Epsilon Theory is Dr. Ben Hunt’s ongoing examination of the narrative machine driving human behavior, political policy and, ultimately, capital markets—an unconventional worldview best understood through the lenses of history, game theory and philosophy.
Ben’s originally from Alabama but now lives out in the wilds of Fairfield County, Connecticut, on a “farm” of 44 acres. While his pre-electrification, dairy farmer grandfather may’ve laughed at his calling his modest spread a farm, Ben’s learned a few things over the years from the farm and its animals, and they’ve helped him become a better investor. Here are his notes from the field in this regular Epsilon Theory feature.
From our A-Team of seasoned subject matter experts, the Narrative is an evolving stream of perspectives and insights on a broad range of financial subjects and asset classes. Please read, enjoy and share.
To understand the impact of catalytic narrative forces, we have to monitor the vital signs of the capital markets they affect. To analyze the big picture through the lenses of game theory and history, we must also examine the details through lenses like volatility, momentum, income, correlation and inflation. These are the indicators of systemic vitality and stress—the fine details we use to fine-tune our worldview. We hope they help you sharpen your understanding of the investable universe.
Dr. Ben Hunt hosts the Epsilon Theory podcast with co-hosts and special guests from financial services, the financial media *gasp* and beyond. The Epsilon Theory podcast is the quickest way to get all of the unconventional perspective, historical context and narrative analysis you’ve come to expect from Epsilon Theory pumped directly into your head.
We’re growing our family of Epsilon Theory contributors to include a broad range of voices on an evolving range of subject matter. If you listen to the podcast, you’ll recognize some of the names as colleagues, partners and friends of Ben from Salient, any number of past lives, and the growing circle of outspoken truth-seekers in financial services and beyond.
Epsilon Theory author Dr. Ben Hunt is frequently quoted in print, radio and TV appearances.
Salient Partners is the proud parent company of Epsilon Theory. Salient is a diversified asset management firm and leading provider of real asset and alternative investment strategies for institutional investors and investment advisors.
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I grew up in Houston wanting to be a general manager of a professional sports team. My 7th-grade buddies and I were some of the first ever fantasy sports players back in the mid-80s, except back then it was called Rotisserie Baseball (Daniel Okrent literally wrote the book on how to play, and his first league draft was held at Rotisserie Bird and Beef in NYC — here’s a great article on the origin story of what is now a multi-billion dollar industry).
Unfortunately for me, I didn’t have playing experience like Billy Beane or happen to work for a private equity gazillionaire who bought a team (Andrew Friedman, another Houstonian who ran the Devil Rays and now the Dodgers) or develop a deep understanding of statistics (Daryl Morey and Sam Hinkie of the Rockets), so I was never able to parlay my Apple IIe player value spreadsheets into a real-life GM job. However, I get to play GM in this business that we’ve built at Salient, and Ben’s not the only talent I can claim (some) credit for “drafting.” Thousands of you have already read “A Man Must Have a Code”, the fantastic debut piece from the head of Salient’s asset management business, Rusty Guinn, and we’re going to be featuring a select group of these other Ben-approved colleague-contributors.
The asset management firm that I co-founded in 2002, Salient, manages a risk parity strategy similar to Bridgewater’s All-Weather Fund, and I’d flirted with being a gold bug for a few years, so I was naturally drawn to this note; before I’d made it to the second page, I was hooked. I felt like I was reading the pre-ESPN, pre-HBO version of Bill Simmons, when he was the Boston Sports Guy. Ben was mixing pop culture, literature, history and science, all in an effort to help his readers understand what was driving our post-crisis financial markets.
And it wasn’t flash — it worked. I finally understood why I had been so puzzled – and wrong – about gold price movements for the preceding couple of years. And Ben’s comments on the All-Weather Fund evinced a solid understanding of the strategy, which was and has remained rare for financial media types.
So I called Ben and asked him to meet with me. He knew Salient, since we had been an investor in a hedge fund he managed while at Iridian, and after we flew him down to Houston to meet with our team, we convinced him to join our firm and help our portfolio managers better understand the macro side of the markets, and to continue to write Epsilon Theory to help investors across the world with the same thing.
Somehow, we’ve been working together now for more than three years, and the new Epsilon Theory site, developed in-house by our fabulous creative team, not only includes all of Ben’s previous notes with customized image collages, but serves as a home base for a broader group of contributors and readers as Epsilon Theory develops into a community for those of us interested in understanding what drives markets.
This new Epsilon Theory site is separate from our Salient mothership at www.salientpartners.com, but Ben remains a bigger part of Salient than he’s ever been, whether that’s in helping some of our other portfolio managers understand these markets or managing money himself on behalf of our clients. We’re committed to growing this Epsilon Theory community as a stand-alone site and hope you’ll not only continue to read and listen to Ben, but start to sample some of the other content we’ll be adding to the site, and of course help us grow this community of truth-seekers by spreading the word and inviting others to join us.
As far as what you can expect from me going forward as a contributor to Epsilon Theory, it’s important to me to follow the advice of Bill Belichik and “do my job” — so I promise to not to confuse the talent scout with the talent. However, if I have a skill set relevant to Epsilon Theory beyond talent-spotting, it’s in sharing or synthesizing some of the interesting news, articles and points of view I come across in my daily readings. I’ll be curating concise versions of my deep dives into a wide range of Epsilon Theory-esque subjects, and I hope you’ll come along for the ride.
Just to give you a taste of the type of rabbit holes I’ll be going down, check out “The War on Bad Science” starting with Wired’s profile on John Arnold. The Houston billionaire and his wife are challenging the fundamental structure of how scientific research is conducted, and their foundation’s work has broad implications across the scientific spectrum, from nutrition to psychology. This thing goes deep, and it has the potential to shatter many of our preconceived, scientifically-approved notions of the world.