Inevitable Shift In Systemic Risk – There For The Right Reasons by Ben Hunt, Salient Partners
A quick follow-up to “Hobson’s Choice”, the most widely-read note in the Epsilon Theory canon to date (thank you!).
First, I’ll be hosting a one hour webinar on Thursday March 31, where I’ll present the note and take questions. You can register for the webinar here (for compliance reasons, it’s limited to investment professionals and financial advisors; one hour CE credit available for those who care), and yes, replays and slides are available to registered attendees if you can’t make the live performance at 2 pm ET.
Second, an observation on the most common question I’ve received of late. To paraphrase: “Ben, you’ve written that we’re in the middle of an investable market rally. What does that mean, when you’ve also written that we’re in a world where global trade, global cooperation, and the tenets of free markets die a little more every day? How can you put money into these markets when it’s impossible to trust them on a fundamental basis?”
I call these “there for the right reasons” questions, named after the inevitable moment in every season of The Bachelor or The Bachelorette (or any dating/marriage reality show … yes, I watch a lot of TV) when suitors complain that one of their competitors is not “there for the right reasons”, that the competitor isn’t motivated by true love for the show’s object of desire, that the competitor is on the show for self-promotion rather than some noble ends, blah blah blah. Unsurprisingly, I LOVE reality TV players who aren’t there for the right reasons. You go, Justin! More power to ya, Michelle!
Why do I love these villains? Because in a meta sort of way, they are the most authentic participants on these shows. It’s television, for god’s sake! They’re all actors, just in a non-professional capacity. None of the suitors would be on the show if self-promotion, extroversion, and narcissism weren’t defining elements of their participation, but at least the villains have enough self-awareness to embrace the essence of their chosen craft.
What’s the connection to investing? It’s the market, for god’s sake! We’re all here to make money, not to be right about the world. There are no extra points for making money “for the right reasons”, like a self-sustaining recovery in the real economy, as opposed to making money “for the wrong reasons”, like a self-sustaining Narrative perpetuated by professional liars politicians, power-mad academics central bankers, and their well-compensated apologists the sell-side.
I think that I’ve got pretty good antennae for systemic risk. Right now, those antennae are not quivering. Right now, I think the market will go up or down based on “ordinary” risk, and usually that means up, as the market climbs a wall of worry comprised of non-existential worries. Not always, but usually. That’s what I mean by an investable market rally. Will this change? Will the stage on which these actors strut eventually collapse? Or at least be revealed as a stage? Sure. But that day is not today.
So how do we participate in public markets, particularly when systemic risk is in a lull, without leaving ourselves too vulnerable to the inevitable shift in systemic risk and without embracing in our heart this faux policy Narrative that common sense and a broad historical perspective reject? That’s what “Hobson’s Choice” is all about, and that’s what I’ll be talking about on Thursday. I hope you join me.
As always, feel free to forward this email to whomever you think might be interested, and all prior notes are available on the Epsilon Theory website. If you’re reading this note and you’re not yet on the direct distribution list, I’d appreciate the opportunity to add you to the list. I’m building the Adaptive Investing framework in plain sight and in real time through these notes, and I’d welcome the widest possible participation, as well as your thoughts and comments.
All the best,