Epsilon Theory In Full

 

The soul of Epsilon Theory is our long-form content, a library of hundreds of pieces written by Ben, Rusty and others over the course of the last 5+ years. These are the print-and-take-home-for the weekend notes that made Epsilon Theory what it is today.

The Spanish Prisoner

By Ben Hunt | July 7, 2019 | 26 Comments

Mark Zuckerberg is not The Spanish Prisoner. He’s the guy running the con.

Libra, the cryptocoin promoted by Facebook, is a classic Spanish Prisoner con. This is how the State and the Oligarchy co-opt crypto. Not with the heel of a jackboot. But with the glamour of convenience and narrative.

Bitcoin will be permanently diminished in its social importance by the adoption of Libra and other Oligarchy-sponsored and State-embracing crypto currencies. Bitcoin will never again MEAN what it used to mean.

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Life in the Gyre

By Rusty Guinn | July 2, 2019 | 12 Comments

I was mad, and I was going to write an article about what had made me mad.

Except I was wrong. And the truth about what is happening in media should be much more concerning. It is seductive in ways that will make it difficult to resist for anyone who hasn’t decided to pay attention to those who would tell us what the crowd thinks the crowd thinks.

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The Half-Happy Horror

By Rusty Guinn | June 21, 2019 | 2 Comments

The Half-Happy Horror is the realization that pursuit of multiple objectives can end up with a baby split in two.

At best we give lip service to secondary or tertiary goals, all as part of some cartoon we’ve constructed about our “process”.

Yes, optimization is a scourge, and it hits every aspect of modern life. It hits the professional investor hardest of all.

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In the Trenches: Cake

By Peter Cecchini | June 19, 2019 | 1 Comment

The recent rally in U.S. equities is largely a result of market participants believing they can have their rate-cut cake and eat it, too.

ET contributor Pete Cecchini doesn’t think the Fed will cut rates proactively. Will they cut? Sure. But only if the real-world economic data deteriorates further. Which it probably will.

But don’t eat that cake just yet.

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After All, We Are Not Communists

By Ben Hunt | June 18, 2019 | 4 Comments

It’s all been leading up to this.

We’re sharing the summary results of our core investment research project with the Narrative Machine.

If you’ve ever wondered, “Gosh, how DO you apply these cool narrative maps to an actual investment strategy?” … well, here’s your answer.

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A Song of Ice and Fire

By Ben Hunt | May 27, 2019 | 13 Comments

We are the human animal.

We are non-linear.

We ARE a song of ice and fire.

It’s a song that has built cathedrals and fed billions and taken us to the moon. It’s a song that can do all of that and more … far, far more … if only we remember the tune.

The Pack remembers.

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Wage Growth, Groucho Marx Edition

By Ben Hunt | May 7, 2019 | 3 Comments

Wage stagnation in 2016 was actually much worse than you were told. Did this make a difference in the Midwestern states that swung the election, in that actual labor conditions were worse than everyone thought they were? I think yes.

Wage growth in 2018 was actually much better than you were told. Did this make a difference in the current Fed/Wall Street/White House narrative that inflation is dead and the easy money punchbowl can be maintained without consequence? I think yes.

For a few days, we’re making this ET Professional note available to everyone to review. We think the ET Pro service is something that every portfolio allocation, wealth management and active investment team can find useful, particularly for risk management.

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In the Trenches: Less Is More

By Peter Cecchini | May 2, 2019 | 1 Comment

At some point, all Fed Chairs learn that their primary function is just to wave their hands. Jay Powell has learned this sooner than most.

ET contributor Pete Cecchini goes way off the Wall Street reservation with this: the bullish narrative for U.S. equity risk makes sense only if one accepts a narrative that the Fed will proactively move to prevent a U.S. slowdown before it happens.

Don’t believe it.

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Starry Eyes and Starry Skies

By Rusty Guinn | April 29, 2019 | 8 Comments

The student loan crisis is a Big Deal. And it is only a part of a Bigger Deal: the Myth of College.

This issue will be front-and-center in the upcoming elections. We will all be handed our very own ‘Yay, College’ signs to raise high. More often than not, we will be asked to raise them in service of market-distorting policies which will make our problems worse.

You don’t hate education, innovation, progress, equality and merit-based reward systems…do you?

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Notes from the Diamond #7: Hittin ‘Em Where They Ain’t (Part 2)

By David Salem | April 25, 2019 | 20 Comments

ET contributor David Salem is back with five core tenets for achieving 5+% real returns over the next few decades.

It’s all a must-read, but I’m gonna highlight #4: “Favor equity investments in companies employing or serving primarily people with abundance as distinct from scarcity mindsets.”

This is the foundation for behavioral economics on a macro scale.

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This is Water

By Ben Hunt | April 17, 2019 | 16 Comments

Time to add a fourth shift in the Zeitgeist: capitalist productivity, now 200+ years old, is becoming capitalist financialization.

Wall Street gets something to sell, management gets stock-based comp, the Fed gets a (very) grateful Wall Street, and the White House gets re-election.

What do YOU get out of financialization? You get to hold up a card that says “Yay, capitalism!”.

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The Epsilon Strategy

By Ben Hunt | March 25, 2019 | 11 Comments

We can be better investors. Not by playing the cards we’re dealt any harder. But by playing the other players at the table a lot smarter.

It’s a new technology applied to an old investment strategy. It’s a new way to think about money flows and investor behaviors.

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Pricing Power (pt. 3) – Government Collaboration

By Ben Hunt | February 24, 2019 | 10 Comments

What killing active investment management? It’s not some monster hiding behind the rabbit. No, it IS the little white bunny. It’s the Zeitgeist of capital markets transformed into a political utility, innocuous on the surface … but with killer teeth.

How do you defeat the Zeitgeist? You don’t. The smart move, in fact, is to help the killer rabbit.

But there IS another way.

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Notes from the Diamond #6: Hittin’ ‘Em Where They Ain’t (Part 1)

By David Salem | February 14, 2019 | 0 Comments

In baseball and in investing, how do we distinguish truly great practitioners from merely good ones? Let’s start by looking at two greats who revolutionized how the game is played – Branch Rickey in baseball and David Swensen in investing.

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The Road to Tannu Tuva, Pt. 2

By Rusty Guinn | January 29, 2019 | 0 Comments

The next stops in our discovery of the process of discovery? A town of 1,282 people and the mind of a German physicist named Arnold Sommerfeld.

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You Are Here

By Ben Hunt | January 11, 2019 | 27 Comments

The greatest risk to your portfolio is a change in the zeitgeist. A change from deflation to inflation. A change from cooperative international games to competitive games. A change from capital markets to political utilities.

I think it’s all happening.

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The Road to Tannu Tuva, Pt. 1

By Rusty Guinn | December 19, 2018 | 5 Comments

When our processes of inquiry lack challenge, doubt and obsession with falsifying our best ideas, the result is inevitable. Our conclusions cease to be science and become something else entirely. That something else is a thing sensitive to narrative, vulnerable to priors and bias. That something else is scientism.

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Even When I Lie

By Rusty Guinn | November 28, 2018 | 28 Comments

The way I see it, there are three reasons a person becomes a liar: he believes that he must, he believes that he may, or he believes it serves a Greater Truth.

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Things Fall Apart (Part 3) – Politics

By Ben Hunt | November 19, 2018 | 15 Comments

Take back your vote.
Take back your distance.
Take back your data.

How to make our way as citizens in a fallen world, with Clear Eyes and Full Hearts to make it better.

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Notes from the Diamond #4: Less Is More

By David Salem | November 10, 2018 | 2 Comments

Peer group comparisons are the primary measuring stick of both baseball GMs and investment PMs. Here’s how they are used and (more often) abused.

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