Epsilon Theory Professional

Epsilon Theory Professional

The content below is exclusive to Epsilon Theory Professional subscribers. To learn more about this content and how to subscribe, please click HERE. If you are already a member, please make sure you are logged in.

Big Shift in January Narrative Monitors

By Ben Hunt | January 6, 2023

I expect Wall Street and financial media to trumpet the “soft landing” thesis pretty loudly over the next few weeks. Is this correct? Personally, I don’t think so. Six months from now, will we have a soft landing or a hard landing? Personally, I think it’ll be a hard landing.

But who cares what I think!

This Is the Business We Have Chosen

By Ben Hunt | December 21, 2022

If you are responsible for Other People’s Money, you sever ties with your undercapitalized, overlevered broker before there’s a run on the bank. You get out when you suspect, not when you know for sure. And if your friends are unhappy about that … well, tough.

This is the business we have chosen.

Sam Bankman-Fried and the FTX/Alameda Fraud (ET Pro edition)

By Ben Hunt | December 12, 2022

I believe quite strongly that Bankman-Fried should be questioned a) by professionals, b) under oath, and c) in a venue that allows for evidence to be presented, other witnesses to be called, and his testimony to be impeached.

Here’s the script for that!

The Good, the Bad, and the Ugly

By Ben Hunt | November 7, 2022

A big change in our narrative monitors this month!

Also, some shocking (to me, anyway) data on how good some companies are with their stock buybacks, and how ugly and bad other companies are with theirs.

I think it’s going to be a long winter in tech-world.

Mortgage Markets and History’s Rhymes

By Ben Hunt | October 21, 2022

In Q4 2007 – in the aftermath of the Bear Stearns MBS funds going out (June), the blow-up across most quant funds (August), and both autos and housing rolling over in the US – I got net short in my hedge fund and started looking for single stocks with business models that were levered to borrowing short and lending long in the structured mortgage product world.

Today I’m getting the same funny feeling about the structured mortgage product world.

Statistics and Narrative Creation (Shelter Inflation ed.)

By Ben Hunt | October 18, 2022

Everywhere you look today, you are seeing Wall Street and Washington missionaries using annualized month-over-month or quarter-over-quarter inflation statistics to “prove” their opinions that inflation is not embedded and – more importantly – their opinions that the Fed should stop hiking interest rates.

It’s a terribly flawed Cartoon of reality, but a very powerful narrative weapon.

Floating to the Surface

By Ben Hunt | October 5, 2022

My rule of thumb is that it takes about two months for the dead bodies of institutional investment firms that have been drowned by some macro turn of events to float to the surface. That’s a pretty gruesome way of making my point, and apologies for that, but it’s the best and truest analogy I could think of.

Waiting for Godot

By Ben Hunt | September 21, 2022

The math that drives 2023 dovish hopes on Wall Street and the White House is this: string 12 months of constant +0.2% month-over-month CPI readings together, and your CPI will end up at 2.43%.

Here are 4 consequences of policy makers waiting and hoping this comes to pass.

Lehman Moments, Tepper Moments, and German Economic Collapse

By Ben Hunt | August 23, 2022

Could the German situation get worse? Of course it could. Have we had a “Lehman moment” yet? No, we have not. But I don’t think we are that far away from a Lehman moment in Germany, after which further bets on the system breaking down become much less attractive as existential system risk grows much higher. I don’t think we are that far away from a Tepper moment in Germany, where risk/reward asymmetry becomes infinitely skewed to going long for those who are going to be wiped out if the system fails anyway.

Hostage Situation

By Ben Hunt | August 9, 2022

In times of profound informational need – like today when we *really* need to know if inflation is embedded in the real economy – we are desperate for data that will allow us to act with conviction. But the nature of our macro data construction guarantees we will get less accurate results during these times where we need accuracy the most.

As the kids would say, it’s just math.

A Tale of Two Inversions

By Ben Hunt | July 27, 2022

Multiple not-seen-in-a-quarter-century events have occurred over the past six weeks in rates-world. The lack of narrative attention is striking, as are the implications for the next few quarters across markets.

One Narrative To Rule Them All

By Ben Hunt | July 7, 2022

I believe that it is impossible in a robust, ie, non-financialized and non-levered macroeconomic world, for a nation’s people to be a lot richer than their economy grows.

But that’s where we are.

Weimar, War, and the Narrative of Central Bank Omnipotence

By Ben Hunt | June 21, 2022

It feels weird to be rooting for a Volcker-esque recession and long bear market as the best potential outcome for where we are today. But there are worse outcomes, like Weimar or war. And it feels like those much worse outcomes are squarely on the path of least political resistance.

The Universe is Healing … or Going Nuts, Kinda Hard to Tell

By Ben Hunt | June 6, 2022

We have two new narrative signals here in June, both Bullish in direction, which is a welcome change from the largely uniform Bearish signals of April and May.

But both on the surface and beneath the surface, there is an enormous amount of conflict and churn happening in narrative-world. Time to trim the risk sails.

Seems Like Old Times

By Ben Hunt | May 25, 2022

For a solid two years, call it early 2011 through early 2013, comparative euro-area gov’t bond yields was the first chart I’d look at in the morning and the last chart I’d look at in the evening.

Time to start doing that again.

But The US Consumer Is Strong! ™

By Ben Hunt | May 10, 2022

If there’s one Common Knowledge narrative that I think can break over the coming months, it’s But The US Consumer Is Strong! ™.

The Beatings Will Continue Until Morale Improves

By Ben Hunt | May 5, 2022

I’d like to tell you that our Narrative Monitors are not as bearish for May as they were for April.

Yep, I’d really like to tell you that.

We’re Entering a Deleveraging Cycle

By Ben Hunt | April 26, 2022

The big global risk today is not that the banks are undercapitalized. No, the big global risk today is that banks are unwilling to provide long-term financing for anything. The big global risk today is that we are only in the early innings of a profound deleveraging cycle.

Aaaaand It’s Gone

By Ben Hunt | April 6, 2022

The narrative puts and takes of March (and the resulting market rollercoaster) have coalesced into no puts and all takes. This is about as bearish a set of narrative signals for risk assets as we’ve had in a long time.

The Word of the Day is “Soothing”

By Ben Hunt | March 16, 2022

I personally thought what Powell said in his presser today was market-negative. But who cares what I think! What matters is how market participants are geared to interpret what Powell was saying, and our Narrative Machine clearly showed they would interpret it positively. No matter what he actually said.

Trading Sardines

By Ben Hunt | March 10, 2022

In commodity markets, crypto markets, and equity markets … we’re all sardine traders now.

Weeks Where Decades Happen

By Ben Hunt | February 27, 2022

I don’t think the proposed Russia sanctions are likely to trigger a systemic financial crisis, and I think Putin’s nuclear saber-rattling is posturing for Ukrainian settlement negotiations. I really don’t see the path to a global crisis here. Famous last words, I know …

The Inflation Narrative’s Third Act

By Ben Hunt | February 8, 2022

The structure of a market narrative isn’t as settled or as constructed as a Hollywood script, but it’s not too far off, either.

We’re in Act Three of the inflation narrative.

A Shortseller’s Perspective

By Ben Hunt | January 24, 2022

I am a shortseller by nature and (former) profession. Like my favorite comic book character, Karnak the Inhuman, my superpower is to see the flaw in all things, which doesn’t exactly make me much fun at cocktail parties but is a (sometimes) valuable skill for a portfolio manager.

So here’s my perspective on what’s happening … one big place where my spidey-sense is tingling and one big place where it’s not.

Narrative Monitors

June 2024

May 2024

April 2024

March 2024

February 2024

January 2024

December 2023

November 2023

October 2023

September 2023

August 2023

July 2023

June 2023

May 2023

April 2023

March 2023

February 2023

January 2023

December 2022

November 2022

October 2022

September 2022

August 2022

July 2022

June 2022