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ET Zeitgeist: Raccoons Never Sleep

Summary:
Here’s what we’re reading and working on this week at Epsilon Theory. To receive a weekly full-text email of The Zeitgeist, please sign up here. It’s free, and your email will not be shared with anyone. Ever. Every item in this email is a discussion thread on the Epsilon Theory Forum – a safe space to speak your mind, a safe space to find like-minded truth-seekers. Watch from a distance if you like, but when you’re ready … join us. A raccoon (in Epsilon Theory lingo) is a financial huckster or conman. I hate raccoons. P&C insurer Lemonade (LMND) went public last year and now has a billion market cap. They’re not just a sleepy insurance company, of course. No, no … they’re actually a cutting edge AI Company! TM. That’s why it’s okay that they lose more

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Here’s what we’re reading and working on this week at Epsilon Theory.

To receive a weekly full-text email of The Zeitgeist, please sign up here. It’s free, and your email will not be shared with anyone. Ever.

Every item in this email is a discussion thread on the Epsilon Theory Forum – a safe space to speak your mind, a safe space to find like-minded truth-seekers. Watch from a distance if you like, but when you’re ready … join us.


ET Zeitgeist: Raccoons Never Sleep

A raccoon (in Epsilon Theory lingo) is a financial huckster or conman.

I hate raccoons.


P&C insurer Lemonade (LMND) went public last year and now has a $5 billion market cap. They’re not just a sleepy insurance company, of course. No, no … they’re actually a cutting edge AI Company! TM.

That’s why it’s okay that they lose more money with every new customer.

That’s why their CFO, Tim Bixby, gets a puff-piece written in the WSJ’s hard-hitting CFO Journal section, spouting gems like this:

Lemonade has made it a priority in recent months to communicate more with nonprofessional investors about its business model and plans, Mr. Bixby said. The idea is to reach young or novice investors where they spend their time—for example on YouTube or investment apps—and speak about its strategy and performance in simple terms, he said.

“While we can’t directly affect our stock price, we can expand and widen the communication net to bring in a broader, more diverse range of investor opinions and strategies,” Mr. Bixby said.

To be clear, by “a more diverse range of investor opinions and strategies”, he means the diamond hands Reddit crew and the momo hedgies who play that crowd like a fiddle. Did we mention that Lemonade is actually an AI Company! TM ?

But then we got this gem of a social media campaign. Oops!

Shot …

ET Zeitgeist: Raccoons Never Sleep

Chaser.

ET Zeitgeist: Raccoons Never Sleep

They’ve deleted the tweet above and issued a classic non-denial denial on their blog:

Let’s be clear: 

AI that uses harmful concepts like phrenology and physiognomy has never, and will never, be used at Lemonade.

We have never, and will never, let AI auto-reject claims.

LOL. So their AI Jim textbot + video recognition program (I am not making this up) isn’t using phrenology and it can’t auto-reject claims. No, no … the supervisor will reject the claim.

I hate raccoons.


Meanwhile, back on CNBC …

ET Zeitgeist: Raccoons Never Sleep

Honestly, I kinda like Chamath-the-CNBC-talking-head. He’s iconoclastic and smart. A little too much Ben Shapiro / college debate team-esque with the “if I talk really fast maybe you’ll just ignore that jaw-droppingly stupid thing I just said”, but better than the usual CNBC fare regardless.

But Chamath-the-portfolio-manager? Raccoonery in action.

Here’s the Social Capital 2020 annual letter, published five months into 2021. There’s no mention of the disastrous year to date, which demands that you ask the core Epsilon Theory question: Why am I reading this NOW? But even taken on its own terms – hey, let’s talk about 2020 performance going into June, 2021 – this is just a complete crock.

Chamath describes his fund’s performance as “gross IRR” over aggregated multi-year periods. We have no idea of the fund’s performance in 2020, even in “gross IRR” terms, but are required to compare 2011-2019 average annual return to 2011-2020 average annual return. Then Chamath compares his “gross IRR” to S&P 500 total return over the same periods. Then he compares that to Berkshire Hathaway over “the first nine years” of the two investment funds. LOL.

ET Zeitgeist: Raccoons Never Sleep
ET Zeitgeist: Raccoons Never Sleep

The final picture below – a tweet I put out after a Chamath tweet storm in early March – highlights the rest of his raccoon math.

ET Zeitgeist: Raccoons Never Sleep

And then there’s this in a Bloomberg opinion piece on Thursday.

Chamath: “PIPE investors need investor protections and have the ability to change the terms of the deal if market conditions change materially.”

Also Chamath: SPACs “level the playing field” for ordinary investors.

When I think about all the compliance pushback I’ve gotten on investor letters and marketing decks over the years … when I think about all of the SEC and regulatory proctology exams my funds have endured … this just makes me so angry.

I hate raccoons.



About Ben Hunt
Ben Hunt
He is the chief investment strategist at Salient, a $14 billion asset manager based in Houston and San Francisco, and the author of Epsilon Theory, a newsletter and website that examines markets through the lenses of game theory and history. Over 100,000 professional investors and allocators read Epsilon Theory for its fresh perspective into market dynamics.

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