How the Stock market actually works (each ticker has a role)

Assets have roles in the regime (control rail, consent rail, volatility sink, placebo, scapegoat, sludge, testbed, error asset). Even when the function is sacred; the ticker is not.

Photo by CLINTON MWEBAZE on Unsplash

In this article, I’ll explain how the stock market actually works.

This is going to be much closer to how the 1% of hedge funds think about markets than the official narrative nonsense you’ll get on twitter/TV.

However, I have to warn you: you don’t actually directly own any of your stocks, so they can be taken away from you at any time.

For more context, watch David Rogers Webb’s documentary “The Great Taking”, or read this article.

Thomas Petterfy, the founder and majority owner of Interactive Brokers, is of the same opinion:

There will be crashes and then there will be a final crash - a final crash from which there is no return. This is because there is social dissonance and we don’t have solid financial basis anymore — we just keep adding to the debt, so eventually this will lead to the final collapse and when the system comes back, it will take years for it to come back. The companies and the stocks will not exist when the system comes back again, so the stocks that you end up with will be worthless. It will be a reset.

The information I present in this article is going to be very useful and help you understand markets, however, if you still want to play this game, I am of the opinion that it has to be used in combination with (1) tracking liquidity and (2) trend following to get better results.

0. Lens & Regime: How this World actually runs

You have to use this lens:

• incentives > ideals

• control > fairness

• stability > truth

• revealed preference > stated narrative

• assume low Gross Consent Product:

  • consent is scarce,

  • crises frequent,

  • patches fast,

  • housing/pensions/indices politically sacred.

Core idea:

Stock prices are not optimized for “fair value”.
They are the visible surface of a system that behaves roughly like:

minimize Σᵢ (cost_of_controlᵢ + career_riskᵢ + embarrassmentᵢ + legal_exposureᵢ)
− λ · legitimacy_depletion_rate

subject to:

• sovereign funding works

• collateral chains don’t snap

• banks & money markets function

• housing & pensions don’t visibly implode

• protected cohorts feel “ok”

• regime risk stays sub-critical

• external balance / capital flight risk stays tolerable

Controllers = overlapping factions (intelligence/security, Treasury/CB/BIS, politicians, regulators, big asset managers, insurers, corporate giants, law/compliance priesthood, foreign blocs). Lots of coordination where interests converge.

These are probably the foot soldiers, but still useful as a mental model.

Markets = sensors + routing layer, and sometimes levers.

Equities are tools to:

1. Manage consent (“stonks up”, pensions up, home equity → reduced revolt).

2. Fund & scale control rails (cloud, AI, identity, ISR, cyber, CBDCs/stablecoins, provenance, audit, energy/grid/logistics/compute).

3. Channel speculation & dissent into P&L instead of riots.

4. Stage discipline theater (sacrificial tickers, hearings, fines).

5. Launder pre-made decisions into “market outcomes” (vendor selection, standards, regime direction).

6. Provide pressure valves (meme stocks, shitcoins, 3x ETFs) so chaos burns away from the core rails.

Right question for any ticker:

“What role does this ticker play in the regime, for which factions, and on what horizon?
Does the system want that role loud or quiet right now?”

• Loud role → elevate (pump, narrative oxygen, avatar, index inclusion).

• Quiet role → cap, ignore, use as tool/testbed/scapegoat.

1. Objective Function & Legitimacy Budget

People inside the machine aren’t optimizing “the nation”. They ask:

• “Can I get through the next hearing?”

• “Will I keep my budget & status next cycle?”

• “Can I avoid front-page humiliation and discovery?”

Legitimacy is a scarce resource.

• Legitimacy ↓ → cost of control ↑.

• Blatant stock-specific rigging (e.g. GME) burns legitimacy fast.

• Quiet levers (rules, tax, index rules, procurement, insurance, standards) do the same job cheaper in legitimacy units.

So most control runs via:

• Rules: capital & liquidity regs, listing rules, licensing.

• Plumbing: index/ETF construction, benchmarks, default products.

• Tax: retirement wrappers, Long-Term-Capital-Gains/Short-Term-Capital-Gains, credits/deductions.

• Insurance/collateral: eligibility, haircuts, exclusions.

• Procurement & standards: who is allowed to be “compliant”.

• Narrative & scapegoats: hearings, fines, “bad apples”.

They care more about:

• Variance (how wild things swing),

• Correlation (whether everything crashes together),

• Who eats the loss (retail vs pensions vs core banks),

…than the exact spot price of ticker X on day Y.

2. Crisis Priority Stack: What gets saved first

In real stress, the implicit priority ordering looks like:

1. External balance & sovereign funding

   • FX, capital-flight risk, sovereign spreads, Treasury auctions.

2. Core collateral regime & money markets

   • Sovereign bonds, repo, MMFs, key non-bank funding.

3. Systemic banks & critical credit

   • Big banks, Central Counterparty Clearing Houses (CCPs), critical shadow credit.

4. Housing & pensions (consent rails)

   • House prices, mortgages, foreclosure regime, pension coverage.

5. Critical rails (“control OS”)

   • Payments, digital ID, comms, ISR, cloud, AI decision OS, cyber, provenance/audit, grid/energy/logistics/compute.

6. Broad indices / protected cohorts

   • SPX/NDX and equivalents; the megacaps anchoring boomer/PMC net worth.

7. Individual equities

   • Especially outside rails/indices.

Behavior:

• They will happily crater entire sectors or names to save funding / collateral / banks.

• They will tolerate index drawdowns, but then rush to patch indices, housing, and pensions once core panic is contained.

• In low Gross Consent Product regime: short shocks (< 1 year), fast patches, not long purges — as long as inflation and external balance stay within tolerable ranges.

3. Controllers: Factions, Horizons, Ideology

3.1 Main factions

Security / IC cluster

• Actors: intelligence agencies, defense ministries, national security councils, allied IC.

• Priorities: ISR, comms, grid/logistics, targeting, AI decision OS, resilience, deniability.

• Tools: procurement, export controls, watchlists, emergency powers.

Treasury / Central Bank / BIS cluster

• Actors: Treasuries, CBs, BIS/IMF/FSB/Basel.

• Priorities: sovereign funding, bank/collateral solvency, FX/reserve regime, smooth money markets.

• Tools: rates, QE/QT, facilities, swap lines, capital rules, collateral eligibility.

Political / Electoral cluster

• Actors: cabinets, parliaments, regulators, AGs.

• Priorities: “jobs & stocks up”, no housing crash, scapegoats, headlines.

• Tools: hearings, fines, sanctions, omnibus bills, emergency narratives.

Corporate / Asset-Management cluster

• Actors: BlackRock/Vanguard/State Street, megabanks, insurers, PE, SWFs, big PMs.

• Priorities: AUM & fees, benchmark-relative returns, low headline risk.

• Tools: index design, ETF shelf, benchmarks/factors, stewardship/voting.

Law / Compliance / Accounting priesthood

• Actors: regulators’ legal arms, in-house counsel, compliance, risk, Big Four.

• Priorities: avoid personal liability & scandal.

• Tools: interpretations, internal “no lists”, ESG/KYC/AML overlays.

• Effect: soft vibes → hard constraints with no visible law change.

Insurance / Reinsurance layer

• Actors: insurers, reinsurers, financial supervisors.

• Priorities: solvency, avoiding catastrophic correlated losses.

• Tools: exclusions, premiums, capital charges.

• Effect: if something becomes “uninsurable”, it’s effectively banned.

Narrative / Cultural infrastructure

• Actors: media, platforms, NGOs, think tanks, academia, foundations.

• Priorities: attention, prestige, Overton window control.

• Tools: framing, blackout vs oxygen, avatar creation/destroy.

Corporate C-suites of megacaps

• Mini-controllers of their domains, optimizing for stock comp, access to state, and scapegoat avoidance.

• Co-design rails with the state (“public-private partnerships”, crisis bail-ins, “task forces”).

Each faction solves:

minimize (career_risk + embarrassment + legal_exposure)
subject to: “my faction keeps budget & status this cycle.”

They:

• Avoid moves that risk discovery (documents, subpoenas).

• Prefer rules, eligibility, standards over direct market manipulation.

• Sometimes fight each other.

3.2 Horizons

• Politicians: 2–4 years

• PMs / LPs: 1–3 years

• Treasury / CB: 3–10 years

• IC / security: 10–30 years

• Standards bodies (BIS/ISO/etc.): 10–20 years

Edge: align with IC/standards horizon while others are chained to elections & Value-at-Risk.

3.3 Ideology as operating system

Some of them partly believe their own script:

• “rules-based order”,

• “market efficiency”,

• “independent central banks”,

• “we’re the adults in the room”.

This:

• Limits which levers feel “legitimate”.

• Favors “neutral indices, independent boards” over open decree.

• Means doctrine lags the rails they already built.

Doctrine lag = alpha.
Often assets that are structurally obvious but politically unspeakable are mispriced.

For example early Palantir (technocracy).

This was considered fringe because most allocators explicitly dismiss “technocracy” framing as paranoid, even though the building blocks (CBDCs, AI-driven surveillance, digital ID rollouts, Palantir in defense/healthcare/finance) were visible in plain sight.

No hedge fund manager writes “I am investing in Palantir because they will be a key player in the upcoming AI governance regime“ in an LP memo.

LP memos sanitize reality. Most institutional allocators won’t submit “we’re buying the operating system of technocracy”. They’ll write “mission-critical data fusion for regulated sectors”. That euphemism keeps position sizes small until (a) standards synchronize and (b) index committees bless the name. Most of the alpha exists before it’s polite to say the quiet part.

4. State Capacity, Legitimacy & Visible Randomness

Roughly:

StateCapacity(asset/class) ≈ (budget + staff + tech + legal room) / complexity_of_desired_intervention

• High for: Basel regs, KYC/AML, sanctions → real teeth.

• Low for: exotic tech, crypto, multi-jurisdictional stuff → PDFs, speeches, selective enforcement.

Legitimacy stock:

• US/EU need procedures, hearings, “independent panels”.

• Some Emerging Markets/GCC/China can burn more legitimacy without immediate collapse.

Low Gross Consent Product → more:

• defaults,

• standards,

• automated enforcement,

rather than brute force.

Visible randomness as design:

If everything obviously always benefits insiders and crushes outsiders, legitimacy collapses. So they need:

• some real insurgent wins,

• some “elite” failures,

• genuine blowups,

• honest accidents.

Chaos is retro-fitted with a story; not everything is pre-scripted.

5. Real Control Tools

5.1 Law, rules & interpreters

Formal:

• Capital & liquidity rules (Basel, Solvency, High-Quality Liquid Assets (HQLA) tiers).

• Accounting (HTM vs AFS, mark-to-market rules).

• Collateral eligibility lists.

• Index & ETF methodology.

• Sector caps, foreign ownership limits, ESG/“controversial business” screens.

• Licensing / registration regimes.

Tax:

• Retirement wrappers → index & megacap bias.

• Long-Term-Capital-Gains vs Short-Term-Capital-Gains → lock-in.

• Tax credits/deductions → steer capex (green, defense, ID, R&D).

Informal:

• Internal “too controversial / sanctions-adjacent / reputational risk”.

• Over-compliance turns vibes into hard bans without statute changes.

5.2 Procurement & standards

• Who is allowed to bid, under what security posture.

• Requirements for data rights, auditability, export controls.

• Renewal structures where only incumbent satisfies the standard.

• Shared ontologies/schemas across agencies & allies.

Procurement + standards = durable monopoly for chosen rails.

5.3 Autopilot flows

• 401k & target-date funds.

• 60/40 funds.

• Cap-weight indices & ETFs.

• Risk parity & vol targeting.

• Buybacks.

• Sovereign Wealth Funds & pension mandates.

Define the “dumb-flow share” of any ticker: flows that follow rules, not analysis.

5.4 Credit, collateral & insurance

• Repo haircuts, rating rules, HQLA status.

• Credit Default Swaps (CDS) markets, ratings oligopoly.

• Insurance coverage & exclusions.

Quietly:

• Make some models funding-impossible.

• Render certain activities uninsurable.

5.5 Auctions, benchmarks, factor design

• UST auctions, CB ops, FX facilities → define dealer sets & collateral.

• Benchmarks & factors define what counts as “AI”, “quality”, “green”, etc.

Benchmarks are herding tools, not neutral measures.

5.6 Ad-hoc overrides

• CB facilities & swap lines.

• Short bans, margin changes.

• Hearings, jawboning, selective enforcement.

• M&A blocks on “national security” grounds.

Triggered when thresholds are hit; not daily control.

5.7 Microstructure

• Options/gamma positioning.

• ETF creation/redemption mechanics.

• Dealer inventory & flows.

Short-term tape = microstructure + dumb flows + narrative, probably mostly not a cabal manually editing every tick.

6. Bandwidth, Latency & Unmonitored Zones

Define:

• ControllerBandwidth(t): how many serious fires they’re fighting right now.

• PolicyLatency: time from “we notice problem” → “coherent response hits rails”.

Most of the time:

• ~95% of tickers live in “Unmonitored Space”.

  • No one with real power is watching.

  • Mispricings = nobody cares + constraints, not malicious suppression.

Focus intensifies only when something hits:

• Funding / FX / collateral,

• Banks & money markets,

• Housing & pensions,

• Core control rails,

• Narrative/discipline theater.

Alpha:

Biggest asymmetry when:

• Function is structurally important,

• Asset is still in Unmonitored or Soft-Managed zone,

• Real thesis sounds insane in an LP memo.

Early BTC, TSLA, PLTR all lived there.

7. Asset Roles & “Who Eats the Volatility?”

7.1 Core roles

1. Control rails

   • ID/auth; payments; ISR; cyber; AI decision OS; provenance/audit; energy/grid/compute/logistics.

   • Examples: Palantir, MSFT Gov/Entra/Copilot, RTX/NOC, serious cyber, V/MA, grid/compute infra.

2. Consent rails

   • Indices & megacaps whose rise = “my retirement/home is safe”.

   • SPX/NDX, big banks, utilities, housing proxies.

3. Housing stack

   • House prices, mortgages, forbearance rules.

4. Volatility sinks

   • Meme stocks, shitcoins, alt L1s, levered/inverse ETFs, 0DTE options.

   • Purpose: absorb speculative anger away from core rails.

5. Moral placebos

   • ESG/impact wrappers that don’t threaten real rail power.

6. Discipline theater / sacrificial names

   • Designated villains for hearings & scandals.

7. Data-harvest assets

   • Adtech, social, “free” tools.

8. Governance testbeds

   • DAOs, sandbox cities, CBDC/stablecoin pilots.

9. Boring collateral sludge

   • Utilities, some REITs, local banks, dull industrials.

10. Never-listed / pre-empted rails

    • Fully state/prime controlled.

11. Error assets → captured later

    • allegedly BTC, some AI names: born outside plan, then wrapped and reused.

7.2 Who eats the volatility?

The Controllers care less about price levels, more about where the pain lands:

• Retail / outsiders:

  • Pushed into high-vol zones (meme, alt-L1s, levered ETFs).

  • Blowups are “contained learning experiences”.

• Boomers / pensions / PMCs:

  • Need low-vol upward drift (indices, megacaps, housing).

  • Blowups here threaten consent.

Therefore:

• Index megacaps & core rails → vol suppression over time (buybacks, index gravity, Fed put logic).

• Strategic rails → early volatility allowed; later, prefer boring “utility” behavior.

8. Rail vs Wrapper: Ticker vs Function

Any ticker’s value can be decomposed into:

• Rail share: value because the function is structurally needed.

• Loot share: monopoly/graft/oligopoly rents.

• Dumb-flow share: index/ETF/benchmark driven flows.

• Error-asset share: narrative/optionality the system hasn’t fully priced.

Max edge:

• Rail share ↑

• Error share still high

• Loot not dominant yet

• Dumb flows underweight because the real thesis sounds “conspiratorial” in committee.

Palantir right now:

• RailCentrality: ~9–10 (decision OS for ISR/logistics/governance/crisis).

• TickerSpecificity: rising (~7.5–8.5); in theory replaceable, in practice bound by ontology/workflow path dependence.

• Error-asset share no longer significant: most allocators know that Palantir = “governance substrate”.

• Thesis no longer taboo in LP memos → mispricing zone gone.

Function is sacred; wrapper is favored, but expendable in tail scenarios.

Always remember: even if the function is sacred, the ticker might get fully or partially sacrificed.

The Controllers care much more about the function, than about what multiple the ticker gets.

9. Bitcoin: From Error Asset to Managed Corridor

9.1 Role evolution

• Early: pure error asset; allegedly nobody’s plan.

• Now: mid/late capture stage in the West.

Desired Western end-state:

• Medium of exchange minimized:

  • KYC perimeters, travel rule enforcement, tax friction on small payments.

  • App-store hostility to non-KYC wallets.

  • Node/operator liability: CSAM risk, “unlicensed money transmitter” framing.

• Store of value corridored:

  • ETFs/ETNs/notes/futures dominate flows (paperization).

  • Self-custody niche remains but is legally/operationally costly.

• Vol corridor:

  • Upside spikes damped via paperization, derivatives, liquidation cascades.

  • Downside volatility more tolerated (fear is useful).

9.2 Why it’s containment, not annihilation

• Semi-adversarial states can use BTC as:

  • gray reserve,

  • sanctions valve,

  • signaling/settlement rail.

• West cannot fully kill BTC without:

  • handing it to adversaries,

  • losing visibility into some capital flows.

• At the protocol layer, Bitcoin as it actually exists is extremely close to optimal for a Controller-grade pressure valve.

So base case: contain, not kill.

10. Rail Lifecycle & Expropriation Risk

10.1 Rail lifecycle

• Phase A — Quiet rail / Accumulation

  • Low narrative, weird niche, under-owned.

• Phase B — Myth-making / Capital formation

  • “AI/war/climate” story, avatar elevated, index inclusion, capital floods in.

• Phase C — Utility / Volatility suppression

  • Becomes a boring, essential utility rail.

  • Vol smoother; margins “socially acceptable”.

  • Soft-nationalization risk rises.

• Phase D — Sacrifice / Discipline / Reshuffle

  • Used as villain in scandal or pivot.

  • Hearings, fines, forced governance changes, quasi-nationalization.

  • Function re-housed, equity partially rugged.

Where alpha lives:

• A→B: quiet rail → myth (max convexity).

• B→C: myth → core utility (durable compounding + vol compression).

• Avoid being the last buyer before D.

10.2 Expropriation tail

In artificial yet extreme crises:

• Function (e.g., decision OS for ISR/logistics/governance) = non-negotiable.

• Equity wrapper = negotiable. Possible:

  • windfall taxes,

  • state stakes/golden shares,

  • utility pricing,

  • forced mergers.

So:

• Prob(“rail function killed”) ~ 0.

• Prob(“shareholders partially rugged while rail preserved”) = non-zero tail.

Risk management:

• Treat state-embedded equities as rails with guaranteed role, not guaranteed smooth P&L.

• No leverage; keep some off-system, Great Taking hedges.

I could be wrong, but I think we are nearing the Great Taking.

11. Avatars: Publicly-Facing Elites as Interfaces

Publicly-facing elites (Musk, Thiel, Karp, Altman, etc.) are interfaces between Controllers and masses.

They:

• Translate Controller needs into narratives & products.

• Lobby and align coalitions across IC, regulators, primes, and allocators.

• Provide plausible deniability: looks like private “entrepreneurship”, not pure state project.

• Become memes that channel retail and foreign capital into chosen rails.

Two main origin paths:

1. Pre-baked gift:

   • Controllers know the rail they want, recruit a trusted avatar, hand them tech/resources/playbook.

2. Ex-post elevation:

   • Error rail emerges, proves useful; system converges and starts coddling & protecting the avatar.

Alpha rule:

If an avatar:

• Clearly solves a Controller pain point,

• Speaks fluently to both IC and public/LPs,

• Sits across multiple rails,

…you can front-run their elevation by owning the rails they front.

Early Karp (PLTR) and Altman (MSFT/OpenAI) used to fit this pattern extremely well.

12. Practical Ticker Playbook

For any name, you can run:

1. Role(s):

   • Control rail? Consent rail? Volatility sink? Moral placebo? Scapegoat? Sludge? Testbed? Error asset?

2. Factions:

   • Who benefits (IC, CB/Treasury, politicians, AMs, law/compliance, insurers, foreign blocs)?

   • Who is threatened?

3. Ticker vs function:

   • RailCentrality (0–10): how critical is the function?

   • TickerSpecificity (0–10): how locked to this specific company vs “any vendor”?

4. Rules & plumbing:

   • Index/ETF weight, factor labels, options depth, buyback policy.

   • Sector caps, ESG bans, foreign-ownership limits, licensing issues.

5. Lifecycle phase:

   • A (quiet), B (myth), C (utility), D (sacrifice).

6. Who eats the volatility?

   • Meant for pensions/PMCs, for retail gamblers, for scapegoat headlines, or as utility spine?

7. State capacity & Gross Consent Product (GCP):

   • Does the state have the bandwidth/capacity to clamp or protect this now?

   • Low GCP → preference for rails that automate control (ID, decision OS, CBDC plumbing).

8. Value mix:

   • Rail vs Loot vs Dumb vs Error share.

   • Max edge: Rail↑, Error↑, DoctrineLag↑.

13. Ultra-Compressed Summary

• The world is a staged system with factions of Controllers, not a free market + random shocks.

• Their objective: minimize control cost, career risk, humiliation, and legal exposure subject to keeping funding, collateral, banks, housing, pensions, and regime stability intact.

• Control is exerted through: rules, plumbing, credit, insurance, procurement, standards, and narratives, not tick-by-tick manipulation.

• Assets have roles in the regime (control rail, consent rail, vol sink, placebo, scapegoat, sludge, testbed, error asset).

• Mispricings persist because of mandate constraints, bandwidth limits, state capacity, foreign friction, and doctrine lag.

• Function is sacred; tickers are wrappers. In extreme stress, function is preserved, wrapper may be re-cut.

• Bitcoin has migrated from error asset → captured corridor: MoE frictioned, SoV allowed but paperized. Base case is containment, not annihilation.

• Low Gross Consent Product regime → preference for short shocks, fast patches, higher tolerance for inflation, and heavy investment in rails that automate governance and control.

• Edge comes from asking:

  • “What role does this play in the regime?”

  • “For which factions?”

  • “On what horizon?”

  • “Is the real thesis unsayable in an LP memo yet structurally obvious?”

Where the system structurally needs a function, but can’t yet admit the full thesis in public narratives, and the asset is still treated as an error/meme/weird outlier — that gap is where your asymmetry lives.

Make sure to not get wrecked by the Great Taking.

If you still want to play the markets game, I am of the opinion that the information in this article has to be used in combination with (1) tracking liquidity and (2) trend following to get better results.