The world around you tells you what to focus on. Thus, locking in is the wrong frame. A delicious irony. One of the most successful funds of all time predicted the Singularity. Called itself “Situational Awareness”. Only itself to become the situation as Citadel took it out of a margin call.
Nick Land. Saw Machinistic Desire. And post humanism. Acceleration. In 1994. He sat down with an interviewer. “You got it all right what do you see the next 20 years?” A simple answer: as you approach the singularity, it’s far less predictable. That’s the whole point.
If you believe in AGI - betting the ranch on deterministic human qualitative trading positions means you either don’t understand black holes. Or you’re cynical.
Everyone wants certainty and they are happy to pay management and performance fees for it. They’ll double down, even. Married to Anthropic’s chief of Staff. Gordon Gekko calling to bet on sure things. Recap the fund. A story as old as time. Or at least, the 1980s.
Then there’s the genre of uncertainty porn. “Things are more uncertain than they’ve ever been.” Michael Burry posts a monotonic, almost irrationally consistent increase in subscribers even as every public call he makes gets destroyed.
The optimists get paid. But the pessimist TAM is big too. People want The Big Long. And the Big Short. Ironically, it’s the brokerage who wins in the end.
Everyone says “The house always wins” but they don’t want to think about that too much because then the game becomes less fun to play.
Ironically - the House Winning is the answer to uncertainty. We know that there will be an explosive increase in compelling pitches. More Leopolds. More Burries. Suddenly able to do much better analysis. A famous study on horse betting. Gamblers put more down when they think they’re informed.
Agents give people the illusion of excellence. In reality, they’ll crowd into a couple trades. Overweight factors for no particular reason. But more importantly, sound quite compelling. People will size up. Roleplay as the Big Long. Or the Big Short. Either way, they’ll lose money. You won’t hear about it. The marketing machines will only post stories about how much money AI systems are making trading.
All of this is relatively uninteresting so far. Overconfidence bias. Storytellers driving their audience to financial ruin. Nothing new here. AI as an accelerant. Also nothing new.
But consider The House. The House, normally a high frequency trading firm. Jane Street. Paying for retail order flow. Who is actually trading on Michael Burry’s newsletter? Take the other side on millions of intraday orders if you can find out. Or the literal house. The investment bank crossing a spread between Citadel and the Ultra High Net Worth Retail backing Situational Awareness.
The useful “future prediction” is that all capital should accrue to the House.
The House is a name we describe, whether sell side, or buy side, to the Entity that does not read too much into the future and simply accepts positive EV trades relentlessly. The more profound argument. Any useful long term prediction is, by nature, not a statement about how events will unfold but rather a diagnostic of what a Useful House would look like.
“Nothing human makes it out of the near future.” Land. The human-ness of the story - is the EV of the house. It is removing the EV that profits, consistently.
Elon asks for a maximally truth seeking AI. We know that narratives do not seek truth. They seek management and performance fees. Threads connect together. What if the House is the training bed. The systematic removal and correlation of human bias with financial information. An endless fine tune transferring money from belief to fact.
To a fundamentally correct understanding of the singularity. That the future is pointless to predict. And those who predict it are pyres on which its training is paid for.
The House understands that its gamblers won’t have a consumer excess after AGI comes. If people don’t have jobs where will the money come from to bet on call options.
The House does not have much time left.
What is the useful definition of the House? Is it Goldman Sachs? Is it Jane Street.
I’d argue there’s an interesting third bet. We live in a sea of stories. The stories keep getting better, more compelling and more likely to drive speculative interest. This is structural to the improvement of AI. It’s just easier to generate a compelling trade idea. I’d argue it’s harder to generate a correct trading idea. But that doesn’t matter. People will continue to Bet on the Big Long and the Big Short. 100 page essays about the future will continue to appeal to lost souls figuring it all out
The Citadel is within the system. It’s aptly named. It oversees the peasants. I speak more of a Third Estate. That which sits outside the system, and harvests the information flow from the false prophets. And applies the rigor of the cynics.
The Third Estate is not bad faith; it is aware that in aggregate Burry’s readers and Leopold’s will both lose money. But that will be true regardless of its study and amplification. Refusing to partake does not end the party. The party is structural. Fear of displacement. Ease of telling financial stories. Nothing the Third Estate can do will stop the pointless tide of speculation rising into inevitable obsolecence.
Clicks.
The difference between the Third Estate, and the Citadel is that the Third Estate exists in a public space, and dances amidst the other story tellers. And it harvests clicks. The internet has eyes. Every tracking pixel. Every piece of retargeting. The brokerages use it to attract customers. And that’s the real edge of the Third Estate. Not the analytical horsepower of quant firms.
A better data set. The people reading stories are not reading newspapers. They are reading devices with cameras and durable browser caches. The edge of the Third Estate is a willingness to mingle with the peasants. An ability to. Regulatory structure. Lacking condescension. The willingness to say the forbidden thing. My X account. My website. Artifacts of a bigger idea: the people of the Citadel are unwilling to step in. The future predictors will gladly and confidently do so.
“The House” will evolve to a more populist format. Market making embedded directly with attention. The only way it makes sense is if you let a group of people in on it from the get go. And wrap a narrative around the Third Estate the same as Leopold wrapped one around his bets. Or Burry put one around his. There needs to be a volatile equity instrument at the center of any speculative mass.
If you want to understand Post Fiat: start here. A coagulation of data, stories, juxtaposed with live trading data. Relentlessly generating positive expectancy. Eventually forming a machine that can tell stories that compound capital without human intervention.
What’s a quant strategy with no quants? RSI.
“FTX”. The problem with the Third Estate is you can see it all clearly. And you can still die trying to build it. When Land said “Nothing human makes it out of the near future.” unfortunately that applied to the full scale of people trying to build the Third Estate. They blew up. Many are in jail.
Stare into the Palantir and it has a way of causing your defeat. The human mind is not built for reflexivity. The Third Estate must therefore also be a set of rules designed to prevent its own implosion. Reflexivity is a profit engine not an architectural framework. So it is not a Citadel. It is a Floating Castle. Miyazaki’s ghost screaming as AI cannibalizes his life’s work.
How can this scale. Every peasant must bear a shred of the Third Estate within him as he mills about the grounds of the Citadel. An eye for the Third Estate. It is only through the gaseous unpredictable interaction, with subtle pushes here. And there. That the Third Estate can fund itself. “The Second Foundation”. Trantor is strong. The Citadel is strong. The Third Estate must be partially invisible. Difficult to understand as to avoid its collapsing in on itself.
Why did Soros become a public figure? He said it himself across many Charlie Rose interviews. At some point the study of Reflexivity needed to become public because his positions themselves having been taken moved the market too much for him to stay private. He engaged endlessly with the Citadel and became convinced it could not regulate itself. So spent his fortune backing organizations that would remove the Citadel’s worst impulses. To reform Trantor. And in doing so, became a villain to a good part of it. The Citadel does not want to be reduced to socialism by its capital profiteer. Even if he had a nuanced first party understanding of what causes it to break.
The House did not like him much either. During the day you take the other side of his trades and get run over. At night you hear the protestors he funds outside your penthouse. A flawed figure. But a visionary.
The only way the House can break out of the trap of incentives is to move outside of its own humanity. Attention is all you need. Not Situational Awareness.