising asset prices - which confirm the invincible mentality and drive it forward. The second loop is that rising asset prices translate to lower cost of capital. In a mindset like this, we get excessively comfortable with investing that low-cost capital into businesses and investments that generate predictable future earnings, or the illusion of predictable. That cheap capital can then meaningfully contribute to those earnings actually materializing, on schedule. Bubbles can genuinely be self-fulfilling prophecies; to a point. Past that point it’s bad.

The second kind of bubble is where everyone believes the future will be different from the present. Think equity bubbles, startups, and crypto; think 1999, where the fundamental belief that drove the bubble forward and into ruin was “It’s a new economy. All the rules are different. The upside is unlimited. If you get in now, you’ll be rich. We’re going to live forever.

As before, there are reflexive feedback loops at work here too. The first loop is the positive feedback cycle between that belief, “I’ve seen the future, and I believe”, and rising asset prices - which confirm the bubble mentality, and bring on the FOMO. The second loop, as before, is that rising asset prices actually do something useful here. It means we can fund cool startups! Wacky, speculative ventures, which under normal circumstances could never raise any money, are able to access capital at attractive valuations. Sometimes they do, in fact, build the future. These kinds of bubbles can be actually good.

Unlike before, where we rewarded predictable earnings (or, the perception of them) with low cost of capital, here it’s the opposite. We’re looking for unpredictable earnings; specifically, the prospect of unknowable but infinitely high upside. These bubbles can also become self-fulfilling prophecies (dot com speculation got us Amazon, and a whole lot of broadband cable), but they blow up when expectations get too detached from reality. 

There are certainly sub-categories and variations on these two themes. One driving factor you often see associated with bubbles is new financial instruments that give the retail buying public better access (or more aggressive leverage) to the object of speculation. Crypto is an obvious recent example, but this goes all the way back to the Mississippi Company and South Sea manias, with the invention of the joint stock company and the bubbles that resulted. Other stuff matters too, like economic cycles and political narratives. But in general, up until this year, I would’ve told you that these are the two basic kinds of bubbles. 

I was wrong. There is a third kind of bubble, it’s happening spectacularly right now, and we’re going to see it a lot more in the future.

If the first kind of bubble is “everyone thinks the future will be the same”, and the second kind is “everyone thinks the future will be different”, the third kind is “everyone thinks the future doesn’t matter.” 

If you remember, the 1999 bubble had a lot to do with technology and the future, sure, but also had something to do with boomers and early Gen Xers having all of this disposable money right as online brokerages became a thing. Right now, there’s a similar thing going on. Millennials have real paychecks to spend, and stock trading fees have all gone to zero. Trading has become gaming. 

Crypto gave us a taste of the wild a few years ago, for that brief autumn where random people from your past would message you about how much Filecoin to buy. But now that itch has hit the mainstream. The stock picking day traders are having their cultural moment, led by Dave Portnoy and an army of shitposters. 

Barstool Sports’ Dave Portnoy is leading an army of day traders | Sophie Alexander & Katherine Greifeld, Bloomberg

Portnoy’s “Davey Day Trader Global” escapades are hilarious and well-known, and he’s brilliantly playing the heel; credit to him for absolutely getting how it works, Barstool not withstanding. But the bigger story here is Wallstreetbets. I’m sure most of you have heard of the Wallstreetbets subreddit by now; if you haven’t, the best way I know how to explain it is that it’s like “multiplayer Jackass for the stock market."

Wallstreetbets started as a bunch of random internet yahoos bragging about crazy YOLO trades they’d make (and would actually follow through on!), and what enormous percentages of their net worth they’d win or lose spectacularly. I really do think that Jackass is a good comparison here. Yes, these people are trying to get rich; but more importantly, they’re trying to provoke reactions. It’s a game of who can be the most shocking. There’s really not much difference between reading some of these WSB posts and watching an old Jackass sketch. You’ll laugh until you can’t breathe, and then keep laughing when you realize someone actually got kicked in the crotch that hard. 

But as it got more popular, some actually sophisticated (and supremely aggressive) traders are getting in on the fun, and it got highly competitive and weird. It’s the newest version of “the stock market as full-contact sports with legal gambling”, and it’s a lot of fun. No one here cares about valuation or fundamentals. It is explicitly a casino. Everyone is here to get in and out of a position in the most shocking way possible. And, astoundingly, there’s enough AUM getting accumulated behind these bets that it can actually start to move individual stocks in weird ways. 

Reddit’s profane, greedy traders are shaking up the stock market | Luke Kawa, Bloomberg Businessweek

The groundwork for this strange show has been built up over a few years, but when the pandemic hit, all hell broke loose. A perfect storm of events come together: first, generational volatility in the stock market as everyone tried to get in front of (and then out from) a global pandemic; second, everyone getting quarantined at home and desperate to feel something, and third: no sports

Enter Hertz. Hertz was in trouble anyway; it’s carrying around a ton of debt to pay for a fleet of cars that no one wants to drive, because we have Uber now. When the pandemic hit, they got called on their debt, couldn’t make it work, so they had to declare bankruptcy and start a restructuring process. 

But then weird things started to happen. Hertz’s stock, which is presumably worthless, starts to go up. And up. And up. It gets bid up a whole 500% over a 3-day period last week. What is going on?

There’s no way to describe it other than, this is a Jackass sketch taking place. It started out as these internet YOLO traders playing an increasingly stupid game of chicken. But then it… caught on? Other people started to get in on this too. Hey, obviously the stock in the long run is worth zero. Everyone knows that. But it’s going up, and tomorrow it might go up more. If this were just some dumb penny stock with a cool story attached to it, that’d be old news. This is different. 

When you see a stock getting bid up like this, the only conclusion you can draw is “The future does not matter, because in between now and then, this is explicitly just spinning a roulette wheel. The stock could go up or down, who knows, but at least you know it has nothing to do with the underlying value of the stock (which we all know is zero!), and everything to do with other gamblers. 

So Hertz sees this happening, and they’re like, well, if there’s demand for our stock, we should go sell some! I mean, it’s a ridiculous kind of demand, and it’s not “real” demand, but hey, maybe it’s real enough. So Hertz files, and is granted, an emergency request to their bankruptcy judge to issue a billion dollars worth of new stock in order to take advantage of whatever this is. Tom Lauria, one of the attorneys representing Hertz, had an all-timer line: “New platforms for day traders may be facilitating this. There are forces at work that us non-financial people, that we can only observe.” The SEC, presumably between gasps of laughter, declined to weigh in on whether the transaction was legal, saying “it is up to the company to comply with securities law."

Just to restate how funny this is: Hertz is granted permission, by their own bankruptcy judge, to sell stock in their company which has already declared bankruptcy, because due to weird mojo in the universe, there’s a small army of reddit trolls playing chicken with each other and it just might save the company. Financial Twitter goes crazy, and (of course!) people start bidding up stocks of other bankrupt companies. It was a great day to be online. (Matt Levine, as usual, has the best writeup.)

(By the way, here’s a hilarious aside: Business Insider reports on this, and says, “oh, by the way, Hertz share price fell on the news, which makes sense, as shareholders will face dilution” hahahahaha)

So how can we think of these events as a third model in our taxonomy of bubbles? We’ve got all three pieces of our reflexive loop at work. The first is a deep belief: not that the future will be the same, or will be different, but that it’s totally irrelevant. As Hertz’s stock price rises, it confirms this temporary suspension of reality, and furthermore, it confirms that the other people you’re trading against are also idiots, so there’s an opportunity to make money here. 

The second half of this reflexivity loop is even weirder. Unlike in a normal bubble, where it’s the perception of stability that drives an earnings multiple, or in an equity bubble, where it’s the perception of high upside that drives an earnings multiple, here there are no earnings. The future earnings here are presumed to be zero. But if everyone knows that, and everyone is okay with it, then everyone around the table can look at everyone else around the table in the eye, and know that they don’t care about earnings either. They only care about winning this YOLO trade, and Hertz is issuing new shares to fulfill that demand, and it could conceivably, theoretically, save the company! Aah! I can’t even.

And so long as everyone thinks that, then the only limiting factor to how violent this bubble can be is how much cash you have, and how quickly the traders can find each other. The answer seems to be “lots”, and “fast”. 

I really do think that this deserves its own place on the financial tree of the life. It's a genuinely unique form of financial dadaism that’s distinct from the other two kind of bubbles. And we’re going to see it again. Not exactly like this, but the genie’s out of the bottle now. There is enough AUM dedicated to these kind of stunts, and the internet has dropped the cost and latency of communication among these day trading Johnny Knoxvilles down to zero. 

This generation of day traders is hooked on harder drugs than in the 90s, and the internet is absolutely why. There are mimetic forces at work here. But it used to be that you experienced this pressure as “my idiot coworker got rich, I want to be successful like that, let me try this day trading thing.” Now, it’s something more extreme. I have insecure friends who feel pressure to do these Davey Day Trader-inspired stunts with their trading accounts, because that’s how they affirm their own manhood or sense of self. (By the way, in case you were wondering how many people are acutally making money on this, Robinhood trading is fully taxed. I wonder how many people don’t realize this.)

Even after this stunt phase mellows out, there is a whole generation of retail investor out there whose introductory experience in the markets was 2020. I can really understand how the formative message you’d absorb here is “no one knows anything!” I really do! After the last few months, I can really understand how your fundamental attitude towards the stock market would be: “What the market thinks will happen ten years from now is totally irrelevant. We don’t even know what’s going to happen tomorrow!”

These are the raw ingredients you need for a different kind of bubble than the first two, that I bet we’ll see a lot of going forward. There’s enough AUM, who demands a certain kind of “investment” (and enough momentum traders looking to capitalize retail idiocy) that you’ve gotta be thinking like Hertz here! How can we take advantage of this? The market wants a product. So let’s give it to em!

The Hertz story is an exceptional situation. I do not think it’s likely to ever happen again. But you know what kind of public companies have zero earnings for years at a time, and where future earnings are so far away that it’s already understood by everyone to be a day-to-day game of chicken, just like this? Biotech companies. And you know what kind of companies are going to be really interesting in the aftermath of Covid? Biotech companies. 

At the end of last year in my Ten Predictions for the 2020s post, I threw out a take: “There will be a major speculative bubble in biotech companies.” I mean, I didn’t have this in mind, but you know what, this makes me feel pretty good about that prediction. One of the catalysts, I wrote, would be "A new kind of financial innovation that becomes the instrument of speculation. These aren’t a necessary component of bubbles, but they sure help. In this case, I bet there’s going to be some new clever financial product that bundles and securitizes the highly speculative IP of biotech companies, in a way that legally lets retail investors buy them through an ETF or something.” I’ll admit, at the time, I didn’t foresee the “new, creative instrument of financial speculation” being “the equity of bankrupt companies.” But why not! 

Anyway, in summary, ha ha ha ha ha. What a week.

Permalink to this post is here: Never Hertz to Ask |

See you next time,


Disrespectful to Wrestling

Two Truths and a Take, Season 2 Episode 20

A couple years ago, I was listening to the excellent podcast Wrestlesplania (hosted by Rachel Millman, it’s good, check it out) and in one of the early episodes, Kath Barbadoro shared a truth from wresting that I’ve thought about all the time ever since, especially this past week.

Sometimes in Pro Wrestling, unless you’re really clued in to the backstory and the character narratives going into any night, it can be hard to tell who you’re supposed to be cheering for. Character trajectories and story arcs evolve; heroes sometimes turn into villains (“turn heel”); storylines can emerge that you’re not sure how to parse at first. But there’s one foolproof way to tell who’s being cast as the hero and who’s being cast as the villain. 

Every wrestling match is unique, but at the same time, every wrestling match is the same. The hero (the “face”) respects wrestling. And the villain (the heel) disrespects wrestling. So, therefore, they must wrestle, over the honour of wrestling. So if you want to know who’s the villain, just look for who is being cast (or will be cast) as disrespectful to wrestling. Once you know to look for this, it’s easy to see. 

This is an old technique. If you go back to Ancient Greek storytelling, there are a lot of classic story arcs (Order versus chaos, Rise and fall, even Good versus Evil) but the most important story arc of all - the one that’s senior to every other narrative, in every story - is “Respects the Gods versus Disrespects the Gods.” It holds the highest spot in the narrative hierarchy. 

In the Greek stories, you always have two storylines going on simultaneously. You have what’s going on down on earth, which can be complex, and nuanced, and often hard to interpret at first. Real life is complicated; there’s rarely such a thing as a “pure” hero or villain. But then up in the pantheon, you have the second storyline, which is the Gods watching what’s happening down on earth, and figuring out amongst themselves how the story is going to work out - specifically, figuring out which of the humans down on earth they deem to be respectful, and which are disrespectful.

Once that senior narrative gets established, the earthly story becomes a foregone conclusion. When the “respecters versus disrespecters” narrative gets established for the audience, it’s effectively impossible to undo. Even if it flies completely in the face of what’s actually happening on the ground (which was often the case! The Gods often disagreed, or got it wrong!), the absolute clarity that this narrative creates is irreversible. 

So, you can replace Wrestling or Zeus with “America”, or “the troops”, and it works pretty much the same way.  If there’s a developing storyline, and you’re able to take control of the media narrative by framing it in terms of “The ___ respecters versus the ___ disrespecters” you’re going to win every time. “There they go again, folks, disrespecting America.” It’s like controlling the centre of the board in chess. 

A few years ago, Colin Kaepernick took a knee during the national anthem, refusing to stand for the flag in protest of police brutality and of the killing of Black Americans. Since then, up through the killing of George Floyd and subsequent eruption of Americans everywhere, the issue of the fundamental relationship between policing and being Black in America has not been able to escape the more senior narrative of "America Respecters versus America Disrespecters.” 

It’s very sad to see these mechanics work in real time. 

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