Fecalnomics: Clash of the Hedge Hogs

A hedgehog is a small animal that lives off bugs and a Hedge Hog is a large investment fund that lives off shit. Your shit, to be precise. Hedge Hogs sort through the data you discard in the normal course of living. They seek signs of, well, movement. Hedge Hogs are happy to make a living off what you shed, but they can’t make a living if you don’t shed regularly — if they can’t spot movements in your movements.

Some of the shit Hedge Hogs pay money for include a list of the websites you visit, the text messages you receive or send, the emails you receive or send, any purchases you make, any funds you receive, any places you visit, what medicines you buy, what vehicles you own… the list is truly bottomless.

This kind of data can be bought on the dark web, though it is mostly legal and companies sell it all the time. Stripped of personal identifiers, it’s just the residue of your transactional life. What does it matter to you? It’s not like they’re trying to steal your identity. As long as you get from point A to point B, what do you care if some Hedge Hog knows the steps you took to get there?

Every Time You Move, A Hedge Hog Gets Paid

Hedge Hogs do not steal your identity, they suck off it like parasites. They use the shit they glean from you to make guesses about asset prices. Hedge Hogs care about you. They care about your health. Hedge Hogs want you to take big, healthy data dumps every day so they can sort through your shit looking for morsels to sell. The one thing they can’t abide is if you stop having movements. You must keep active, eating, moving and shedding data all day and all night for Hedge Hogs to get their fill.

Hedge Hogs are Like Casinos: The Hog Always Wins!

Hedge Hogs don’t care which way asset prices move, up or down: they get paid either way. Hedge Hogs play futures markets, mostly, where they trade options to buy or sell assets in the future. They can bet an asset will decrease in value, and get paid if it does, just as easily as they can bet an asset will increase in value and get paid if it does. They only lose money if they guess wrong, but that almost never happens. Hedge Hogs know that if they make enough of these guesses over a long enough period of time, just like the casinos, they will always win, accumulating fortunes of billions of dollars.

Get Your Assets Out of Bed!

Yes, Hedge Hogs took a beating when they bet too much that GameStop shares would fall and amateur traders who understood the bet banded together to brutally beat the overextended Hogs. Some small traders became wealthy in the process. Hedge Hogs love this story! It gets the money off the sidelines, out of 401K plans, out of mortgages, out of lines of credit. It plunges that money into the insanely risky world of leveraged trading of futures options. The more often that money moves — from mattress to bank to PayPal to RobinHood to GameStop to bank to mattress — the more Hedge Hogs profit. No movement, no money.

Hedge Hogs Love the GameStop Story!

For a brief time, many years ago, I was associated with a card counting operation in Las Vegas, Nevada. Card counting is a method of memorizing the cards played in blackjack, combined with disguises, signaling, and other ruses, to gain a reliable advantage over the house and thus unlimited profits until discovered. Las Vegas loves that story because they made card counting “illegal” and started using an eight-deck shoe and discarding the shoe half empty. The chances of the house losing now are minimal. The fact people know the house can sometimes be beaten leads millions of people to play blackjack and lose reliably every year.

Trump & Clinton Both Represented Hedge Hogs

The only way Hedge Hogs are able to make their oversized, nearly tax-free returns is by protecting their operations from regulation or taxation. In the 2016 U.S. Presidential primaries, the Renaissance Technologies hedge fund hedged its political bets: partner Robert Mercer donated $10 million to Ted Cruz while partners James Simons and Henry Laufer donated $14 million to Hillary Clinton. Either way, the Hedge Hog wins and hopefully forestalls taxation, litigation, regulation and confiscation. When the Ted Cruz campaign imploded, Mercer switched his bet to Trump, and it paid off better than years of patient nurturing have paid off for the Koch Family hedge fund.

You think your vote counts but in the end Hedge Hogs are battling Hedge Hogs for control over the mechanism of the state and your vote is an amusement. Mercer’s Renaissance Technologies was facing collection of $7 billion in back taxes that have seemingly disappeared. Koch Industries is always facing billions of dollars in fines. Petrochemical companies and petrostates will lose trillions of dollars if the oil they “own” has to stay in the ground. Do you think they give a shit about your right to vote? They will nose in at the end and make any deal necessary to forestall justice for one more term.

Is It Me, Or Is It Getting HOT in Here?

Hedge Hogs rely on tracking movements to anticipate market changes and get in front of transactions before they happen. The key to success for Hedge Hogs, as for casinos, is to push more money through the system more rapidly so that their small but steady percentage accumulates more quickly. The key to earnings, then, is volatility. Hedge Hogs like it hot! How hot?

Investment site Seeking Alpha reports that, “2020 was one of the most volatile years for the S&P 500 on record. If history repeats itself, 2021 may also be a very volatile year for equities.” The Donald Trump presidency was a boon for volatility and a goldmine for Hedge Hogs. Not only did his insane statements every few minutes cause erratic market movements, but he also protected their flank from the Justice Department and the regulatory state. He gets the triple crown of corruption for also tipping off insiders in advance of his wild pronouncements so they could profit from his craziness instead of fighting it.

Chart indicating assets managed by Hedge Hogs from 2010 to 2020, with projections for 9.8% average annual asset growth from 2020 to 2025. Source: Fair Use.

The Hedge Hogs have grown so fat, so quickly (see chart) that a great deal of their earnings are spent protecting themselves from growing threats. The state can put a target Hedge Hog out of business in an instant, ala Michael Milken, so Hedge Hogs spend a fortune trying to control the state. Hedge Hogs know their profits are not based on creating goods or services and are subject to confiscation at any time by a state that decides what they’re doing is illegal. So Hedge Hogs spend lavishly to keep their enemies from controlling the state.

Hedge Hogs Are Heating Up Your Media, Too

Hedge Hogs have used AI to uncover one more threat to their operating model: the media. Hedge Hogs are buying media businesses, not because they expect them to be profitable, but to have at least one media outlet that will defend them from charges. That’s enough to sow doubt and slow things down.

The other advantage of owning media outlets is Hedge Hogs can use the editorial policy to stimulate volatility. Matt Taibbi points to the results in his book, Hate, Inc.: Why Today’s Media Makes Us Despise One Another, about how the media increases their ratings by dividing us into opposing teams. But Taibbi doesn’t point to this source of the bombast: the need of Hedge Hogs to keep people jumpy and keep fortunes in motion.

The forecast for the future is that it’s going to stay hot and get even hotter. You don’t need an AI to figure that out. In a future column, I’ll look at the Achilles’ heel of the Hedge Hog: bad data! Stay tuned!

STEVE O’KEEFE is the author of several books, most recently Set the Page on Fire: Secrets of Successful Writers, from New World Library, based on over 250 interviews. He is the former editorial director for Loompanics Unlimited.