Epsilon Theory

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.



Author: W. Ben Hunt, Ph.D.
Date: June 22, 2017
Category: Adaptive Investing, Monetary Policy
Tags: Trump, Fed, Yellen, Bonds, central banks, equities, data, Monty Python

A quick post-Fed follow-up to “Tell My Horse”, the best-received Epsilon Theory note to date (thank you!). I’ll jump right into what I’ve got to say, without the usual 20 pages of movie quotes and the like. Well, I’ve got one quote, because I can’t help myself. They’re the lyrics to the best break-up song ever, and they’re what Janet Yellen was singing to the market on Wednesday.

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Author: W. Ben Hunt, Ph.D.
Date: May 11, 2017
Category: Adaptive Investing, US Politics
Tags: Trump, missionaries, communication policy, John Wick, Tower of Babel, Battleship Potemkin, Westworld, Hyman Roth, gold telephone, Macron, Zuckerberg, Father Coughlin, 2% Club, Forgotten Man, symbol manipulation, Newspaper Beauty Contest

The old and powerful Tower of Babel process is starting up again, and status quo political institutions are not long for this world. Along the way, we’ll have to endure a parade of billionaires wielding political power in unprecedented ways, aided by unprecedented technologies of social control. That’s the Big Risk for everyone reading this note, regardless of your politics, regardless of your social language, regardless of your vision of the life well lived. That’s the Big Risk we have to manage, as investors and citizens, and I’ll start by tackling the investment part.

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The Horse in Motion

Author: W. Ben Hunt, Ph.D.
Date: April 3, 2017
Category: Big Data
Tags: Big Data, Muybridge, Stanford, big compute, AI, horses, Remington

In the 1870s, Eadweard Muybridge developed a technology that allowed for a quantum leap forward in how humans perceived the natural world. His findings flew in the face of the popular narrative for how the natural world of biomechanics worked, but they were true nonetheless and led to multiple useful applications over time. Today we are at the dawning of a technology that similarly allows for a quantum leap forward in how humans perceive the world, but with a focus on the social world as opposed to the natural world.

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Mailbag: Life in Trumpland

Author: W. Ben Hunt, Ph.D.
Date: March 6, 2017
Category: Reader Mail, US Politics
Tags: Lady Gaga, Trump, narrative, politics, Clinton, China, mailbag, Reagan, game of chicken

The best part about this job, other than being recognized in random bars by 50-year old financial advisors who are always good to buy me a drink (hey, you take your celebrity where you can), is the correspondence with readers. I began writing Epsilon Theory 3+ years ago and from the outset I started getting emails from really smart people, truth-seekers all, making their way in this world of mendacity and inauthenticity without succumbing to it, and it’s given me — if not an optimism — then at least the occasional absence of despair about the world my daughters will inherit. I’m going to make a regular habit of what I always found to be the most enjoyable part of Bill Simmons’ Sports Guy blog — the reader Mailbag. I got more than the usual quota of great emails from my most recent note “The Evolution of Competition,” my take on the political and social polarization running rampant in Trumpworld. So without further ado…

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I’m Not Predicting, I’m Observing

Author: W. Ben Hunt, Ph.D.
Date: March 2, 2017
Category: Game Theory
Tags: Trump, Brexit, Europe, Soros, tactical, Le Pen, Buffet, equities, stocks

George Soros has a great line, one that I’ve stolen many times: “I’m not predicting. I’m observing.” We really don’t have a crystal ball, and it really is a dumb idea to pretend that we do. But what’s not dumb is to keep your eyes and ears open, observing both what the world is telling you (playing the cards) and what other market participants are telling you (playing the players), and reacting accordingly. That’s the heart of tactical investing.

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The Evolution of Competition

Author: W. Ben Hunt, Ph.D.
Date: February 7, 2017
Category: Game Theory
Tags: Trump, Chicken, Axelrod, cooperate, defect, Prisoner’s Dilemma, Team Elite

The Trump presidency is breaking us. Not because of the specifics of his policies or whether they’re right or wrong or anything like that. It’s breaking us because we now routinely talk past or yell at our friends, family, and fellow citizens, despite vast common ground on the really big ideas of what it means to be Americans or, more fundamentally still, a good human being. Game theory can’t solve this growing discordance or reverse the evolution of competition, but it can identify the issue and maybe, just maybe, show us ways to mitigate the damage.

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Fiat Money, Fiat News

Author: W. Ben Hunt, Ph.D.
Date: January 4, 2017
Category: Big Data, Narrative
Tags: Greshams Law, Anchorman, counterfeit, cow bell, Facebook, fake news, fiat, Kurosawa, Russia, wolf trap

The history of money provides instructive lessons for the dominant social issue of the past few months: fake news. There’s an important distinction to be made between politically slanted news, like when the Washington Post writes a silly article about Russians hacking the U.S. electric grid, and outright fakery. The former is fiat news, which is to “real news” what fiat currencies like dollars and euros and yen are to “real money” like a gold coin. Fake news is something different. Fake news is counterfeit news, which is to fiat news what counterfeit bank notes are to fiat currencies. The fiat news business is booming. As a result, the counterfeit news business is booming, too. And if the history of fiat money and counterfeit money is any guide, we ain’t seen nothing yet.

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