Margin; Long and Short Positions, with Formulas and Examples
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DDDD - Retail Investors, Bankruptcies, Dark Pools and Beauty Contests
For this week's edition of DDDD (Data-Driven DD), we're going to look in-depth at some of the interesting things that have been doing on in the market over the past few weeks; I've had a lot more free time this week to write something new up, so you'll want to sit down and grab a cup of coffee for this because it will be a long one. We'll be looking into bankruptcies, how they work, and what some companies currently going through bankruptcies are doing. We'll also be looking at some data on retail and institutional investors, and take a closer look at how retail investors in particular are affecting the markets. Finally, we'll look at some data and magic markers to figure out what the market sentiment, the thing that's currently driving the market, looks like to help figure out if you should be buying calls or puts, as well as my personal strategy. Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance.
How Bankruptcies Work
First, what is a bankruptcy? In a broad sense, a bankruptcy is a legal process an individual or corporation (debtor) who owes money to some other entity (creditor) can use to seek relief from the debt owed to their creditors if they’re unable to pay back this debt. In the United States, they are defined by Title 11 of the United States Code, with 9 different Chapters that govern different processes of bankruptcies depending on the circumstances, and the entity declaring bankruptcy. For most publicly traded companies, they have two options - Chapter 11 (Reorganization), and Chapter 7 (Liquidation). Let’s start with Chapter 11 since it’s the most common form of bankruptcy for them. A Chapter 11 case begins with a petition to the local Bankruptcy court, usually voluntarily by the debtor, although sometimes it can also be initiated by the creditors involuntarily. Once the process has been initiated, the corporation may continue their regular operations, overseen by a trustee, but with certain restrictions on what can be done with their assets during the process without court approval. Once a company has declared bankruptcy, an automatic stay is invoked to all creditors to stop any attempts for them to collect on their debt. The trustee would then appoint a Creditor’s Committee, consisting of the largest unsecured creditors to the company, which would represent the interests creditors in the bankruptcy case. The debtor will then have a 120 day exclusive right after the petition date to file a Plan of Reorganization, which details how the corporation’s assets will be reorganized after the bankruptcy which they think the creditors may agree to; this is usually some sort of restructuring of the capital structure such that the creditors will forgive the corporation’s debt in exchange for some or all of the re-organized entity’s equity, wiping out the existing stockholders. In general, there’s a capital structure pecking order on who gets first dibs on a company’s assets - secured creditors, unsecured senior bond holders, unsecured general bond holders, priority / preferred equity holders, and then finally common equity holders - these are the classes of claims on the company’s assets. After the exclusive period expires, the Creditor’s Committee or an individual creditor can themselves propose their own, possibly competing, Restructuring Plan, to the court. A Restructuring Plan will also be accompanied by a Disclosure Statement, which will contain all the financial information about the bankrupt company’s state of affairs needed for creditors and equity holders to make an informed decision about how to proceed. The court will then hold a hearing to approve the Restructuring Plan and Disclosure Statement before the plan can be voted on by creditors and equity holders. In some cases, these are prepared and negotiated with creditors before bankruptcy is even declared to speed things up and have more favorable terms - a prepackaged bankruptcy. Once the Restructuring Plan and Disclosure Statement receives court approval, the plan is voted on by the classes of impaired (i.e. debt will not be paid back) creditors to be confirmed. The legal requirement for a bankruptcy court to confirm a Restructuring Plan is to have at least one entire class of impaired creditors vote to accept the plan. A class of creditors is deemed to have accepted a Restructuring Plan when creditors that hold at least 2/3 of the dollar amount and at least half of the number of creditors vote to accept the plan. After another hearing, and listening to any potential objections to the proposed Restructuring Plan, such as other impaired classes that don't like the plan, the court may then confirm the plan, putting it to effect. This is one potential ending to a Chapter 11 case. A case can also end with a conversion to a Chapter 7 (Liquidation) case, if one of the parties involved file a motion to do so for a cause that is deemed by the courts to be in the best interest of the creditors. In Chapter 7, the company ceases operating and a trustee is appointed to begin liquidating (i.e. selling) the company’s assets. The proceeds from the liquidation process are then paid out to creditors, with the most senior levels of the capital structure being paid out first, and the equity holders are usually left with nothing. Finally, a party can file a motion to dismiss the case for some cause deemed to be in the best interest of the creditors.
The Tale of Two Bankruptcies - WLL and HTZ
Hertz (HTZ) has come into news recently, with the stock surging up to $6, or 1500% off its lows, for no apparent fundamental reason, despite the fact that they’re currently in bankruptcy and their stock is likely worthless. We’ll get around to what might have caused this later, for now, we’ll go over what’s going on with Hertz in its bankruptcy proceedings. To get a clearer picture, let’s start with a stock that I’ve been following since April - Whiting Petroleum (WLL). WLL is a stock I’ve covered pretty extensively, especially with it’s complete price dislocation between the implied value of the restructured company by their old, currently trading, stock being over 10x the implied value of the bonds, which are entitled to 97% of the new equity. Usually, capital structure arbitrage, a strategy to profit off this spread by going long on bonds and shorting the equity, prevents this, but retail investors have started pumping the stock a few days after WLL’s bankruptcy to “buy the dip” and make a quick buck. Institutions, seeing this irrational behavior, are probably avoiding touching at risk of being blown out by some unpredictable and irrational retail investor pump for no apparent reason. We’re now seeing this exact thing play out a few months later, but at a much larger scale with Hertz. So, how is WLL's bankruptcy process going? For anyone curious, you can follow the court case in Stretto. Luckily for Whiting, they’ve entered into a prepackaged bankruptcy process and filed their case with a Restructuring Plan already in mind to be able to have existing equity holders receive a mere 3% of new equity to be distributed among them, with creditors receiving 97% of new equity. For the past few months, they’ve quickly gone through all the hearings and motions and now have a hearing to receive approval of the Disclosure Statement scheduled for June 22nd. This hearing has been pushed back a few times, so this may not be the actual date. Another pretty significant document was just filed by the Committee of Creditors on Friday - an objection to the Disclosure Statement’s approval. Among other arguments about omissions and errors the creditor’s found in the Disclosure Statement, the most significant thing here is that Litigation and Rejection Damage claims holders were treated in the same class as a bond holders, and hence would be receiving part of their class’ share of the 97% of new equity. The creditors claim that this was misleading as the Restructuring Plan originally led them to believe that the 97% would be distributed exclusively to bond holders, and the claims for Litigation and Rejection Damage would be paid in full and hence be unimpaired. This objection argues that the debtors did this gerrymandering to prevent the Litigation and Rejection Damage claims be represented as their own class and able to reject the Restructuring Plan, requiring either payment in full of the claims or existing equity holders not receiving 3% of new equity, and be completely wiped out to respect the capital structure. I’d recommend people read this document if they have time because whoever wrote this sounds legitimately salty on behalf of the bond holders; here’s some interesting excerpts: Moreover, despite the holders of Litigation and Rejection Damage Claims being impaired, existing equity holders will still receive 3% of the reorganized company’s new equity, without having to contribute any new value. The only way for the Debtors to achieve this remarkable outcome was to engage in blatant classification gerrymandering. If the Debtors had classified the Litigation and Rejection Damage Claims separately from the Noteholder claims and the go-forward Trade Claims – as they should have – then presumably that class would reject a plan that provides Litigation and Rejection Damage Claims with a pro rata share of minority equity. The Debtors have placed the Rejection Damage and Litigation Claims in the same class as Noteholder Claims to achieve a particular result, namely the disenfranchisement of the Rejection Damage and Litigation Claimants who, if separately classified, may likely vote to reject the Plan. In that event, the Debtor would be required to comply with the cramdown requirements, including compliance with the absolute priority rule, which in turn would require payment of those claims in full, or else old equity would not be entitled to receive 3% of the new equity. Without their inclusion in a consenting impaired class, the Debtors cannot give 3% of the reorganized equity to existing equity holders without such holders having to contribute any new value or without paying the holders of Litigation and Rejection Damage Claims in full. The Committee submits that the Plan was not proposed in good faith. As discussed herein, the Debtors have proposed an unconfirmable Plan – flawed in various important respects. Under the circumstances discussed above, in the Committee’s view, the Debtors will not be able to demonstrate that they acted with “honesty and good intentions” and that the Plan’s results will not be consistent with the Bankruptcy Code’s goal of ratable distribution to creditors. They’re even trying to have the court stop the debtor from paying the lawyers who wrote the restructuring agreement. However, as discussed herein, the value and benefit of the Consenting Creditors’ agreements with the Debtors –set forth in the RSA– to the Estates is illusory, and authorizing the payment of the Consenting Creditor Professionals would be tantamount to approving the RSA, something this Court has stated that it refuses to do.20 The RSA -- which has not been approved by the Court, and indeed no such approval has been sought -- is the predicate for a defective Plan that was not proposed in good faith, and that gives existing equity holders an equity stake in the reorganized enterprise even though Litigation and Rejection Damage Creditors will (presumably) not be made whole under the Plan and the existing interest holders will not be contributing requisite new value. As a disclaimer, I have absolutely zero knowledge nor experience in law, let alone bankruptcy law. However, from reading this document, if what the objection indicates to be true, could mean that we end up having the court force the Restructuring agreement to completely wipe out the current equity holders. Even worse, entering a prepackaged bankruptcy in bad faith, which the objection argues, might be grounds to convert the bankruptcy to Chapter 7; again, I’m no lawyer so I’m not sure if this is true, but this is my best understanding from my research. So what’s going on with Hertz? Most analysts expect that based on Hertz’s current balance sheet, existing equity holders will most likely be completely wiped out in the restructuring. You can keep track of Hertz’s bankruptcy process here, but it looks like this is going to take a few months, with the first meeting of creditors scheduled for July 1. An interesting 8-K got filed today for HTZ, and it looks like they’re trying to throw a hail Mary for their case by taking advantage of dumb retail investors pumping up their stock. They’ve just been approved by the bankruptcy court to issue and sell up to $1B (double their current market cap) of new shares in the stock market. If they somehow pull this off, they might have enough money raised to dismiss the bankruptcy case and remain in business, or at very least pay off their creditors even more at the expense of Robinhood users.
The Rise of Retail Investors - An Update
A few weeks ago, I talked about data that suggested a sudden surge in retail investor money flooding the market, based on Google Trends and broker data. Although this wasn’t a big topic back when I wrote about it, it’s now one of the most popular topics in mainstream finance news, like CNBC, since it’s now the only rational explanation for the stock market to have pumped this far, and for bankrupt stocks like HTZ and WLL to have surges far above their pre-bankruptcy prices. Let’s look at some interesting Google Trends that I found that illustrates what retail investors are doing. Google Trends - Margin Calls Google Trends - Robinhood Google Trends - What stock should I buy Google Trends - How to day trade Google Trends - Pattern Day Trader Google Trends - Penny Stock The conclusion that can be drawn from this data is that in the past two weeks, we are seeing a second wave of new retail investor interest, similar to the first influx we saw in March. In particular, these new retail investors seem to be particularly interested in day trading penny stocks, including bankrupt stocks. In fact, data from Citadel shows that penny stocks have surged on average 80% in the previous week. Why Retail Investors Matter A common question that’s usually brought up when retail investors are brought up is how much they really matter. The portfolio size of retail investors are extremely small compared to institutional investors. Anecdotally and historically, retail investors don’t move the market, outside of some select stocks like TSLA and cannabis stocks in the past few years. However when they do, shit gets crazy; the last time retail investors drove the stock market was in the dot com bubble. There’s a few papers that look into this with similar conclusions, I’ll go briefly into this one, which looks at almost 20 years of data to look for correlations between retail investor behavior and stock market movements. The conclusion was that behaviors of individual retail investors tend to be correlated and are not random and independent of each other. The aggregate effect of retail investors can then drive prices of equities far away from fundamentals (bubbles), which risk-averse smart money will then stay away from rather than try taking advantage of the mispricing (i.e. never short a bubble). The movement in the prices are typically short-term, and usually see some sort of reversal back to fundamentals in the long-term, for small (i.e. < $5000) trades. Apparently, the opposite is true for large trades; here’s an excerpt from the paper to explain. Stocks recently sold by small traders perform poorly (−64 bps per month, t = −5.16), while stocks recently bought by small traders perform well (73 bps per month, t = 5.22). Note this return predictability represents a short-run continuation rather than reversal of returns; stocks with a high weekly proportion of buys perform well both in the week of strong buying and the subsequent week. This runs counter to the well-documented presence of short-term reversals in weekly returns.14,15 Portfolios based on the proportion of buys using large trades yield precisely the opposite result. Stocks bought by large traders perform poorly in the subsequent week (−36 bps per month, t = −3.96), while those sold perform well (42 bps per month, t = 3.57). We find a positive relationship between the weekly proportion of buyers initiated small trades in a stock and contemporaneous returns. Kaniel, Saar, and Titman (forthcoming) find retail investors to be contrarians over one-week horizons, tending to sell more than buy stocks with strong performance. Like us, they find that stocks bought by individual investors one week outperform the subsequent week. They suggest that individual investors profit in the short run by supplying liquidity to institutional investors whose aggressive trades drive prices away from fundamental value and benefiting when prices bounce back. Barber et al. (2005) document that individual investors can earn short term profits by supplying liquidity. This story is consistent with the one-week reversals we see in stocks bought and sold with large trades. Aggressive large purchases may drive prices temporarily too high while aggressive large sells drive them too low both leading to reversals the subsequent week. Thus, using a one-week time horizon, following the trend can make you tendies for a few days, as long as you don’t play the game for too long, and end up being the bag holder when the music stops.
The Keynesian Beauty Contest
The economic basis for what’s going on in the stock market recently - retail investors driving up stocks, especially bankrupt stocks, past fundamental levels can be explained by the Keynesian Beauty Contest, a concept developed by Keynes himself to help rationalize price movements in the stock market, especially during the 1920s stock market bubble. A quote by him on the topic of this concept, that “the market can remain irrational longer than you can remain solvent”, is possibly the most famous finance quote of all time. The idea is to imagine a fictional newspaper beauty contest that asks the reader to pick the six most attractive faces of 100 photos, and you win if you pick the most popular face. The naive strategy would be to pick the faces that you think are the most attractive. A smarter strategy is to figure out what the most common public perception of attractiveness would be, and to select based on that. Or better yet, figure out what most people believe is the most common public perception of what’s attractive. You end up having the winners not actually be the faces people think are the prettiest, but the average opinion of what people think the average opinion would be on the prettiest faces. Now, replace pretty faces with fundamental values, and you have the stock market. What we have today is the extreme of this. We’re seeing a sudden influx of dumb retail money into the market, who don’t know or care about fundamentals, like trading penny stocks, and are buying beaten down stocks (i.e. “buy the dip”). The stocks that best fit all three of these are in fact companies that have just gone bankrupt, like HTZ and WLL. This slowly becomes a self-fulfilling prophecy, as people start seeing bankrupt stocks go up 100% in one day, they stop caring about what stocks have the best fundamentals and instead buy the stocks that people think will shoot up, which are apparently bankrupt stocks. Now, it gets to the point where even if a trader knows a stock is bankrupt, and understands what bankruptcy means, they’ll buy the stock regardless expecting it to skyrocket and hope that they’ll be able to sell the stock at a 100% profit in a few days to an even greater fool. The phenomenon is well known in finance, and it even has a name - The Greater Fool Theory. I wouldn’t be surprised if the next stock to go bankrupt now has their stock price go up 100% the next day because of this.
What is the smart money doing - DIX & GEX
Alright that’s enough talk about dumb money. What’s all the smart money (institutions) been doing all this time? For that, you’ll want to look at what’s been going on with dark pools. These are private exchanges for institutions to make trades. Why? Because if you’re about to buy a $1B block of SPY, you’re going to cause a sudden spike in prices on a normal, public exchange, and probably end up paying a much higher cost basis because of it. These off-exchange trades account for about one third of all stock volume. You can then use data of market maker activity in these dark pools to figure out what institutions have been doing, the most notable indicators being DIX by SqueezeMetrics. Another metric they offer is GEX, or gamma exposure. The idea behind this is that market markets who sell option contracts, typically don’t want to (or can’t legally) take an actual position in the market; they can only provide liquidity. Hence, they have to hedge their exposure from the contracts they wrote by going long or short on the stocks they wrote contracts to. This is called delta-hedging, with delta representing exposure to the movement of a stock. With options, there’s gamma, which represents the change in delta as the stock price moves. So as stock prices move, the market maker needs to re-hedge their positions by buying or selling more shares to remain delta-neutral. GEX is a way to show the total exposure these market makers have to gamma from contracts to predict stock price movements based on what market makers must do to re-hedge their positions. Now, let’s look at what these indicators have been doing the past week or so. DIX & GEX In the graph above, an increasing DIX means that institutions are buying stocks in the S&P500, and an increasing GEX means that market makers have increasing gamma exposure. The DIX whitepaper, it has shown that a high DIX is often correlated with increased near-term returns, and in the GEX whitepaper, it shows that a decreased GEX is correlated with increased volatility due to re-hedging. It looks like from last week’s crash, we had institutions buy the dip and add to their current positions. There was also a sudden drop in GEX, but it looks like it’s quickly recovered, and we’ll see volatility decreased next week. Overall, we’re getting bullish signals from institutional activity.
Bubbles and Market Sentiment
I’ve long held that the stock market and the economy has been in a decade-long bubble caused by liquidity pumping from the Fed. Recently, the bubble has been accelerated and it’s becoming clearer to people that we are in a bubble. Nevertheless, you shouldn’t short the bubble, but play along with it until it bursts. Bubbles are driven by pure sentiment, and this can be a great contrarian indicator to what stage of the bubble we are in. You want to be a bear when the market is overly greedy and a bull when the market is overly bearish. One of the best tools to measure this is the equity put / call ratio. Put / Call Ratio The put/call ratio dropped below 0.4 last week, something that’s almost never happened and has almost always been immediately followed up by a correction - which it did this time as well. A low put / call ratio is usually indicative of an overly-greedy market, and a contrarian indicator that a drop is imminent. However, right after the crash, the put/call ratio absolutely skyrocketed, closing right above 0.71 on Friday, above the mean put / call ratio for the entire rally since March’s lows. In other words, a ton of money has just been poured into SPY puts expecting to profit off of a downtrend. In fact, it’s possible that the Wednesday correction itself has been exasperated by delta hedging from SPY put writers. However, this sudden spike above the mean for put/call ratio is a contrarian indicator that we will now see a continued rally.
1D RSI on SPY was definitely overbought last week, and I should have taken this as a sign to GTFO from all my long positions. The correction has since brought it back down, and now SPY has even more room to go further up before it becomes overbought again
1D MACD crossed over on Wednesday to bearish - a very strong bearish indicator, however 1W MACD is still bullish
For the bulls, there’s very little price levels above 300, with a small possible resistance at 313, which is the 79% fib retracement. SPY has never actually hit this price level, and has gapped up and down past this price. Below 300, there’s plenty of levels of support, especially between 274 and 293, which is the range where SPY consolidated and traded at for April and May. This means that a movement up will be met with very little resistance, while a movement down will be met with plenty of support
The candles above 313 form an island top pattern, a pretty rare and strong bearish indicator.
The first line of defense of the bulls is 300, which has historically been a key support / resistance level, and is also the 200D SMA. So far, this price level has held up as a solid support last week and is where all downwards price action in SPY stopped. Overall, there’s very mixed signals coming from technical indicators, although there’s more bearish signals than bullish. My Strategy for Next Week While technicals are pretty bearish, retail and institutional activity and market sentiment is indicating that the market still continue to rally. My strategy for next week will depend on whether or not the market opens above or below 300. I’m currently mostly holding long volatility positions, that I’ve started existing on Friday. The Bullish case If 300 proves to be a strong support level, I’ll start entering bullish positions, following my previous strategy of going long on weak sectors such as airlines, cruises, retail, and financials, once they break above the 24% retracement and exit at the 50% retracement. This is because there’s very little price levels and resistance above 300, so any movements above this level will be very parabolic up to ATHs, as we saw in the beginning of 2020 and again the past two weeks. If SPY moves parabolic, the biggest winners will likely be the weakest stocks since they have the most room to go up, with most of the strongest stocks already near or above their ATHs. During this time, I’ll be rolling over half of my profits to VIX calls of various expiry dates as a hedge, and in anticipation of any sort of rug pull for when this bubble does eventually pop. The Bearish case For me to start taking bearish positions, I’ll need to see SPY open below 300, re-test 300 and fail to break above it, proving it to be a resistance level. If this happens, I’ll start entering short positions against SPY to play the price levels. There’s a lot of price levels between 300 and 274, and we’d likely see a lot of consolidation instead of a big crash in this region, similar to the way up through this area. Key levels will be 300, 293, 285, 278, and finally 274, which is the levels I’d be entering and exiting my short positions in. I’ve also been playing with WLL for the past few months, but that has been a losing trade - I forgot that a market can remain irrational longer than I can remain solvent. I’ll probably keep a small position on WLL puts in anticipation of the court hearing for the disclosure statement, but I’ve sold most of my existing positions.
As always, I'll be posting live thoughts related to my personal strategy here for people asking. 6/15 2AM - /ES looking like SPY is going to gap down tomorrow. Unless there's some overnight pump, we'll probably see a trading range of 293-300. 6/15 10AM - Exited any remaining long positions I've had and entered short positions on SPY @ 299.50, stop loss at 301. Bearish case looking like it's going to play out 6/15 10:15AM - Stopped out of 50% of my short positions @ 301. Will stop out of the rest @ 302. Hoping this wasn't a stop loss raid. Also closed out more VIX longer-dated (Sept / Oct) calls. 6/15 Noon - No longer holding any short positions. Gap down today might be a fake out, and 300 is starting to look like solid support again, and 1H MACD is crossing over, with 15M remaining bullish. Starting to slowly add to long positions throughout the day, starting with CCL, since technicals look nice on it. Also profit-took most of my VIX calls that I bought two weeks ago 6/15 2:30PM - Bounced up pretty hard from the 300 support - bull case looks pretty good, especially if today's 1D candle completely engulphs the Friday candle. Also sold another half of my remaining long-dated VIX calls - still holding on to a substantial amount (~10% of portfolio). Will start looking to re-buy them when VIX falls back below 30. Going long on DAL as well 6/15 11:30PM - /ES looking good hovering right above 310 right now. Not many price levels above 300 so it's hard to predict trading ranges since there's no price levels and SPY will just go parabolic above this level. Massive gap between 313 and 317. If /ES is able to get above 313, which is where the momentum is going to right now, we might see a massive gap up and open at 317 again. If it opens below 313, we might see the stock price fade like last week. 6/15 Noon - SPY filled some of the gap, but then broke below 313. 15M MACD is now bearish. We might see gains from today slowly fade, but hard to predict this since we don't have strong price levels. Will buy more longs near EOD if this happens. Still believe we'll be overall bullish this week. GE is looking good. 6/16 2PM - Getting worried about 313 acting as a solid resistance; we'll either probably gap up past it to 317 tomorrow, or we might go all the way back down to 300. Considering taking profit for some of my calls right now, since you'll usually want to sell into resistance. I might alternatively buy some 0DTE SPY puts as a hedge against my long positions. Will decide by 3:30 depending on what momentum looks like 6/16 3PM - Got some 1DTE SPY puts as a hedge against my long positions. We're either headed to 317 tomorrow or go down as low as 300. Going to not take the risk because I'm unsure which one it'll be. Also profit-took 25% of my long positions. Definitely seeing the 313 + gains fade scenario I mentioned yesterday 6/17 1:30AM - /ES still flat struggling to break through 213. If we don't break through by tomorrow I might sell all my longs. Norwegian announced some bad news AH about cancelling Sept cruises. If we move below $18.20 I'll probably sell all my remaining positions; luckily I took profit on CCL today so if options do go to shit, it'll be a relatively small loss or even small gain. 6/17 9:45AM - SPY not being able to break through 313/314 (79% retracement) is scaring me. Sold all my longs, and now sitting on cash. Not confident enough that we're actually going back down to 300, but no longer confident enough on the bullish story if we can't break 313 to hold positions 6/17 1PM - Holding cash and long-term VIX calls now. Some interesting things I've noticed
1H MACD will be testing a crossover by EOD
Equity put/call ratio has plummeted. It's back down to 0.45, which is more than 1 S.D. below the mean. We reached all the way down to 0.4 last time. Will be keeping a close eye on this and start buying for VIX again + SPY puts we this continues falling tomorrow
6/17 3PM - Bought back some of my longer-dated VIX calls. Currently slightly bearish, but still uncertain, so most of my portfolio is cash right now. 6/17 3:50PM - SPY 15M MACD is now very bearish, and 1H is about to crossover. I'd give it a 50% chance we'll see it dump tomorrow, possibly towards 300 again. Entered into a very small position on NTM SPY puts, expiring Friday 6/18 10AM - 1H MACD is about to crossover. Unless we see a pump in the next hour or so, medium-term momentum will be bearish and we might see a dump later today or tomorrow. 6/18 12PM - Every MACD from 5M to 1D is now bearish, making me believe we'd even more likely see a drop today or tomorrow to 300. Bought short-dates June VIX calls. Stop loss for this and SPY puts @ 314 and 315 6/18 2PM - Something worth noting: opex is tomorrow and max pain is 310, which is the level we're gravitating towards right now. Also quad witching, so should expect some big market movements tomorrow as well. Might consider rolling my SPY puts forward 1 week since theoretically, this should cause us to gravitate towards 310 until 3PM on Friday. 6/18 3PM - Rolled my SPY puts forward 1W in case theory about max pain + quad witching end up having it's theoretical effect. Also GEX is really high coming towards options expiry tomorrow, meaning any significant price movements will be damped by MM hedging. Might not see significant price movements until quad witching hour tomorrow 3PM 6/18 10PM - DIX is very high right now, at 51%, which is very bullish. put/call ratio is still very low though. Very mixed signals. Will be holding positions until Monday or SPY 317 before reconsidering them. 6/18 2PM - No position changes. Coming into witching hour we're seeing increased volatility towards the downside. Looking good so far
In this week's edition of DDDD (Data-Driven DD), now that my short term thesis of a 274-292 channel has now been invalidated because of some vaccine company fraudulently telling everyone they've cured COVID-19 to pump their stock before a secondary offering, I'll be digging deeper into my longer term thesis that I've been talked about for weeks now. I've previously wrote about this thesis from a perspective of economic history and the perspective of liquidity and finance. This time, lets look at it from a perspective of human and American history, and cycles that can be in them. EDIT - This DD is meant to be read as a last part of a trilogy from thesetwo previous posts with the actual data and quantitative content. Without that context, this post will basically seem like trying to use obscure theories to magically predict the future because of some prophecy. This is meant to be a theoretical / qualitative explanation of the of what was talked about in those previous posts, as well as connecting them to actions and thesises of well-known investors like Ray Dalio and Warren Buffett, who are saying very similar things. Don't bother reading this if you haven't read the first two parts of this trilogy. Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance. History doesn’t repeat itself, but it often rhymes. This time, let’s take a broader look at cycles and patterns that often present itself throughout human history, and connect that to the economy and the stock market. Much of the content for this piece is taken from the Strauss–Howe generational theory, Ray Dalio’s thesis about our place in the long-term debt cycle, and Warren Buffet’s take on the same topic when he spent a few hours talking about it in the most recent Berkshire Hathaway annual shareholders meeting. The Fourth Turning The general idea of Strauss–Howe generational theory, or the “fourth turning” is that American history tends to repeat certain trends within every “saeculum”, or human lifespan - approximately 80 years. This is how long it typically takes for the certain historical events to start disappearing from human memory, allowing similar events to happen again. I’m not entirely sure why this theory focuses on American history specifically, and can be applied to human histories across civilizations, although until recently those cycles may not have been synchronized with each other. The theory states that history tend to occur in cycles of four “turnings”: High - A “golden age” of a civilization. This is when there is strong unity within members of the society, with strong confidence in institutions like the government and big corporations, and weak individualism. As a collective mind, the civilization is able to work together to achieve big goals. Awakening - People get tired of conformity, trust in institutions weaken, and there’s a strong desire for self awareness, spirituality, or authenticity. This is a time of experimentation, activism, and rebellion. Unraveling - Confidence in institutions such as governments and large corporations are at its weakest, and individualism is at its strongest. Society fragments to polarizing groups, and public action by governments is barely able to achieve the smallest goals. Crisis - This is when the fabric of society and existing institutions are destroyed in response to a perceived existential threat to the civilization itself. Economic distress is rampant as the economy sees defaulting sovereign debt, high unemployment, deflation or hyperinflation, or civil unrest. The crisis eventually becomes a unifying force for the previously fractured society, and the civilization comes together to solve the crisis. Civil authority and governments become trusted again, and self-sacrifices inspire people to work together as a society over self interest. Let’s look at how this cycle played out over the past few centuries in the US.
The establishment of the first British Empire. The thirteen British colonies in the Americas were all by now well established and beginning to prosper. The Glorious Revolution in Great Britain has just ended, and the result is the supremacy of the people, through Parliament, over the Crown, and a new set of rights that apply to all Englishmen.
The First Great Awakening, or the Evangelical Revival. People become much more devoted to their religion and a desire to convert others, including native Americans and slaves.
Seven Years War (French and Indian War in the US). It was considered to be the world’s first major conflict, with initial rivalry between the European great powers spilling over to other continents. From an American perspective, this would seem as an unnecessary war caused by a rivalry between two powers far far away, causing unnecessary hardship to the settlers in America. After the war, Britain wanted to recoup some of their losses from all the money spent fighting in North America, and created new taxes, leading to the Boston Tea Party. As a result, Britain then imposed the “Intolerable Acts” to punish the colony of Massachusetts. Throughout this time, trust in the Crown within the colonies started to disappear.
The American Revolution - All trust and allegiance to the Crown is destroyed and replaced with new ideals.
After Victory in the American Revolution, there’s a new sense of unity and pride in the newly founded nation. New institutions were created for the new country, and there was a sense of optimism, even during the War of 1812. The period after that war, and leading up to the 1824 election, was called the Era of Good Feelings, to reflect the sense of national unity and purpose within the US
The Second Great Awakening, similar to the first one.
Sectionalism within the US - this period saw the rise in the North vs. South divide over slave states and non-slave states, and tensions revolving around it
American Civil War
Gilded Age - Rapid economic growth in the United States through industrialization. Creation of new institutions in the form of industrial titans like Standard Oil.
The Third Great Awakening, similar to the first two. Also, the progressive era, which saw an activist movement to address some of problems that come with monopolies like Standard Oil, urbanization, and corruption.
This period saw WWI, Prohibition, and the Roaring Twenties. During this time, there was an increasing social conflict between liberal urban and conservative rural areas, specifically about morals and what should and shouldn’t be legal (eg. Scopes trial), the rise of the KKK, and is a hallmark of consumerism, individualism, and greed.
The Great Depression and WWII. The New Deal destroyed many existing institutions, and replaced them with new ones. The aftermath of WWII created new global institutions, in the form of the UN, and started the American world order.
The Golden Age of Capitalism / post-war economic boom
During this time, we saw two different types of awakening. The counterculture movement of the 1960s saw activism against the Vietnam war and the Civil Rights movement, as well as an increase in spirituality and self-awareness, which is typically associated with the youth during this period (i.e. “hippies”). During the same time, there was another religious revival - The Fourth Great Awakening.
This period saw an increase of the polarization on cultural issues in America, specifically with abortion, gun control, drugs, and gay rights, between conservatives and liberals, starting with the election of Ronald Reagan. The polarization was also very heavily influenced by geography, with liberals tending to live on the coasts and big cities, and conservatives everywhere else. The polarization made it increasingly difficult for congress to enact any big changes.
2008 to somewhere between 2020 and 2030
This period started with the financial crisis, as well as the aftermath of 9/11 and the War on Terror. Add on the pandemic, and the fallout from it, and we’d likely see another mass destruction of old institutions and creation of new ones.
2020-2030 to 2040-2050
2040-2050 to 2070-2080
A Fifth Great Awakening?
The Changing Hands of World Powers There’s also another interesting theory in the field of international relations that’s interesting and probably applicable here - the Long Cycle Theory. It basically states that international world orders and the title of the most powerful nation, is challenged every 70 to 100 years - the approximate maximum lifespan of an average human life, leading to some sort of global conflict and potentially a change in the world order as a result. Cycles in World Leadership The United States has survived as the World Leader for the 20th century from the threat of the Soviet Union challenging the world order. This time, it’s becoming increasingly clear that China has become a new challenger to the American world order. Long Term Economic Cycles Ray Dalio is famous for this being a central part of his economic thesis - about long term debt cycles, and the fact that we’re near the end of one. The summary of this idea is that the economy goes through short term and long term debt cycles. Short term debt cycles are the regular occurring business cycles you usually see once every decade, usually caused by overspending. The long term debt cycle, however, is when an entire economy becomes overleveraged, and it becomes harder and harder for a central bank to stimulate the economy. A hallmark of this happening is when interest rates hit near 0%, and they are forced to perform quantitative easing to stimulate the economy; the last time the economy’s seen anything similar to this was the Great Depression - this is called a liquidity trap. The period following this liquidity trap was an economic deleveraging, typically associated with civil unrest, revolutions, wars, and asset prices plummeting. The US economy has been seeing this since 2008 and has never been able to successfully fully deleverage the economy yet. Another long term economic cycle theory that’s somewhat popular is the Kondratiev wave, although this field of economics is not generally accepted by most economists. The idea is that the economy goes through long-term economic cycles, lasting between 45 to 60 years, of periods of rapid economic and stock market growth fueled by technological innovations, followed by a period of stagnation. Kondratiev Waves Currently, we’re late in the wave created by the introduction of Information Technology, which started in the late 1970s. I’ve previously talked about this, but basically we’re near the end of this cycle as well. So, it sounds like we’re near the end of many cycles; the generational cycle of the Strauss–Howe generational theory, the long term debt cycle, the Kondratiev Wave cycle, and possibly the beginning of the end of the Long Cycle in international relations as China begins to contend with the United States for global influence. In all of these cycles, the conclusion is clear - chaos, economic hardship, geopolitical tensions and crises. Let’s take a closer look at the stock market last time all of these cycles ended - the 1930s. Retail Investors in the 1920s There’s not that much solid quantitative data about retail investors and their impact on the stock market; only qualitative and anecdotal data. However, one thing is clear - retail investors pumped the market in 1929 beyond what fundamentals warranted, despite evidence of a weakening economy due to stagnating consumer spending and distress by farmers due to overproduction of wheat, and soon, the Dust Bowl. Why were they pumping stocks so much? Because they falsely believed that stocks only go up. I’ll put some excerpts from this Forbes and this Investopedia article I found talking about this to better illustrate the extent and nature of this pump. Still there was one big anomaly in the decade preceding, the 1920s, and it remains instructive today. The American people bought stocks in unprecedented fashion. Stocks on the installment plan, stocks via investment clubs, stocks bought with capital rather than income, stocks on margin. It was a big new fad. Nothing like the participation in the market that the nation experienced in the 1920s can be found in previous eras of history. The permanent denuding of the dollar, the reality of which first became clear in the 1920s, forced savers to find some instrument that would pay them back in the old way, in money that held its value. The choice was made to capture, via stocks, the forthcoming profits of businesses. Here would be money commensurate to what was needed to buy things in the future. Until the peak in 1929, stock prices went up by nearly 10 times. In the 1920s, investing in the stock market became somewhat of a national pastime for those who could afford it and even those who could not—the latter borrowed from stockbrokers to finance their investments. People were not buying stocks on fundamentals; they were buying in anticipation of rising share prices. Rising share prices simply brought more people into the markets, convinced that it was easy money. In mid-1929, the economy stumbled due to excess production in many industries, creating an oversupply. Essentially, companies were able to acquire money cheaply due to high share prices and invest in their own production with the requisite optimism. This all sounds pretty familiar to what's going on in the stock market today; as I previously mentioned, retail investors are pouring money in at unprecedented levels. Why is this happening now, about 90 years since the last time every retail investor started pouring money in? It's the same as the reasoning behind most of the other cycles I've mentioned above - the vast majority of people who previously experienced this and would have been alive to remember the 1920s have passed away by now. With an absence of people alive to have this mistake in living memory, humanity is bound to repeat the same mistakes, ignoring the warnings from our ancestors who are no longer with us, and repeat the cycle. There's one pair of billionaires who are old enough to remember the aftermath of the the stock market pump that led towards the 1929 crash - Warren Buffett and Charlie Munger. Warren would have been born right after the crash and Charlie would have been 5. Both of them entered the finance industry while the stock market was still recovering from it, and still below the 1929 highs. For anyone who watched him talk at the annual shareholder meeting, he spent a few hours talking about a similar story - one of the highs and lows of American history, with a bullish perspective. He wouldn't have spent hours talking about the 1929 crash and the fact that it took multiple decades to recover if this wasn't relevant. This is supported by the fact that he bought virtually nothing since the crash, and has been gradually selling a large portion of this publicly traded equities - first his airlines and now banks. Although he believes that we'll eventually recover (i.e. "Never bet against American", in the long run), it's clear from his actions that he sees parallels of this from the stock market he grew up in the shadow of in his childhood and doesn't want to bet for America in the short term. EDIT - Someone pointed out this article by Ray Dalio: https://www.linkedin.com/pulse/big-cycles-over-last-500-years-ray-dalio/ which basically talks about something very similar. I actually didn't even know about the existence of this article and actually wrote this before this got published, but looks like we both came to the same conclusion, and this is a shorter version of Ray Dalio's article. Recommend everyone check this out if they want a more in-depth version of this DD with more data and this this post as a tldr of it. Weekly SPY Watch Updates This section has absolutely nothing to do with anything I talked about above, but people apparently care about trades I'm making and what my magic markers say will happen in the stock market this week, so I'll have this section of this post dedicated to that and my updates. I've since sold, with the exception of some VIX calls, all my short positions on SPY, and currently doing some individual plays - currently holding GSX puts and short (sold) HTZ calls, among some other smaller plays. With respect to SPY, it looks like we'll be in a new channel - this time 293-300; not sure how long we'll be staying in this channel for, but I'll be playing it by either selling short-dated iron condors or buying calls / puts when it reaches one end of the channel. While magic markers are telling me we're going to be bullish medium term, and go through 300 to new ATHs, meaning I should buy calls, I don't want to go against my own fundamentals in principle by the fact that the stock market is clearly already overvalued. 5/25 3PM - /ES at 299, might open near the top of the channel. Will need to see how we open to decide if I'm going to enter a position on SPY again. 5/25 10PM - Looks we're going to be trading on the upper half the of channel on Tuesday, with a trading range of 300-297. Might look to pick up some short-dated puts to play the channel if technicals look right on open. 5/26 Noon - Got a small amount of 5/29 ATM puts to play the channel. We opened right above the 200MA so I'm relying on this being a fake out, and not very confident about this specific play. 5/26 3:50PM - Looks like 300-302 range is acting like a resistance, heading back down in the 293-300 channel. Bearish intraday (5M, 15M) MACD => EOD dump and open lower in the channel tomorrow. Looking closely at what's going on with China. - Wednesday (tomorrow): House votes on sanctions related to Chinese concentration camps of Uyghurs - Thursday: China votes, and very likely passes, amendment to Basic Law in HK for "national security" - End of Week: Trump promised that he will have a policy response, likely sanctions, for the change in HK's basic law, in addition to possibly revoking HK's special status 5/27 Market Open - Opened at the top of the resistance again, but quickly reversing. Might play out similar to yesterday 5/27 11AM - Going to wait till SPY hits 297 again and then roll my 5/29 puts I got yesterday to continue playing the channel down to 293 5/27 3:50PM - Turns out it was a EOD pump instead of dump. Oversold on 5M and 15M, so probably need to consolidate again tomorrow with a trading range of 297-302 again. Not so sure about this one because there's a solid chance this just breaks through that resistance and goes towards new ATHs. Entered into more 5/29 puts and going to hold overnight, sell if we still have positive momentum going in to open tomorrow. If we don't break 300 again tomorrow, I'm going to assume we're going to new ATHs and buy some IWM calls, hedged with QQQ puts. 5/27 6:30PM - My plan for tomorrow - see if we're actually in a 293-302 channel. There's going to be alot of uncertainty coming from China this week. If we're still above 302 by 10AM I'll probably transition towards bull positions. Most tech / strong companies are priced near their ATHs, and all the momentum coming into SPY is now coming from all the stocks that were really hit the past few months. Looking at CCL, JPM, and BA, all of whom are going towards a 1W MACD crossover 5/27 11PM - Still above this channel. Again, if we open above 302 and don't quickly reverse then clearly 300 wasn't that much of a resistance and we're headed to ATHs - next stop is 313, followed by 340. To my bears out there - the 1W MACD has already crossed over, meaning we're not going to see a rug pull any time soon, with the exception of some dramatic event happening in China. I'm not taking any medium-term bearish positions and currently just trying to play this channel, although the bullish momentum is stronger than I expected and not consolidating that much on 300 (yet). Watch out for August - that's when most medical experts agree a second lockdown is going to become evident and this bubble will pop; I still stand by my long term thesis. However, in the short term, don't trade against the trend and profit off the bubble. 5/28 9:40AM - I was wrong again. Going to sell those puts when SPY hits 302 at a small loss. We're headed to ATH 5/28 11:40AM - Overbought on 15M and 1H RSI, should see more consolidation today, and hopefully hit my 302 target to sell later today. 5/28 1PM - Stopped out of my small SPY puts, rolled that out into bullish positions on JPM, BA, and CCL. Will probably be doing SPY plays for a while, since all the technicals are pointing to a bullish rally, but only way for that to continue is for beaten down stocks like the ones mentioned, and found in IWM, to skyrocket the next few weeks. Also probably going to stop updating this thread as much. 5/28 5PM - 1H MACD is about to cross, and SPY got near 302 today, We've clearly broken the previous resistance area of 300-302, alot earlier than I was expecting; today was just a day for consolidation because RSI was overbought, now it has room to grow. MACD also acts as a resistance and typically will bounce back instead of cross if there's still bullish sentiment. I believe this is the case now, and we will also see SPY bounce up from the previous 300-302 region of resistance with it becoming support; the next level of resistance will be 313 on SPY, which is where we'll be headed soon. Haven't been holding any medium-term short positions, and am currently net long on financials and transports, which will very likely rally disproportionally if SPY continues to go up. Very well aware that this is a bubble, but I called the top wrong and trading against the trend will just lose you money. 5/28 7PM - Tomorrow will be an interesting day, Trump announced a news conference, with an unspecified time, where he will talk about actions he will do to China, potentially sanctions. There was a very small dip in the market on this news but nothing much else has happened yet. Depending on what the actions are, could be a red day tomorrow and break 302. I'll play this out intraday if we don't open low tomorrow 5/29 11AM - SPY is re-testing the 300-302 area, this time as support. Everything really depends on whatever Trump announces today regarding retaliation about China. Hard to say what can happen. If it's something extreme, like sanctions or tariffs, this could lead to another crash. Anything else would mean this SPY immediately bounces back from this support area. 5/29 1PM - Trump conference scheduled at 2PM. Will watch stock market reaction and trade with sentiment from it. If retaliation is bad enough to drop below 300, could be the rug pull all the bears have been waiting for. 5/29 2PM - Picked up some 302-300 debit spreads coming into the news conference, planning on holding this for an hour and selling by EOD 5/29 3PM - Sold puts during the speech and flipped to 304-310 calls. Looks like this wasn't enough to break through support. Going to hold these overnight, momentum looks to be turning bullish now that there's no longer any uncertainty about China, and actions are unlikely to provoke a Chinese retaliation. 5/29 4PM - Sold my short-dated calls. Coming into the weekend, it looks like next week will continue to be bullish, with 1D MACD convergence continuing, as well as the lack of any resistance until 313. Week of Jun 1 - Jun 5 - Looking at SPY hitting 213 by end of week
World's Largest Drug Cartel: THe British Empire; Details on 2 opium wars fought in China, FORCING DRUGS into China, creating tens of millions of addicts. Forcing China to CEDE 6 cities after losing the opium war. By Jeffrey St. Clair and Alexander Cockburn
This is one of the better articles I have found on the Opium Wars: -Hong Kong remained under British control until 1997 because of the opium wars and the Opium trade. -2,000 tonnes of Opium per year imported into China by 1840, 6,500 tonnes imported by 1880 +20,000 tonnes of domestic production -Hundreds of thousands killed by British soldiers to protect the opium trade -Starvation in India caused by opium production taking all of the farm land. (Excerpt) For the full article click the link https://www.counterpunch.org/2017/12/01/the-us-opium-wars-china-burma-and-the-cia/ (....) The opium poppy was not native to Southeast Asia but was introduced by Arab traders in the seventh century AD. The habit of opium smoking didn’t take hold till the seventeenth century, when it was spread by the Spanish and Dutch, who used opium as a treatment for malaria. The Portuguese became the first to profit from the importing of opium into China from the poppy fields in its colonies in India. After the Battle of Plassey in 1757, the British East India Company took over the opium monopoly and soon found it to be an irresistible source of profit. By 1772 the new British governor, Warren Hastings, was auctioning off opium-trading concessions and encouraging opium exports to China. Such exports were already generating £500,000 a year despite the strenuous objections of the Chinese imperial government. As early as 1729 the Chinese emperor Yung Cheng had issued an edict outlawing opium smoking. The sanctions for repeat offenders were stern: many had their lips slit. In 1789 the Chinese outlawed both the import and domestic cultivation of opium, and invoked the death penalty for violators. It did little good. Inside China these prohibitions merely drove the opium trade underground, making it a target of opportunity for Chinese secret societies such as the powerful Green Circles Gang, from whose ranks Chiang Kai-shek was later to emerge. These bans did not deter the British, who continued shipping opium by the ton into the ports of Canton and Shanghai, using what was to become a well-worn rationale: “It is evident that the Chinese could not exist without the use of opium, and if we do not supply their necessary wants, foreigners will.” Between 1800 and 1840 British opium exports to China increased from 350 tons to more than 2,000 tons a year. In 1839 the Chinese Emperor Tao Kwang sent his trade commissioner Lin Tze-su to Canton to close the port to British opium ships. Lin took his assignment seriously, destroying tons of British opium on the docks in Canton, thus igniting the Opium Wars of 1839–42 and 1856. In these bloody 📷campaigns the British forced China open to the opium trade, meanwhile slaughtering hundreds of thousands of Chinese, a slaughter assisted by the fact by 1840 there were 15 million opium addicts in China, 27 percent of the adult male population, including much of the Chinese military. After the first Opium War, as part of the treaty of Nanking China had to pay the British government £6 million in compensation for the opium destroyed by Lin in Canton. In all essential respects Shanghai thereafter became a western colony. In 1858 China officially legalized sales and consumption of opium. The British hiked their Indian opium exports to China, which by 1880 reached 6,500 tons, an immensely profitable business that established the fortunes of such famous Hong Kong trading houses as Jardine, Matheson. Meanwhile, the Chinese gangs embarked on a program of import substitution, growing their poppy crops particularly in Szechwan and Hunan provinces. Labor was plentiful and the poppies were easy to grow and cheap to transport – and the flowers were also three times more valuable as a cash crop than rice or wheat. The British did not take kindly to this homegrown challenge to their Indian shipments, and after the crushing of the Boxer Rebellion in 1900 they forced the Chinese government to start a program to eradicate the domestic crop, a program that by 1906 had finished off opium cultivation in the whole of Hunan province. It was at this point that the Chinese gangs shifted their opium cultivation southward into the Shan States of Burma and into Indochina, making the necessary arrangements with the French colonial administration, which held the monopoly on opium growing there. Hill tribes in Indochina and Burma were conscripted to the task of cultivation, with the gangs handling trafficking and distribution. The suppression campaign run by the Chinese government had the effect of increasing the demand for processed opium products such as morphine and heroin. Morphine had recently been introduced to the Chinese mainland by Christian missionaries, who used the drug to win converts and gratefully referred to their morphine as Jesus opium. There was also a distinct economic advantage to be realized from the sale of heroin and morphine, which were cheap to produce and thus had much higher profit margins than opium. Despite mounting international outrage, the British government continued to dump opium into China well into the first two decades of the twentieth century. Defenders of the traffic argued that opium smoking was “less deleterious” to the health of Chinese addicts than morphine, which was being pressed on China, the officials noted pointedly, by German and Japanese drug firms. The British opium magnates also recruited scientific studies to back up their claims. One paper, written by Dr. H. Moissan and Dr. F. Browne, purported to show that opium smoking produced “only a trifling amount of morphia” and was no more injurious than the inhalation of tobacco smoke. After the opium wars reached their bloody conclusion and China was pried fully open to European trade, the coastal city of Shanghai rapidly became the import/export capital of China and its most westernized city. A municipal opium monopoly had been established in 1842, allowing the city’s dozens of opium-smoking dens to be leased out to British merchants. This situation prevailed until 1918, when the British finally bowed to pressure from the government of Sun Yat-sen and relinquished their leases. This concession did little to quell the Shanghai drug market, which duly fell into the hands of Chinese secret societies such as the notorious Green Circles Gang, which, under the leadership of Tu Yueh-shing, came to dominate the narcotics trade in Shanghai for the next thirty years, earning the gang lord the title of King of Opium. Tu acquired a taste for the appurtenances of American gangsters, eventually purchasing Al Capone’s limousine, which he proudly drove around the streets of Nanking and Hong Kong. Tu was extraordinarily skilled both as a muscle man and an entrepreneur. When the authorities made one of their periodic crackdowns on opium smoking in Shanghai, Tu responded by mass-marketing “anti-opium pills,” red tablets laced with heroin. When the government took action to restrict the import of heroin, Tu seized the opportunity to build his own heroin factories. By 1934, heroin use in Shanghai had outpaced opium smoking as the most popular form of narcotics use. Tu’s labs were so efficient and so productive that he began exporting his Green Circles Gang heroin to Chinese users in San Francisco and Seattle. Tu’s climb to the top of the Chinese underworld was closely linked to the rise to political power of the Chinese nationalist warlord General Chiang Kai-shek. Indeed, both men were initiates into the so-called “21st Generation” of the Green Circles Gang. These ties proved useful in 1926, when Chiang’s northern expeditionary forces were attempting to sweep across central and northern China. As Chiang’s troops approached Shanghai, the city’s labor unions and Communist organizers rose up in a series of strikes and demonstrations designed to make it easier for Chiang to take control of the city. But Chiang stopped his march outside Shanghai, where he conferred with envoys from the city’s business leaders and from Tu’s gang. This coalition asked the Generalissimo to keep his forces stationed outside Shanghai until the city’s criminal gangs, acting in concert with the police force maintained by foreign businesses, could crush the left. When Chiang finally entered Shanghai, he stepped over the bodies of Communist workers. He soon solemnized his alliance with Tu by making him a general in the KMT. As the Chinese historian Y. C. Wang concludes, Tu’s promotion to general was testimony to the gangsterism endemic to Chiang Kai-shek and his KMT: “Perhaps for the first time in Chinese history, the underworld gained formal recognition in national politics.” The Green Circles Gang became the KMT’s internal security force, known officially as the Statistical and Investigation Office. This unit was headed by one of Tu’s sidekicks, Tai Li. Under the guidance of Tu and Tai Li, opium sales soon became a major source of revenue for the KMT. In that same year of 1926 Chiang Kai-shek legalized the opium trade for a period of twelve months; taxes on the trade netted the KMT enormous sums of money. After the year was over Chiang pretended to acknowledge the protests against legalization and set up the Opium Suppression Bureau, which duly went about the business of shutting down all competitors to the KMT in the drug trade. In 1933 the Japanese invaded China’s northern provinces and soon forged an accord with the KMT, buying large amounts of opium from Generals Tu and Tai Li, refining it into heroin and dispensing it to the Chinese through 2,000 pharmacies across northern China, exercising imperial supervision by the addiction of the Chinese population. General Tu’s opium partnership with the occupying Japanese enjoyed the official sanction of Chiang Kai-shek, according to a contemporary report by US Army Intelligence, which also noted that it had the backing of five major Chinese banks “to the tune of $150 million Chinese dollars.” The leadership of the KMT justified this relationship as an excellent opportunity for espionage, since Tu’s men were able to move freely through the northern provinces on their opium runs. In 1937 the Generalissimo’s wife, Madam Chiang, went to Washington, where she recruited a US Army Air Corps general named Claire Chennault to assume control of the KMT’s makeshift air force, then overseen by a group of Italian pilots on loan from Mussolini. Chennault was a Louisiana Cajun with unconventional ideas about air combat that had been soundly rejected by the top army brass, but his fanatic anti-Communism had won him friends among the far right in Congress and in US intelligence circles. (....) article continues More articles by:JEFFREY ST. CLAIR - ALEXANDER COCKBURN Jeffrey St. Clair is editor of CounterPunch For more info: China lost Hong kong and 5 other cities for 150 years, until 1997 because of the Opium wars. The forced importation into china of tens of millions of pounds of opium a month: This created tens of millions of addicts and caused the partial collapse of the government. It went on for hundreds of years. The chinese emperor wanted to know why they were selling opium in China, but not in England where it was illegal! OPIUM WARS - The Original NARCO-COLONIALISM - The Original State Sponsored Drug Traffic…Starting in in the mid-1700s, the British began trading opium grown in India in exchange for silver from Chinese merchants. Opium — an addictive drug that today is refined into heroin — was illegal in England, but was used in Chinese traditional medicine. 1 https://en.wikipedia.org/wiki/Opium_Wars https://en.wikipedia.org/wiki/First_Opium_War https://en.wikipedia.org/wiki/Second_Opium_War 2 This war with China . . . really seems to me so wicked as to be a national sin of the greatest possible magnitude, and it distresses me very deeply. Cannot any thing be done by petition or otherwise to awaken men's minds to the dreadful guilt we are incurring? I really do not remember, in any history, of a war undertaken with such combined injustice and baseness. Ordinary wars of conquest are to me far less wicked, than to go to war in order to maintain smuggling, and that smuggling consisting in the introduction of a demoralizing drug, which the government of China wishes to keep out, and which we, for the lucre of gain, want to introduce by force; and in this quarrel are going to burn and slay in the pride of our supposed superiority. — Thomas Arnold to W. W. Hull, March 18, 1840 http://www.victorianweb.org/history/empire/opiumwars/opiumwars1.html 3 https://web.archive.org/web/20180311121505/https://sacu.org/opium2.html See also Opium in China In 1997 the colony of Hong Kong was returned to China. Hong Kong Island became a British possession as a direct result of the Opium War, the opening shots of which were fired 150 years ago. All Chinese, regardless of political ideology, have condemned this armed confrontation as an unjust and immoral contest. As far as they are concerned, Britian's waging a war for the sake of selling a poisonous drug constitutes the most shameful leaf of human history. In the hindsight provided by subsequent events in China, it is, perhaps, easy to condemn this act of British aggression, but it is less certain that the event was seen in the same condemnatory light by Chinese and foreign observers a century and a half ago. 4 Article on opium trade in 1920s Shanghai http://streetsofshanghai.pbworks.com/w/page/18638691/Opium Opium (yapian 鸦片) Shanghai was built on the opium trade. Before the 1850s, Shanghai was the terminal port for coastal opium traffic. Shanghai was opened to foreign trade on November 11th 1843 and very soon afterwards, Jardine’s (the biggest British company in China at the time) set up a branch there and hired Chinese compradors, one of whom was solely concerned with the supervision of opium. By 1845, the opium moving through Shanghai constituted almost half of all the opium imported into China. In 1880, nearly 13,000,000 pounds of opium came into China, mainly from India. By 1900, imports declined, because China was now producing an average of 45,000,000 pounds of opium per annum itself. There were at least 15,000,000 Chinese opium addicts – in Chengdu, there was one opium den for every 67 inhabitants of the city. In Shanghai, some foreign missionaries began to complain that their homes were almost entirely surrounded by opium dens behind bamboo fences. The city had more than eighty shops where the drug was sold openly in its crude form, and there were over 1,500 opium houses.The owners of these establishments bought their supplies from three major opium firms in the International Settlement – the Zhengxia, Guoyu and Liwei. All three were owned by Swatow (Chaozhou) merchants who formed a consortium. This consortium obtained its opium from four foreign merchant houses: David Sassoon & Co., E.D. Sassoon, S.J. David, and Edward Ezra. 5' Opium financed British rule in India' http://news.bbc.co.uk/2/hi/south_asia/7460682.stm What did you discover in the course of your research? How big was the trade? Opium steadily accounted for about 17-20% of Indian revenues. If you think in those terms, [the fact that] one single commodity accounted for such an enormous part of your economy is unbelievable, extraordinary. How and when did opium exports out of India to China begin? The idea of exporting opium to China started with Warren Hastings (the first governor general of British India) in 1780. The situation was eerily similar to [what is happening] today. There was a huge balance of payments problem in relation to China. China was exporting enormous amounts, but wasn't interested in importing any European goods. That was when Hastings came up with idea that the only way of balancing trade was to export opium to China.
Why don't Chinese people hate their authoritarian government as much as we think they should? — Kaiser Kuo explains
I've been PMed by multiple people to repost this after my original SSC post was deleted, so here it is again: The following was originally written by the talented Kaiser Kuo as an answer to a question posed on Quora, but for the sake of easier readability, shareability, and the mobile users who don't want to create a Quora account, I've decided to repost it in text post form. I've also added the last part of the answer and postscript in the comments because of Reddit's character limit. Apologies in advance if that breaks any rules. Anyway. Why do many people feel that the Chinese can't possibly be basically okay with their government or society? I’m going to attempt an answer in three parts. First, I’ll look at the gap in political culture between China and the liberal western democracies, especially the United States. I’ll argue that there is little appreciation among most WEIRD individuals—that is, Western, Educated people from Industrialized, Rich, and Developed nations—for just how highly contingent political norms they take for granted really are from an historical perspective. I’ll sketch the outlines of the major historical currents that had to converge for these ideas to emerge in the late 18th century. Then, I’ll compare this very exceptional experience with that of China, which only embraced and began to harness those engines of western wealth and power—science, industrialization, state structures capable of total mobilization of manpower and capital—much later. And late to the game, China suffered for over a century the predations of imperial powers, most notably Japan. Hopefully, I’ll show why it was that liberalism never really took hold, why it was that Chinese intellectuals turned instead to authoritarian politics to address the urgent matters of the day, and why authoritarian habits of mind have lingered on. Next, I’ll argue that a lot of unexamined hubris lies not only behind the belief that all people living under authoritarian political systems should be willing to make monumental sacrifices to create liberal democratic states but also behind the belief that it can work at all, given the decidedly poor record of projects for liberal democratic transformation in recent years, whether American-led or otherwise. It’s important to see what the world of recent years looks like through Beijing’s windows, and to understand the extent to which Beijing’s interpretation of that view is shared by a wide swath of China’s citizenry. Finally, I’ll look at the role of media in shaping perspectives of China in the western liberal democracies and in other states. A very small number of individuals—reporters for major mainstream media outlets posted to China, plus their editors—wield a tremendous amount of influence over how China is perceived by ordinary Anglophone media consumers. It's important to know something about the optical properties of the lens through which most of us view China. Part I — The Values Gap: The Historical Contingency of Liberal Western Thought and Institutions One evening, I was chatting online with a friend here in China, another American expatriate living in another city, about the great disconnect in recent Western understandings of China—the thing that this question and answer seeks to get to the heart of. He suggested that at least for Americans (we’re going to use Americans here, mainly, to stand in for the Anglophone western liberal democracies) the question underlying the disconnect boiled down to this: “Why don’t you Chinese hate your government as much as we think you ought to?" The modern Chinese party-state, after all, is a notorious violator of human rights. It cut its own people down in the street in 1989. It prevents with brutal coercion the formation of rival political parties and suppresses dissent through censorship of the Internet and other media. It oppresses minority populations in Tibet and in Xinjiang, depriving them of religious freedoms and the right to national self-determination. It persecutes religious sects like the Falun Gong. It behaves in a bellicose manner with many of its neighbors, like the Philippines, Vietnam, and India. It saber-rattles over disputed islands with its longstanding East Asian adversary, Japan. It presses irredentist claims against Taiwan, which has functioned as an effectively sovereign state since 1949. It has pursued breakneck economic growth without sufficient heed to the devastation of the environment. It has not atoned for the crimes committed during the Cultural Revolution or the Great Leap Forward, when tens of millions died because of absurdly misguided economic policies. It jails rights activists, including a Nobel Peace Prize laureate. I could of course go on. Why then would any American not ask this question? Seems pretty obvious from the perspective of anyone from a liberal western democracy that this is a political system that needs to go, that has failed its people and failed to live up to basic, universal ideas about what rights a government needs to respect and protect. They’ll have heard the argument that China’s leadership has succeeded in other ways: it has allowed China to prosper economically, lifting hundreds of millions out of poverty, creating a substantial and comfortable middle class with expanded personal (if not political) freedom. And the Chinese Communist Party has managed to ensure a relatively long period of political stability, with orderly leadership transitions absent the political violence that had accompanied nearly all others until Deng Xiaoping’s ascent. "Yeah, but so what?" asks the American. "Anyone who would trade a little freedom for a little personal safety deserves neither freedom nor safety,” he asserts, quoting Benjamin Franklin. He quotes this as gospel truth, ignoring the irony that many Americans advocated just such a trade in the aftermath of September 11. That aside, why shouldn't he quote it? It’s deeply engrained in his political culture. Political liberty is held up practically above all else in the values pantheon of American political culture. The American myth of founding sees the Puritan pilgrims, seeking a place where their brand of Protestantism might be practiced freely, crossing the Atlantic in the Mayflower, creating en route a quasi-democratic quasi-constitution, the Mayflower Compact, landing at Plymouth Rock in 1620, and over the next 150 years growing into the colony that would lead its 12 sisters into rebellion for freedom from the "tyranny" of King George III. Americans hold the ideas enshrined in their founding documents very dearly, and can't really be blamed for doing so: they are, after all, some very high-minded and frankly very beautiful ideas. What he doesn’t quite appreciate is the precariousness of the historical perch on which these ideas—ideas he holds so strongly and believes so ardently to be universal truths—ultimately rest. Americans, like everyone else for that matter, tend not to take much time to understand the historical experiences of other peoples, and can't therefore grasp the utter contingency upon which their own marvelous system rests. I'm going to grossly oversimplify here, in this grand backward tour of European history, but the political philosophy that gave rise to modern American political ideals, as even a fairly casual student of history should know, emerged during the 18th century in the Enlightenment—an intellectual movement of tremendous consequence but one that would not have been possible save for the groundwork laid by 17th century naturalists who, taken together, gave us an "Age of Reason" (think Newton and all the natural philosophers of the Royal Academy). Their great work could be pursued because already the intellectual climate had changed in crucial ways—chiefly, that the stultifying effects of rigid, dogmatic theology had been pushed aside enough for the growth of scientific inquiry. That itself owes much to the Protestant Reformation, of course, which people tend to date from 1517 but which actually reaches back over a century earlier with John Wycliffe, Jan Hus, arguably Erasmus, and the other pre-Lutheran reformers. And would the Reformation have been possible without the rediscovery of classical learning that was the animating spirit of the Renaissance? Would the Renaissance have been possible without the late medieval thinkers, such as Abelard, who sought out to subject theology to the rigors of Aristotelian logic and reason? Would all this have been possible, if not for the continuous struggles between Emperor and Pope, between Guelph and Ghibelline factions—partisans for the temporal power of the Vatican and Holy Roman Emperor? The fact is that this series of historical movements, eventually carving out politics that was quite separate from—indeed, explicitly separate from—theocratic control, was only really happening in this small, jagged peninsula on the far western end of the great Eurasian landmass. And in the rest of the world—the whole rest of the world—none of this was happening. Political theology remained the rule with rare, rare exceptions. What we've now taken as the norm and the correct form for the whole world—liberal, secular, democratic, capitalistic—is truly exceptional, recent, rare, fragile, and quite contingent. Let’s turn and look for a moment at China, which is arguably much more typical. China is a civilization that didn’t until much later and perhaps still doesn't fit neatly into the modern conception of the nation-state; a massive continental agrarian empire, a civilization with an integrated cosmology, moral philosophy, and political philosophy which together formed the basis of a holistic orthodoxy, deep knowledge of which was required for any man (alas, only men) who wished to climb the only real available ladder of success: the Civil Service Exams. The China that the West—in this case, chiefly the British—encountered in the late 1700s was really at or just past its peak, ruled by a reasonably competent and conscientious Manchu emperor who history knows as Qianlong, ruling a land empire matching, roughly, the contours of the contemporary People’s Republic, almost entirely self-sufficient but willing to sell its silk, porcelain, and especially its tea to anyone who brought minted silver bullion—two-thirds of the world’s supply of which, by the time of the American Revolution, was already in Chinese coffers. What followed was a crisis that lasted, with no meaningful interruption, right up to 1949. Foreign invasion, large-scale drug addiction, massive internal civil wars (the Taiping Civil War of 1852-1863 killed some 20 million people), a disastrous anti-foreign uprising (the Boxers) stupidly supported by the Qing court with baleful consequence, and a belated effort at reform that only seems to have hastened dynastic collapse. The ostensible republic that followed the Qing was built on the flimsiest of foundations. The Republican experiment under the early Kuomintang was short-lived and, in no time, military strongmen took over—first, ex-dynastic generals like Yuan Shikai, then the militarists who scrambled for power after he died in 1916. China disintegrated into what were basically feuding warlord satrapies, waging war in different constellations of factional alliance. Meanwhile, China's impotence was laid bare at Versailles, where the great powers handed to Japan the colonial possessions of the defeated Germany, despite China having entered the Great War on the side of the Allies. During this time, liberalism appeared as a possible solution, an alternative answer to the question of how to rescue China from its dire plight. Liberalism was the avowed ideology of many of the intellectuals of the period of tremendous ferment known as the May Fourth Period, which takes its name from the student-led protests on that date in 1919, demonstrating against the warlord regime then in power which had failed to protect Chinese interests at Versailles at the end of World War I. (The May Fourth period is also referred to as the New Culture Movement, which stretched from roughly 1915 to 1925). The "New Youth" of this movement advocated all the liberal tenets—democracy, rule of law, universal suffrage, even gender equality. Taking to the streets on May Fourth, they waved banners extolling Mr. Sai (science) and Mr. De (democracy). But with only very few exceptions they really conceived of liberalism not as an end in itself but rather as a means to the decidedly nationalist ends of wealth and power. They believed that liberalism was part of the formula that had allowed the U.S. and Great Britain to become so mighty. It was embraced in a very instrumental fashion. And yet Chinese advocates of liberalism were guilty, too, of not appreciating that same contingency, that whole precarious historical edifice from which the liberalism of the Enlightenment had emerged. Did they think that it could take root in utterly alien soil? In any case, it most surely did not. It must be understood that liberalism and nationalism developed in China in lockstep, with one, in a sense, serving as means to the other. That is, liberalism was a means to serve national ends—the wealth and power of the country. And so when means and end came into conflict, as they inevitably did, the end won out. Nationalism trumped liberalism. Unity, sovereignty, and the means to preserve both were ultimately more important even to those who espoused republicanism and the franchise. China's betrayal at Versailles did not help the cause of liberalism in China. After all, it was the standard bearers of liberalism—the U.K., France, and the United States—that had negotiated secret treaties to give Shandong to the Japanese. Former liberals gravitated toward two main camps, both overtly Leninist in organization, both unapologetically authoritarian: the Nationalists and the Communists. By the mid-1920s, the overwhelming majority of Chinese intellectuals believed that an authoritarian solution was China's only recourse. Some looked to the Soviet Union, and to Bolshevism. Others looked to Italy, and later Germany, and to Fascism. Liberalism became almost irrelevant to the violent discourse on China's future. For anyone coming of age in that time, there are few fond memories. It was war, deprivation, foreign invasion, famine, a fragile and short-lived peace after August 1945, then more war. Violence did not let up after 1949—especially for the hundreds of thousands, perhaps millions, who were "class enemies" on the wrong side of an ideological divide; or for the hundreds of thousands of Chinese soldiers sent to fight and die in Korea so soon after unification. And even with peace, prosperity didn't come: 1955 saw Mao announce a "high tide of collectivization," which was followed by the tragic folly of the Great Leap Forward and ensuing famine, in which tens of millions perished. A friend of mine named Jeremiah Jenne who taught US college students at a program here in Beijing once said something to the effect of, “When Americans create their movie villains, when they populate their nightmares, they create Hitler and the SS again and again: Darth Vader and the Stormtroopers.” The fear of the liberty-loving American, he implied, is of a surfeit of authoritarianism. What of the Chinese? The Chinese nightmare is of chaos—of an absence of authority. And such episodes of history are fresh in the minds of many Chinese alive today—only a handful are old enough to actually remember the Warlord Period but plenty can remember the Cultural Revolution, when Mao bade his Red Guards to go forth and attack all the structures of authority, whether in the classroom, in the hospital, in the factory, or in the home. And so they humiliated, tortured, sometimes imprisoned and sometimes even murdered the teachers, the doctors, the managers, the fathers and mothers. In the 25 years since Deng inaugurated reforms in 1979, China has not experienced significant countrywide political violence. GDP growth has averaged close to 10 percent per annum. Almost any measure of human development has seen remarkable improvement. There are no food shortages and no significant energy shortages. Nearly 700 million Chinese now use the Internet. Over 500 million have smartphones. China has a high speed rail network that's the envy of even much of the developed world. China has, by some measures, even surpassed the U.S. as the world's largest economy. So try telling a Chinese person that anyone willing to trade a little personal liberty for a little personal safety deserves neither liberty nor safety, and they’ll look at you like you’re insane. Therein lies the values gap. Part II — The View through China’s Window: Liberal Hegemonism in US Foreign Policy In the first part, I laid out a case for why it’s quite natural, given the tendency of Americans (as with all people) to ignore or understate historical contingencies and recognize their own privileges and prejudices, for Americans to be puzzled by Chinese acquiescence toward—indeed, by their often quite vocal support for—a political system so execrable by certain American standards. The hubris of some Americans about their own political system seems to me especially natural, even forgivable, in the years following the collapse of the Soviet Union. From the vantage point of 1991, a kind of triumphalism was inevitable: the liberal west, with America at its vanguard, had just vanquished the second of the century’s great ideological enemies. First was Fascism and Naziism with the defeat of the Axis powers in 1945 (never mind that Bolshevik Russia, from the time Hitler invaded Russia, never faced less than two-thirds of German divisions in the field), then Bolshevism with the end of the Cold War. And what was on the minds of Americans—who had watched the Berlin Wall come down, Lech Walesa and Vaclav Havel assume the Polish and Czech presidencies, Yeltsin defend the Russian parliament and Gorbachev declare the Soviet Union’s end—what was on their minds as they turned thoughts to China? Tiananmen, of course, with its incredibly potent imagery: a million people in the Square, Tank Man, and the Goddess of Democracy. Looming ever present in nearly every conversation about American perception of China in the last quarter century—now in the background, now in the fore—is the bloody suppression of the 1989 student-led protests in Beijing. (Fun Fact: The first democratic elections in Poland were held on June 4, 1989, the very day of the crackdown on the Beijing protests). The years that followed the end of the Cold War would see gathering in American foreign policy a new ideology that would come to supplant the realist school that had dominated from the time of Richard Nixon. This is what the MIT political scientist Barry R. Posen calls Liberal Hegemonism: an activist, interventionist thread that believes in the pushing of liberal democratic politics and capitalism through all available means from “soft power,” to operations aimed at destabilizing authoritarian governments, to actual preemptive war (the Bush doctrine) and the “regime change” of the Neoconservatives. Some of its basic assumptions—not all, but some—are shared both by liberal interventionists and NeoCons. For American liberals, it was guilt from failure to act in the Rwandan Genocide, or to the “ethnic cleansing” that characterized the wars during the breakup of Yugoslavia, that gave impetus to this; for NeoCons, it was the unfinished business of Desert Storm. They found much common ground in their support for “color revolutions” in the former Soviet republics. They may have debated tactics but the impulse was to spread American values and institutions, whether or not doing so would serve a specific and definable American interest. That could be done the Gene Sharp way, or the Paul Wolfowitz way. Neither way was something Beijing wanted done to it. And I don’t think it takes a whole lot of empathy to see what things have looked like from Beijing over the last 25 years. Deng Xiaoping, while he was still alive, pursued a policy of “biding its time and hiding its power” as he focused on building China's domestic economy, avoiding any real confrontation and trying to rebuild relationships post-Tiananmen. But it wasn’t long before tensions sparked. In May of 1999, US smart bombs fell on the Chinese embassy in Belgrade, and virtually no Chinese believed the American explanation that it was a mistake, the result of an out-of-date map that showed the embassy as an arms depot. Later, in April of 2001, the collision of an American EP-3 spy plane with a Chinese fighter jet off of Hainan Island, off China’s southern coast, sent another chill through Sino-American relations. And things looked like they might have taken a turn for the worse, had not September 11 taken the pressure off. The “War on Terror,” which China could notionally join in, distracted the U.S., which quickly found itself fighting two long wars in Afghanistan and Iraq. Meanwhile, the Chinese economy was in high gear, chugging along at double-digit growth rates right up to the eve of the Financial Crisis. The Sino-American waters were probably never calmer than in the years between 2001 and 2008. Perhaps history will see 2008 as an important turning point in these attitudes: during the same year that China staged its first Olympic games, the financial crisis, which China weathered surprisingly well, walloped the West (and much of the rest of the world) with what was arguably its signal event, the bankruptcy filing by Lehman Brothers on September 15—happening just three weeks almost to the day after the closing ceremony of the Beijing summer games on August 24. It was China’s turn to feel a kind of triumphalism, which often took the form of an unattractive swagger. Meanwhile, a sense of declinism gnawed at the American psyche. After 2008, China became the object of global (read: American) attention again, fueled for some by anxieties over the rapidity of its rise, in others by anger over major flare-ups in western China: riots in Lhasa, Tibet’s capital, in March, 2008, and in Urumqi, Xinjiang’s capital, in July, 2009. Factory conditions became a growing concern as Americans realized that even the most sophisticated electronics they sported—everyone had an iPhone by then, right?—were manufactured in China. Remember, too, that excitement over the political potency of social media was also enjoying something of a heyday in this period of liberal hegemonic ascent. As one color revolution after another was live-tweeted (Moldova was perhaps the first, but not the only, of the street movements to be called “The Twitter Revolution”), as every movement had its own Facebook page and Youtube channel, China’s reaction was to censor. There is, after all, one belief about the Internet that the most hardline Chinese politburo member shares with the staunchest American NeoCon: that the Internet, unfettered, would represent an existential threat to the Communist Party’s hold on power. They have of course very different views as to whether that would be a good thing or a bad thing. But can we really be surprised that, able as they are to open to the op-ed section of any American broadsheet and find this idea that Internet freedom is the key to toppling authoritarian single-party rule, the Communist Party leadership would conclude that their approach to censorship is correct? But this of course has created another potent issue over which Americans, very naturally, express outrage—and puzzled frustration that Chinese aren’t (literally) up in arms over Internet censorship. Beijing obviously lamented the Soviet empire’s incredibly rapid implosion. It doubtlessly chafed at how NATO expanded its membership practically up to the Russian doorstep. It certainly hasn’t loved it that American troops are operating from Kyrgyzstan and Uzbekistan, and were present in great numbers in Afghanistan (which by the way borders China, if only at one end of the narrow Wakhan Corridor). Beijing has surely fretted as American-backed NGOs (the National Endowment for Democracy, or NED, is the big boogeyman for pro-Beijing types—perhaps as Confucius Institutes are the bête noire for their anti-Beijing American counterparts) conspired, or so they believe, with the instigators of color revolutions. And it certainly sees the Pivot to Asia—now rebranded the “Rebalancing”—as a species of containment. But what I suspect really has Beijing freaked out, what really seems to have confirmed that America still has its cherished liberal hegemonic ambition, was the Arab Spring. Is Beijing so wrong, looking out on the smoldering wreckage of Libya and Syria, at the mess that Egypt still remains, to want to avoid that outcome at whatever price? Or to think that America’s true, ultimate intention might be regime change in Beijing? Kissinger once famously said that even a paranoid can have enemies. What does all this foreign policy stuff have to do with Chinese attitudes toward their government? It’s fair to ask this; after all, the question I’m trying to answer isn’t specifically about the Chinese state and how it sees things, but rather the Chinese people, and the attachment they seem to have toward a state that comes up so short by American measure. It’s the rare person who can truly separate, at both an intellectual and an emotional level, criticism of his or her country from criticism of his or her country’s government—especially if that government is not, at present, terribly embattled and is delivering basic public goods in a reasonably competent manner. States tend to try to reinforce that conflation of people with state (and in China’s case, party). They encourage the basic state-as-family metaphor, something that in the Chinese case is part of the deep structure of Confucian political thinking and is therefore probably easier to nurture than to extirpate. I don’t doubt that propaganda has a role in this, but I would assert that its role is generally exaggerated in American thinking about China. In any case, if you’ll indulge some pop psychological speculation, I’ll go out on a limb and posit confidently that external criticism of a leadership will tend to, if anything, reinforce a citizenry’s identification with the state and blur the lines even more between “government” and “people.” Perhaps I’m wrong. But most people I know who are known to bitch occasionally about their own parents get awfully defensive when people outside the family offer unsolicited criticism. This seems especially to be the case with mothers. And so it is that many ordinary Chinese citizens, online and inevitably aware now of the timbre of China discourse in English-language media, tend to elide criticism of the state and Party with criticism of China, and take it personally. They feel a distinct sense of having been singled out for unfair criticism and will reach easily for handy explanations: Hegemonic America can't abide another serious power rising in the world, and just wants to sow discord and strife to keep China down; America needs to create a boogyman, an enemy to replace its fallen Cold War foe and placate its military-industrial complex. And in any case, America doesn't appreciate just how far we've come under the leadership of this party, however imperfect. People will debate what the Party’s real role has been in poverty alleviation: is it accurate to say that the Chinese government “lifted 300 million people from poverty” or is it more correct to say that they mostly got out of the way and allowed those people to climb out of it themselves? (I tend to like the latter phrasing). That’s not the only accomplishment in China’s 35+ years of reform that will be fought over. But the simple truth is that by many, many measures of human development, the great majority of Chinese people are undeniably better off today than they were before Deng inaugurated reform. The grand unofficial compromise, in a kind of updated Hobbesian social contract, that the Party made with the Chinese people—“You stay out of politics, we’ll create conditions in which you can prosper and enjoy many personal freedoms”—has been, on balance (and to date), a success. No thinking Chinese person of my acquaintance believes that the Party or its leadership is anything close to infallible. Most can be quite cynical about the Party, the venality of officials, the hidden factional struggles, the instinct for self-preservation. They’re fully appreciative of the Party and leadership's many shortcomings. They don’t shrink from criticizing it, either; they aren’t reflexively careful of what they say and who might be listening. But they don’t bandy words like “revolution” about casually. They tend to have a sober appreciation for what’s at stake, for the price that would have to be paid. They’re realistic enough to understand that the Party is not apt to tip its hat adieu and go gently to history's proverbial dustbin. They still believe, and not entirely without evidence, that the Party leadership is attuned to public opinion and will respond when the will of the people is made manifest. They support reform, not revolution. I’ve little doubt that desire for more formal political participation, for a renegotiation of terms in that unwritten contract, will grow stronger. That’s in the cards. You’ll get no argument from me that it’s been a raw deal for many people with very legitimate grievances. There are many who’ve broken with the Party-state, who openly or secretly dissent, whose relationship with it is entirely and irreversibly oppositional. Among these are many whose courage of conviction and towering intellects I deeply and unreservedly admire, and others who I think are mere gadflies or attention-seeking malcontents without a sense of what’s at stake. In the case of all of them, regardless of what I think of them personally, I regard it as a black mark on the Chinese leadership each time a dissident is locked up for ideology, speech, religious belief or what have you. But most Chinese people tend to be pragmatic and utilitarian; the state’s ability to deliver social goods gives it a kind of “performance legitimacy." The good (prosperity, material comfort, sovereign dignity) and the bad (a censored Internet, jailed dissidents, polluted rivers, smog) go on the scales. For now, it’s unambiguous in which direction those scales are tipping. Part III — The Anglophone Media Narrative on China and Sources of Bias If you're a denizen of the Anglophone world, your impressions of China are almost certainly formed primarily by the media that you consume. There are of course exceptions: some 100,000 Americans have, in the last five years, spent time working or studying in China; there are several thousand enrolled in East Asian Studies graduate programs, or taking serious upper-division undergraduate coursework on China, or pursuing an academic discipline that focuses on China; and there are probably a few thousand more who, for personal reasons, have taken more than a passing interest in China and have read a good number of books on contemporary China or on modern Chinese history, have undertaken the study of Chinese, or have otherwise immersed themselves in trying to gain a deeper understanding of China. Taken together, though, these people represent a small percentage of the general media-consuming audience—the college-educated American who, say, reads a paper once in a while, watches cable or network news with fair regularity, listens to NPR on her drive to work, and occasionally clicks on a China-related tweet or on a friend's Facebook page, or her counterpart elsewhere in the Anglophone world. All told, that's several tens of millions of people, I'm guessing, in the U.S., Canada, the U.K., Ireland, Australia, and New Zealand. It's worth reflecting on that, for this majority of news-consumers, impressions of China are almost entirely dependent on the reporting produced, at least regularly and in the main, by probably fewer than a hundred individuals. I'm talking about the reporters for the major newswires like Reuters, Bloomberg, Dow Jones, and AP, whose stories appear not only in the major papers and on news portals online, but also in smaller metropolitan and even local markets; the journalists who write for the major newspapers and news magazines; television news reporters; and the foreign desk editors, subeditors, and producers working with the reporters. There are also the news assistants, unsung heroes without whom many of the China-based reporters who haven't mastered enough Chinese to read local media or documents, or conduct interviews in the native tongue of their interviewees, would be unable to do their jobs. If we include them, the number perhaps doubles but it's still no more than 200, perhaps 250 individuals whose contributions to the gathering, reporting, writing, and editing of news and the creation of news-related commentary actually matters. What, though, do we really know about these people? If this is the lens through which so many Americans (once again, I'll remind folks that "American" here is really shorthand for Anglophone westerners) view China, it seems to me very sensible that we should wish to understand something about the optical properties of that lens. Does it distort? Of course it does; it could notbut distort, could notbut offer only a partial and selective view—this mere few score of reporters trying to present a picture of the world's most populous nation as it hurtles ahead with unprecedented force (in the f=ma sense). This is not an indictment. These are people who I very much respect—indeed, the very people who these days comprise most of my personal circle of friends—and they are people who have my sympathy for what they must often endure in reporting from China. It's not an easy place to report from, especially if you're reporting on things that the Chinese government, or someone at least, doesn't want reported—and what else, after all, really qualifies as news reporting? They are subjected to some pretty shabby treatment, everything from the talk-to-the-hand they'll get from government ministries, to veiled and not-so-veiled threats related to visa renewals, to roughing-up by local thugs or plainclothes cops or even uniformed ones, to surveillance and harassment. I think if there's a source of bias with which I'd start my list, it's this. Seems only natural that this kind of treatment of a journalist anywhere would beget less than rosy coverage of the institutions doling it out. Negative coverage begets more of that nasty treatment, and so on in a most un-virtuous circle. Should the journalists be faulted for focusing on the things that power, whether political or corporate, wants to hide? No, I don't think so. Rightly or wrongly—and I'm unambivalent in my personal belief that it's "rightly"— this is what gets the journo juices flowing. Journalism is not about the quotidian. The historian Will Durant once wrote in The Age of Faith, "We must remind ourselves again that the historian, like the journalist, is forever tempted to sacrifice the normal to the dramatic, and never quite conveys an adequate picture of any age." I would note that while the historian can write enormously lengthy monographs in which some of that normal can be restored and that picture made more adequate, the journalist just doesn't have that leisure, and his sacrifice of the normal is more forgivable. And yet it has an impact on perception; it's still a source of distortion, of bias. This failure to focus on the more "normal" is, I would assert, one of the major reasons for the disconnect at the heart of the original question: the prevalence among Americans of "Why don't you hate your government as much as I think you ought to?" One of the more regrettable outcomes of this particular bias in the way China is reported reflects in the (notional, educated, mainstream-media-consuming) American public's understanding of the Chinese intellectual. Reporters tend to focus not just on critical intellectuals but on the more outspokenly critical ones, on the full-blown dissidents, on the very vocal activists, on the writers who challenge the establishment on human rights issues, on freedom of speech, on rule of law, on religious policy, on minority nationality policy and so forth. Of course they focus on these people; they're "the dramatic," in Durant's phrase. They set out to excite so no wonder that many of them are exciting. They play to the American love of the underdog. They flatter American values. It's right, I believe, to focus on intellectuals. One could make a very serious argument that China's history is at some important levels driven by the dynamics of the relationship between intellectuals and state power, whether dynastic or Party. Dissidents and the more stridently critical intellectuals certainly are part of that dynamic. But I would submit that it's actually more important to understand another type of intellectual, and another mode of relations between the intellectuals and state power, between, if you will, the pen and the sword: the "loyal opposition," who during most times—including this time—comprise the real mainstream, and who see it as their role to remonstrate and to criticize but not to fully confront. It's these voices, a kind of "silent majority," to use an apt phrase whatever its connotations in the American polity, who go too often ignored in our reporting. Because "Noted Chinese scholar is basically okay with the government, though he thinks it could be improved in X, Y, and Z" is not a particularly grabby headline or a compelling read. There's also a kind of source bias that's related to this and it's regrettably caught in a bit of a feedback loop, too. The general impression is that Anglophone media is pro-dissident, and so dissidents will tend to go on record with or speak at greater length with Anglophone reporters; moderate or pro-Party intellectuals will tend to decline interviews and comment, and the impression that Anglophone media is biased in favor of the dissidents gets reinforced: the narrative that they want is buttressed while the other is marginalized or weakened. Another almost ineradicable bias in Anglophone media reporting, so prevalent that it's almost not worth pointing out, is bias in favor of democratic polities. Authoritarian states like China tend to get reported on unfavorably because they behave like authoritarian states. They don't allow, by definition, rival political parties to freely form. They don't allow a free press. They censor the Internet. And of course journalists in the Anglophone world are themselves on the front lines of these speech and press issues. It's almost tautological that the press of the free world would want to free the press of the world.
Season 93’s PC car is the 2018 Ferrari Portofino. This car was added to CSR2 in an April 2018 update and was the milestone reward for season 52 (Subaru BRZ Rocket Bunny PC Season). As a make and model that has been in game for some time but without a previous PC event, it will likely take a pretty well built car including several stage 6s to complete. The current fastest time for the Portofino is 8.592 for the gold 4-star version and 8.540 for the purple star variant placing it in the bottom fifth of Tier 5 cars. As a result caution is advised for a new player looking for a solid Tier 5 car this season. In the 1920s (beginning 1924) Enzo Ferrari was a member of Alfa Romeo as a race car driver. In 1929 he launched Scuderia (stable) Ferrari. The team consisted of drivers who owned their cars (primarily Alfa Romeos) and raced them somewhat cooperatively. By 1933 success of Scuderia Ferrari had made it the unofficial racing division of Alfa Romeo, and Alfa Romeo actually disbanded their own racing team. In 1937 however Enzo dissolved his team and became the head of the new Alfa Romeo racing operation Alfa Corse in 1938. Unhappy with the change, Enzo left Alfa Corse in 1939 and started Auto Avio Costruzioni in Modena. The first car built on its own was the AAC 815. Two 815s were built in 1940 but due to a naming prohibition for four years as an agreement with Alfa Romeo, neither was able to be called a Ferrari. These two cards both raced in the 1940 Brescia Grand Prix, neither finishing due to engine problems. In late 1943 Auto Avio Costruzioni’s workshop was moved to Maranello and was bombed during WWII by the allies (quickly rebuilt post-war). Racing was also minimal during WWII, but in 1945, the company introduced a new V12 engine that would become an integral Ferrari component. The 125 launched in 1947 was the first car to carry the Ferrari name due to the non-compete expiring during WWII. An Italian-American, Luigi Chinetti approached Enzo Ferrari in the late 40s about building sport cars for sale, but Ferrari was reluctant, wanting to maintain a strict racing-related operation. By the early 1950s though Chinetti was able to open the first Ferrari dealership in the US, located in Manhattan. This began the beginning of the U.S. market for Ferraris, and is still the most lucrative today. In 1963 a deal for Ford to buy Ferrari fell apart when Enzo found out that he would be dependent on Ford’s whim to decide if he could race or not (permission and fiscally). This failed deal spurred Ford’s pursuit of a victory at 24 Hours of LeMans, a race dominated by Ferrari, won 6 years consecutively from 1960-1965. After losing to Ford from 1966-1969, Enzo sold 50% of is company to Fiat for the resources needed to revitalize the championship pedigree. Just prior to Enzo Ferrari’s death in 1988 (age 90) he signed off on the 40th anniversary car, the F40. This same year, Fiat increased its stake in Ferrari to 90% Since Enzo’s death, Luca di Montezemolo became president and later chairman, ushering in a transformation of Ferrari into a global luxury brand while still sustaining the racing focus (primarily in Formula One) Enzo wanted from the beginning. In 2014 Ferrari was rated the most powerful brand in the world by Brand Finance, and in 2018 the 1964 250 GTO sold for a record price of $70 Million becoming the most expensive car in history. Unlike many other supercar brands, Ferrari is a racing operation foremost, founded as a racing team, with car manufacturing and sales as a second priority. The sale of road cars was added as a means to fund the racing enterprise. Enzo Ferrari saw his first car race in 1908 (10 years old). He couldn’t find work in the auto business initially after the end of WWI (during which he was drafted by the Italian Army) including being rejected by Fiat. The 2018 Ferrari Portofino is named for the Italian village of the same name and is the successor of the California. The car was initially revealed September 2017 at the Frankfurt Motor Show. The Portofino was created as a “fix” to issues related to the California straying too far from Ferrari basics including lines and feel while maintaining the aims of the California with respect to ease of driving and agility (and of course sustaining or improving on sales margins). The Portofino utilizes significant weight saving technology and materials resulting in a weight of 3,668 lbs, a 176 lbs savings from the California. Additionally the Portofino has significant changes in chassis with hollow castings adding structural rigidity, the A-pillar being a single component vice 21, and aluminum use throughout (12 different alloys). The Portofino hosts a 3.9L twin-turbocharged V8 shared with the GTC4Lusso T with a 592 hp output and 561 ft-lbs of torque. The transmission is a 7-speed dual clutch shared with the California, but enables faster shifting capability. The car accelerates from 0-62 mph (0-100 km/h) in 3.5 seconds and 0-124 mph (0-200 km/h) in 10.8 seconds with a top speed of 199 mph (320 km/h). Useless tidbit: Ferrari trades on the New York Stock Exchange as “RACE” Quote from Top Gear about the Portofino’s changes from the California: “The Portofino aims to redress the balance, literally and figuratively, adding a shot of adrenalised dynamism to the usability and versatility beloved of California clients – grintozo, Ferrari calls it, or grittiness – not to mention chiselling away at the old car’s, umm, lard-arsed profile.” A maxed stage 5 build has a dyno of 10.996 with a tune of 133/3.6 NOS, 4.1 FD, and 53/47 tires. For this tune try a perfect start, early 2nd, early 3rd, instant 4th, good 5th and NOS, deep good/perfect out. I was able to achieve a time of 10.921 on my fastest run with this tune (.075 below dyno). This car beats dyno by about .1 second in most moderately built stages by following the shift pattern for fastest time (Early 2nd and 3rd, NOS in 4rd). The difference between NOS in 4th and 5th was very little for me but in some builds 5th was better than 4th, and vice versa. Check both if you aren’t maxed on fusions. Stage 6 effects:
Body and Transmission are significantly better than Engine, NOS, and Tires, and Turbo and Intake are by far the worst two stages 6s. Depending on your luck with which you get, you will need anywhere between 2 and 4 Stage 6 to complete this cup. At least one stage 6 is needed to finish race 28 to get the free one. The shift pattern for the fastest time (8.592) is a perfect launch > 2nd at 23 mph > 3rd at 44 mph, 4th deep good and NOS > Deep Good out The tune is NOS: 225/4.0, FD: 3.06, Tires: 53/47 Prestige Cup Thresholds: Speed Trap 1 (4): 143 mph (230 km/h) Speed Trap 2 (10): 161 mph (259 km/h) Speed Trap 3 (16): 183 mph (296 km/h) Speed Trap 4 (22): 205 mph (324 km/h) Sprint 1 (7): 4.171s Sprint 2 (13): 3.411s Sprint 3 (19): 2.932s Stage 6 (28): 10.812s Final Time (30): 10.124s
The delicate balance of building an online community business
Hey /Entrepreneur 👋 Just under two years ago I launched an online community business called Traffic Think Tank with two other co-founders, Nick Eubanks and Ian Howells. As a Traffic Think Tank customer you (currently) pay $119 a month to get access to our online community, which is run through Slack. The community is focused on helping you learn various aspects of marketing, with a particular focus on search engine optimization (SEO). Alongside access to the Slack community, we publish new educational video content from outside experts every week that all customers have access to. At the time of writing, Traffic Think Tank has around 650 members spanning across 17 of the 24 different global time zones. I was on a business trip over in Sydney recently, and during my time there I met up with some of our Australia-based community members. During dinner I was asked by several of them how the idea for Traffic Think Tank came about and what steps we took to validate that the idea was worth pursuing. This is what I told them…
How it all began
It all started with a personal need. Nick, an already successful entrepreneur and owner of a marketing agency, had tested out an early version Traffic Think Tank in early 2017. He offered real-time consulting for around ten customers that he ran from Slack. He would publish some educational videos and offer his advice on projects that the members were running. The initial test went well, but it was tough to maintain on his own and he had to charge a fairly high price to make it worth his time. That’s when he spoke to me and Ian about turning this idea into something much bigger. Both Ian and I offered something slightly different to Nick. We’ve both spent time in senior positions at marketing agencies, but currently hold senior director positions in 2,000+ public employee companies (HubSpot and LendingTree). Alongside this, as a trio we could really ramp up the quality and quantity of content within the community, spread out the administrative workload and just generally have more resources to throw at getting this thing off the ground. Admittedly, Nick was much more optimistic about the potential of Traffic Think Tank – something I’m very thankful for now – whereas Ian and I were in the camp of “you’re out of your mind if you think hundreds of people are going to pay us to be a part of a Slack channel”. To validate the idea at scale, we decided that we’d get an initial MVP of the community up and running with a goal of reaching 100 paying customers in the first six months. If we achieved that, we’d validated that it was a viable business and we would continue to pursue it. If not, we’d kill it. We spent the next month building out the initial tech stack that enabled us to accept payments, do basic user management to the Slack channel, and get a one-page website up and running with information on what Traffic Think Tank was all about. After this was ready, we doubled down on getting some initial content created for members – I mean, we couldn’t have people just land in an empty Slack channel, could we? We created around ten initial videos, 20 or so articles and then some long threads full of useful information within the Slack channel so that members would have some content to pour into right from the beginning. Then, it was time to go live.
The first 100 customers
Fortunately, both Nick and I had built a somewhat substantial following in the SEO space over the previous 5-10 years, so we at least had a large email list to tap into (a total of around 40,000 people). We queued up some launch emails, set an initial price of $99 per month and pressed send. [LINK] The launch email I sent to my subscribers announcing Traffic Think Tank What we didn’t expect was to sell all of the initial 100 membership spots in the first 72 hours. “Shit. What do we do now? Are we ready for this many people? Are we providing them with enough value? What if something breaks in our tech stack? What if they don’t like the content? What if everyone hates Slack?” All of these were thoughts running through my head. This brings me to the first great decision we made: we closed down new membership intake for 3 months so that we could focus completely on adding value to the first cohort of users.
The right thing at the right time
SEO is somewhat of a dark art to many people that are trying to learn about it for the first time. There’s hundreds of thousands (possibly millions) of articles and videos online that talk about how to do SEO. Some of it’s good advice; a lot of it is very bad advice. Add to this that the barrier to entry of claiming to be an “expert” in SEO is practically non-existent and you have a recipe for disaster. This is why, for a long time, individuals involved in SEO have flocked in their masses to online communities for information and to bounce ideas off of others in the space. Forums like SEObook, Black Hat World, WickedFire, Inbound.org, /BigSEO, and many more have, at one time, been called home by many SEOs. In recent times, these communities have either been closed down or just simply haven’t adapted to the changing needs of the community – one of those needs being real-time feedback on real-world problems. The other big need that we all spotted and personally had was the ability to openly share the things that are working – and the things that aren’t – in SEO within a private forum. Not everyone wanted to share their secret sauce with the world. One of the main reasons we chose Slack as the platform to run our community on was the fact that it solved these two core needs. It gave the ability to communicate in real-time across multiple devices, and all of the information shared within it was outside of the public domain. The other problem that plagued a lot of these early communities was spam. Most of them were web-based forums that were free to access. That meant they became a breeding ground for people trying to either sell their services or promote their own content – neither of which is conducive to building a thriving community. This was our main motivation for charging a monthly fee to access Traffic Think Tank. We spent a lot of time thinking through pricing. It needed to be enough money that people would be motivated to really make use of their membership and act in a way that’s beneficial to the community, but not too much money that it became cost prohibitive to the people that would benefit from it the most. Considering that most of our members would typically spend between $200-800 per month on SEO software, $99 initially felt like the perfect balance.
The first three months of running the community went by without any major hiccups. Members were incredibly patient with us, gave us great feedback and were incredibly helpful and accommodating to other members. Messages were being posted every day, with Nick, Ian and myself seeding most of the engagement at this stage. With everything going smoothly, we decided that it was time to open the doors to another intake of new members. At this point we’d accumulated a backlog of people on our waiting list, so we knew that simply opening our doors would result in another large intake. Adding more members to a community has a direct impact on the value that each member receives. For Traffic Think Tank in particular, the value for members comes from three areas:
The ability to have your questions answered by me, Nick and Ian, as well as other members of the community.
The access to a large library of exclusive content.
The ability to build connections with the wider community.
In the early stages of membership growth, there was a big emphasis on the first of those three points. We didn’t have an enormous content library, nor did we have a particularly large community of members, so a lot of the value came from getting a lot of one-to-one time with the community founders. [IMAGE] Screenshot of engagement within the Traffic Think Tank Slack community The good thing about having 100 members was that it was just about feasible to give each and every member some one-to-one time within the month, which really helped us to deliver those moments of delight that the community needed early on. Two-and-a-half months after we launched Traffic Think Tank, we opened the doors to another 250 people, taking our total number of members to 350. This is where we experienced our first growing pains. Our original members had become used to being able to drop us direct messages and expect an almost instant response, but this wasn’t feasible anymore. There were too many people, and we needed to create a shift in behavior. We needed more value to come from the community engaging with one another or we’d never be able to scale beyond this level. We started to really pay attention to engagement metrics; how many people were logging in every day, and of those, how many were actually posting messages within public channels. We asked members that were logging in a lot but weren’t posting (the “lurkers”) why that was the case. We also asked the members that engaged in the community the most what motivated them to post regularly. We learned a lot from doing this. We found that the large majority of highly-engaged members had much more experience in SEO, whereas most of the “lurkers” were beginners. This meant that most of the information being shared in the community was very advanced, with a lot of feedback from the beginners in the group being that they “didn’t want to ask a stupid question”. As managers of the community, we needed to facilitate conversations that catered to all of our members, not just those at a certain level of skill. To tackle this problem, we created a number of new channels that had a much deeper focus on beginner topics so novice members had a safe place to ask questions without judgment. We also started running live video Q&As each month where we’d answer questions submitted by the community. This gave our members one-on-one time with me, Nick and Ian, but spread the value of these conversations across the whole community rather than them being hidden within private messages. As a result of these changes, we found that the more experienced members in the community were really enjoying sharing their knowledge with those with less experience. The number of replies within each question thread was really starting to increase, and the community started to shift away from just being a bunch of threads created by me, Nick and Ian to a thriving forum of diverse topics compiled by a diverse set of individuals. This is what we’d always wanted. A true community. It was starting to happen. [IMAGE] Chart showing community engagement vs individual member value At the same time, we started to realize that we’ll eventually reach a tipping point where there’ll be too much content for us to manage and our members to engage with. When we reach this point, the community will be tough to follow and the quality of any given post will go down. Not only that, but the community will become increasingly difficult to moderate. We’re not there yet, but we recognize that this will come, and we’ll have to adjust our model again.
As we started to feel more comfortable about the value that members were receiving, we made the decision to indefinitely open for new members. At the same time, we increased the price of membership (from $99 a month to $119) in a bid to strike the right balance between profitability as a business and to slow down the rate at which we were reaching the tipping point of community size. We also made the decision to repay all of our early adopters by grandfathering them in to the original pricing – and committing to always do this in the future. Despite the price increase, we saw a continued flow of new members come into the community. The craziest part about this was that we were doing practically no marketing activities to encourage new members– this was all coming from word of mouth. Our members were getting enough value from the community that they were recommending it to their friends, colleagues and business partners. The scale at which this was happening really took us by surprise and it told us one thing very clearly: delivering more value to members resulted in more value being delivered to the business. This is a wonderful dynamic to have because it perfectly aligns the incentives on both sides. We’d said from the start that we wouldn’t sacrifice value to members for more revenue – this is something that all three of us felt very strongly about. First and foremost, we wanted to create a community that delivered value to its members and was run in a way that aligned with our values as people. If we could find a way to stimulate brand advocacy, while also tightening the bonds between all of our individual community members, we’d be boosting both customer retention and customer acquisition in the same motion. This became our next big focus. [TWEET] Adam, one of our members wore his Traffic Think Tank t-shirt in the Sahara desert We started with some simple things:
We shipped out Traffic Think Tank branded T-shirts to all new members.
We’d call out each of the individuals that would submit questions to our live Q&A sessions and thank them live on air.
We set up a new channel that was dedicated to sharing a quick introduction to who you are, what you do and where you’re based for all new members.
We’d created a jobs channel and a marketplace for selling, buying and trading services with other members.
Our monthly “blind dates” calls were started where you’d be randomly grouped with 3-4 other community members so that you could hop on a call to get to know each other better.
The Traffic Think Tank In Real Life (IRL) channel was born, which enabled members to facilitate in-person meetups with each other.
In particular, we saw that as members started to meet in person or via calls the community itself was feeling more and more like a family. It became much closer knit and some members started to build up a really positive reputation for being particularly helpful to other members, or for having really strong knowledge in a specific area. [TWEET] Dinner with some of the Traffic Think Tank members in Brighton, UK Nick, Ian and I would go out of our way to try and meet with members in real life wherever we could. I was taken aback by how appreciative people were for us doing this, and it also served as an invaluable way to gain honest feedback from members. There was another trend that we’d observed that we didn’t really expect to happen. More and more members were doing business with each another. We’ve had people find new jobs through the community, sell businesses to other members, launch joint ventures together and bring members in as consultants to their business. This has probably been the most rewarding thing to watch, and it was clear that the deeper relationships that our members were forming were resulting in an increased level of trust to work with each other. We wanted to harness this and take it to a new level. This brought us to arguably the best decision we’ve made so far running Traffic Think Tank… we were going to run a big live event for our members.
I have no idea what I’m doing
It’s the first week of January 2019 and we’re less than three weeks away from Traffic Think Tank LIVE, our first ever in-person event hosting 150 people, most of which are Traffic Think Tank members.
It's like an ongoing nightmare I can’t wake up from.
That was Nick’s response in our private admin channel to myself and Ian when I asked if they were finding the run-up to the event as stressful as I was. I think that all three of us were riding on such a high from how the community was growing that we felt like we could do anything. Running an event? How hard can it be? Well, turns out it’s really hard. We had seven different speakers flying over from around the world to speak at the event, there was a pre- and after event party, and we’d planned a charity dinner where we would take ten attendees (picked at random via a raffle) out for a fancy meal. Oh, and Nick, Ian and I were hosting a live Q&A session on stage. It wasn’t until precisely 48 hours before the event that we’d realized we didn’t have any microphones, nor had a large amount of the swag we’d ordered arrived. Plus, a giant storm had hit Philly causing a TON of flight cancellations. Perfect. Just perfect. This was honestly the tip of the iceberg. We hadn’t thought about who was going to run the registration desk, who would be taking photos during the event and who would actually field questions from the audience while all three of us sat on stage for our live Q&A panel. Turns out that the answer to all of those questions were my wife, Laura, and Nick’s wife, Kelley. Thankfully, they were on hand to save our asses. The weeks running up to the event were honestly some of the most stressful of my life. We sold around 50% of our ticket allocation within the final two weeks before the event. All of the event organizers told us this would happen, but did we believe them? Hell no! Imagine having two weeks until the big day and as it stood half of the room would be completely empty. I was ready to fly most of my extended family over just to make it look remotely busy. [IMAGE] One of our speakers, Ryan Stewart, presenting at Traffic Think Tank LIVE Thankfully, if all came together. We managed to acquire some microphones, the swag arrived on the morning of the event, all of our speakers were able to make it on time and the weather just about held up so that our entire allocation of ticket holders was able to make it to the event. We pooled together and I’m proud to say that the event was a huge success. While we made a substantial financial loss on the event itself, January saw a huge spike in new members, which more than recouped our losses. Not only that, but we got to hang out with a load of our members all day while they said really nice things about the thing we’d built. It was both exhausting and incredibly rewarding. Bring on Traffic Think Tank LIVE 2020! (This time we’re hiring an event manager...)
The road ahead
Fast forward to today (August 2019) and Traffic Think Tank has over 650 members. The biggest challenges that we’re tackling right now include making sure the most interesting conversations and best content surfaces to the top of the community, making Slack more searchable (this is ultimately one of its flaws as a platform) and giving members a quicker way to find the exclusive content that we create. You’ll notice there’s a pretty clear theme here. In the past 30 days, 4,566 messages were posted in public channels inside Traffic Think Tank. If you add on any messages posted inside private direct messages, this number rises to 21,612. That’s a lot of messages. To solve these challenges and enable further scale in the future, we’ve invested a bunch of cash and our time into building out a full learning management system (LMS) that all members will get access to alongside the Slack community. The LMS will be a web-based portal that houses all of the video content we produce. It will also provide an account admin section where users can update or change their billing information (they have to email us to do this right now, which isn’t ideal), a list of membership perks and discounts with our partners, and a list of links to some of the best threads within Slack – when clicked, these will drop you directly into Slack. [IMAGE] Designs for the new learning management system (LMS) It’s not been easy, but we’re 95% of the way through this and I’m certain that it will have a hugely positive impact on the experience for our members. Alongside this we hired a community manager, Liz, who supports with any questions that our members have, coordinates with external experts to arrange webinars for the community, helps with new member onboarding, and has tightened up some of our processes around billing and general accounts admin. This was a great decision. Finally, we’ve started planning next year’s live event, which we plan to more than double in size to 350 attendees, and we decided to pick a slightly warmer location in Miami this time out. Stay tuned for me to have a complete meltdown 3 weeks from the event.
When I look back on the journey we’ve had so far building Traffic Think Tank, there’s one very important piece to this puzzle that’s made all of this work that I’ve failed to mention so far: co-founder alignment. Building a community is a balancing act that relies heavily on those in charge being completely aligned. Nick, Ian and I completely trust each other and more importantly, are philosophically aligned on how we want to run and grow the community. If we didn’t have this, the friction between us could tear apart the entire community. Picking the right people to work with is important in any company, but when your business is literally about bringing people together, there’s no margin for error here. While I’m sure there will be many more challenges ahead, knowing that we all trust each other to make decisions that fall in line with each of our core values makes these challenges dramatically easier to overcome. Finally, I’d like to thank all of our members for making the community what it is today – it’d be nothing without you and I promise that we’ll never take that for granted. I originally posted this on my blog here. Welcoming all of your thoughts, comments, questions and I'll do my best to answer them :)
In the 1920s, investors and brokers were swept up in margin fever. As stock prices rose, investors were able to buy on margin with as little as 10 percent down [source: Blumenthal]. When prices began to fall in October 1929, brokers started issuing massive margin calls. In the early years of stock exchanges, there were no legal minimum margin requirements. Indeed, during the 1920s, margin requirements were 10% or even less, leading to a highly inflated stock market that eventually crashed in 1929. In the 1920s, the buyer only had to put down 10–20% of his own money and thus borrowed 80–90% of the cost of the stock. Buying on margin could be very risky. If the price of stock fell lower than the loan amount, the broker would likely issue a "margin call," which means the buyer must come up with the cash to pay back his loan immediately. The practice of buying on margin rose to prominence in the 1920s. During that time, the U.S. stock market was really beginning to take off. Many people were seeing significant gains, and many more wanted to get on board that train. ... Trading stocks is a risky business with a lot of potential rewards. Buying on margin amplifies the potential ... Trading On Margin. The 1920’s, leading up to the stock crash, also featured a huge amount of margin trading – when investors borrow money using stock as collateral, and use the loan to buy even more stock. Since stock prices were rising constantly, banks were happy to give the loans and investors, both new and old, were taking them and ...
Speculative bubbles, buying stock on margin, Minsky Moments, and their potential Macroeconomic effects. This feature is not available right now. Please try again later. A terrible nightmare turns into a lesson about margin trading and buying power. Brought you by the fine folks at I Rule Money - www.irulemoney.com. Follow us on Twitter at @IRuleMoney! One trading jargon that you’ll hear very often is margin. It’s usually in terms like margin account, margin trading and even margin call. It seems a bit comp... WALL STREET HISTORIC FILM NEW YORK STOCK EXCHANGE "BEHIND THE TICKER TAPE" 72892 - Duration: 10:40. PeriscopeFilm 24,896 views