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.
How do we change the world? Not through corporations and political parties from the top-down, but through free-thinking citizens from the bottom-up. Not as an alienated flock, but as a cooperative pack. Not with abstractions and transactions, but with making, protecting and teaching.
We are now more than 900 Pack members strong on the ET Forum, with more than 1,000 posts contributed by smart, clear-eyed, full-hearted people from all over the world and all walks of life. Like you.
Here, I’ll show you. Here is some of the best and most thoughtful content on the internet today.
Here is the Mailbag that we need.
Here is the Mailbag that we deserve.
Modeling common knowledge by analyzing missionary statements and their reverberations works. Except when it doesn’t.
Understanding changes in the big, zeitgeist-defining narratives, in the water in which we swim, means developing a way of thinking about the barriers that make it harder for the crowd to change its mind.
Three blow-ups in three months: Archegos, Greensill, and Melvin Capital.
What do they have in common? Insane leverage employed to maximize private gain while socializing potential losses.
What do you get when you give a raccoon like Bill Hwang tens of billions of dollars AND invisibility from regulators so that he can run his collusion and insider trading schemes to his heart’s content? You get a rolling series of squeezes and corners. You get a market that is completely disconnected from reality. You get ridiculous Chinese companies pumped and dumped through US listings. You get a Tesla that’s valued at a trillion dollars. You get Gamestop.
I’m not saying that Hwang is responsible for all of this. I think he’s responsible for some of this. And I think there are a lot more Bill Hwangs out there.
ET contributor Brent Donnelly talks with Howard Marks about why traditional value investing is likely permanently impaired as a strategy and why Growth vs. Value is a false dichotomy. Boomshakalaka!
We’re going to Pack-source a slate of investment strategies for an inflationary world. Here are five tentpoles to organize and support that effort.
I think that the collapse of Greensill Capital has a lot of systemic risk embedded within it, particularly as the fraudulent deals between Greensill and its major sponsors – Softbank and Credit Suisse – come to light.
This is the first Big Fraud I’ve seen in 13 years with the sheer heft and star power to ripple through markets in a systemic way. Not since Madoff.
Excessive complexity in a deal or structure isn’t necessarily nefarious, but it also isn’t a good sign. The distraction and confusion you and I feel reading about these deals is usually not the problem.
It is the point.
An in-depth look at the interdependence of inflation, Treasury supply, and the Fed reaction function.
Bottom line: inflation is the Fed’s kryptonite.
In 2008, the US housing market – together with a Fed that thought the subprime crisis was “contained” – delivered the mother of all deflationary shocks to the global economy.
In 2021, the US housing market – together with a Fed that thinks inflationary pressures are “transitory” – risks delivering the mother of all inflationary shocks.
The ET Pack is going to figure this out … together.
Very little investing today is buying and selling shares of common stock in individual companies. Instead, we buy and sell what Wall Street calls “products” – mutual funds, ETFs, options, REITs, SPACs, etc.
Dave Nadig, who literally wrote the book on ETFs, helps us understand the history and future of the business of Wall Street.
In the same way that narrative shaped a conversation about the role of police going forward in 2020, narrative can shape a conversation about the role of teacher unions and public sector unions more broadly. My money is still on the status quo, but I’ve been wrong before.
Every political movement has a political philosophy, and for Trumpism and MAGA it’s the Dominion theology of the charismatic/Pentecostal church.
Neither the rise of Donald Trump nor the attack on our Capitol can be understood without an examination of this faith and its constructed political narratives.
Believe it or not.
What’s happening with Reddit and Gamestop and Robinhood is a revolution, but not the revolution you think.
This isn’t a “democratization” of Wall Street. You were played. Again.
It’s a revolution in Common Knowledge. And that changes everything. Again.
You have been told that the odds are ever in your favor. You have been told this for your entire life.
More and more, you suspect this is a lie.
Over the past few weeks you have been told a new story. A brave story. You have been told that by banding together and acting as one, you can “democratize” the stock market.
Today, as you see the collapsing stock prices of the companies you supported, you suspect that this was a lie, as well.
What’s happening now in equity markets isn’t the product of some paradigmatic democratization of finance. It’s just another bubble that will end badly.
The Very Serious Investor is quite disturbed by recent goings-on in illiquid, small cap stocks with high short interests. These happenings represent an assault not only on the Very Serious Investor’s livelihood, but his entire cosmology. People placing profitable discretionary trades in the financial markets when they lack even a single Ivy League degree. Imagine!
No, the real story here probably isn’t about a revolution against Wall Street. But that doesn’t mean that there isn’t an opportunity to build a movement – right now – to transform it toward fair, free and open markets.
The South African variant virus (501.V2) is not the immediate threat to the United States as the UK variant virus (B117). But 501.V2 has the potential to create a far more powerful narrative – vaccine resistance – that can have a greater market impact than the more pressing issues of B117.
More and more, I think the variant viruses create a tradeable event for markets.