Grant Williams in Conversation with Ben Hunt

GW: And we can leap ahead. We know where the story is going, so we can pre-react to it.

BH: We know where the story is going, right. And so, that's what politicians have known this for
thousands of years. Ad guys know this. A good trader-- someone who is being the middleman
who creates a story, right, around their wares. So this is not new. There's nothing new about this.
What is new-- two things. One, central bankers finally figured this out. And that's why we have--
every day, you trip over yourself finding another Fed governor giving a speech or the like. It's a
very conscious policy. It is absolutely part of this. That's where narrative comes from. It really is
hardwired in us. We are trained to respond to this stuff. It makes us very successful. I wouldn't
take it away for the world because just like the ant, and the bee, and the termite, our ability to
communicate, and our puppet strings, because the communication, is how and why we build
cathedrals, and go to the moon, and do all the great stuff that we do as a crowd. But it's also
responsible for some of the most terrible stuff we do. And it's also responsible for the way in which
our individuality, our small L liberal virtues, are-- not to put too fine a point on it-- crushed. And
that's the resistance that I'm interested in.

GW: How do people resist this? It does seem almost impossible. And even for the people to
understand they should resist it, they'll say that resistance is futile. Maybe it is. Maybe it isn't. But
how should people go about that?

BH: Well, you're never going to isolate yourself from these folks. And you wouldn't want to. But
you can insulate yourself. And I think the most important way to do this-- and this is something
everyone can do-- is not to read more or read less. Read differently. Read differently. And what I
try to do whenever I read an article in the journal, or I'm listening to CNBC, ask yourself, why?
Why now? It's so rare that it's actually a breaking piece of news. And what is rampant today is
what I call Fiat news. It's a Fiat currency. We're creating currency, money, out of our
imaginations. Fiat news is really the creation. We're going to call it news, but it's really opinion.

GW: Yes, that’s so true.

BH: It's really opinion.

GW: Everything's opinion these days.

BH: And this is what everyone tries to do. Again, I don't mean this as a bad thing. But this is what
politicians, or bankers, or investors, or anyone who gets in front of a camera-- it's what we're
doing right now-- we're not just shaking our finger at people, we're not just telling them what,
we're not just telling them the facts. We're trying to tell them how to think about those facts. And
when it's presented as fact, as news, that's what we are bombarded with. So this is my first line of
defense-- to ask, why? Why now? Why am I being shown this piece of information? Why is this
article being written? Once you just kind of inject that very-easy level of critical thinking-- why--
then it helps. It helps. It's like an inoculation. It's like that article-- that piece of news-- was written
for a purpose.

GW: Correct. Yeah.

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BH: Today, our ability to participate and draw ourselves in so that we take the bit is so ubiquitous.

GW: Yeah. That's so true.

BH: And it's taking advantage of how we are hardwired, to social animals, in the same way that
that Mustang can't help herself but come initiate the contact. Say, hey, what are you doing there?
OK, you're going to put this on? OK, can I be part of this? We're the same way. We're exactly
the same way.

GW: Finance is filled with questions. And although the one everybody wants the answer to is
"when," that, in practical terms, is unanswerable. And so it's "how," and particularly, "why," which
are, perhaps, the most important for investors to ask. Ben has a unique gift in being able to
communicate not just the reasons why those questions are so important to ask, but to help
investors apply what they learn from them the ever-shifting landscape around us.

So Ben, let's talk about the world. Let's talk about the world through this prism of—

BH: Narrative?

GW: --narrative. Because it seems to me, everywhere I look-- there's a narrative. And I think what
you do in raising people's awareness that the narrative is a thing is a blessing and a curse
because suddenly, you start seeing them everywhere.

BH: That's right.

GW: And once you realize it, you can't switch off. So what's the single-most important narrative
you think that people need to understand right now?

BH: Well, first of all, you're right about the ubiquity of narrative. And frankly, I find that most
investors have seen narratives-- particularly, growth-stock investors-- have seen narratives. You
hear a lot of people talking about the story around a stock. And certainly, the sell-side analysts,
the street analysts-- they're often very consciously talking about the story of the stock, or the like.
So this notion that there are stories in markets is not it's not foreign, really, to most investors. What
I think requires kind of stepping back a little bit and thinking about, though, is that while we're
familiar with the story about a company or a stock, we also, if you step back, think about the big
stories you're taught, the big story around passive investing, the big story around trade wars, the
big story around inflation, the big story around growth investing-- these different styles of
investing. I'll pick on investing in quality for a second-- quality-based investing.

And what I would say is that I would bet that pretty much everyone listening to this interview, and
certainly, for me-- we believe in quality that-- all right I want to buy the stock in companies with a
good management team, and growing earnings, and a fortress balance sheet. Or if I'm a fixed-
income investor, I want to buy the bonds of the companies that have those qualities. I want to buy

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the bonds of the countries that are quality. And I want to at least avoid, and if I'm more
aggressive, I want to short the crappy companies-- the lack of quality.

What I'm coming to grips with is-- and I think it's the fact that-- I think it is a fact-- that that belief in
quality-- that's a narrative too. It is it's true a lot of times. Like most stories or true a lot of times. But
the way it motivates us is through its storytelling qualities. So you ask, what are the most
prominent to it? And so I'll say that thinking about value, and growth, and quality as stories is kind
of the PhD topic-- that's kind of the advanced study-- so if we're kind of thinking of a continuum of
these things, it's stories about companies. Like, what's the story about Tesla? Or what's the story
about IBM? Everyone can kind of, OK, yeah, I'm familiar with that. On the far end, what I'd like
to convince everyone is that things like, growth and value-- those are stories too. In the middle
here is things like the story around inflation and the story around trade. So let's start with those.
And what you can do, I think, today, is with these technologies that are based around what's
called "Natural Language Processing," NLP-- it's a branch of artificial intelligence. The thing is very
powerful. It's a way to apply the massive processing power that drives big data and AI-- but to do
it in a very specific way.

And the very specific way is to read—read all the articles, all the transcripts, all the recordings, of
the transcripts of every CNBC episode, and the like-- not as a human does, where we're doing
serially and very selectively, and read this article or that article-- but to read them all, and then to
compare them all with each other so that we can really, again, visualize. We can measure, and
we can visualize how the story shares certain elements. The story around inflation may be around,
well, this is a trade-driven issue. It's a dollar-driven issue. It's inflation for the right reasons-- robust
growth, or for the bad reasons-- the government's borrowed too much money. We can actually,
now, measure and track the waxing and waning of these stories that we're all immersed to and
we're all swimming in. But we now have the technology to actually be somewhat, I think, rigorous
about it.

So we do have this technology now that, through this approach called "natural language
processing"-- I really do think it allows us to actually measure words and narrative for the first
time. You can actually measure all of the articles, for example, that are published on Bloomberg
that mention inflation at all. And with no human intervention and no human biases associated to it,
we'll see what stories are being told there. What are the common elements of these different
articles? And how do these clusters-- how do they grow and dissipate over time? This is the whole
notion. I don't have the algorithm to say, oh, a year from now, here's what the story about
inflation is going to be. But I can't tell you what it is now, and how it is changing, and so it's going
to be in the near future.

GW: So if you can tell that the inflation narrative, for example, is dissipating, that gives you the
information to do all kinds of things.

BH: For you to make up your own mind because we're all smart enough, I think, if we apply
ourselves to make up our own damn mind about what's happening in the world and how to invest,
what is useful, I think, is to see, again to-- I keep coming back to visualizing-- to actually see the
sum total of all these other voices and missionaries who are trying to shake their finger at us and

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tell us how to think about it. We can actually see it. We can step back from it and see these
influences that are acting on all of us, and say, all right, that's going to inform how I invest in my
future.

GW: But I guess the other thing it shows the ability to understand at what point that influence is
most powerful, without being sucked in.

BH: Grant, that's exactly it. What I think it really does-- and I think a lot of people are watching
this are going to be very familiar with what I'm describing-- whether you're talking about value
investing in buying something for it to go up because the market, the world, doesn't see the value
that you see in that company or that stock. Or if it's somebody who's shorting something--
somebody who says, look, OK, guys, you're getting suckered in by all this. It ain't all that. And
there's going to be an event some time where everybody is going to wake up and say, oh, my
god. You're right. And then I'll be paid off for that. It's about timing. It's about timing, and it's
about these behavioral drivers of timing of crowd behavior. That's what I think we're finally
getting a glimpse of. And we're just at the early stages of this. And that's why it's so exciting to be
at this stage of this development because I think it opens up an entirely new avenue, entirely new
vista. For investors to appreciate these things.

So on inflation, specifically, when you look at what I call the "narrative map of inflation"-- and
again, I'm talking about these media platforms that are crucial for developing the common
knowledge of professional investors. Really, there are only a couple. Really, there are only a
couple. There is Bloomberg; there is, God help us, CNBC; there's The Journal. And then
particularly, outside the US, there's the FT. That's it. That's it. And what I mean "that's it"-- I don't
mean that other places don't present opinions and have missionaries. What I mean is that for
professional investors, if we see an article in the journal, we all assume that every other
professional investor now knows about it. And that's what common knowledge is. It's not
necessarily public information. It's information we believe everyone else possesses. That's what
common knowledge is.

GW: Right.

BH: So that's why it's so important for people who want to pull our strings to get access to these
platforms. And that's the great power that a politician, or a central banker, or a famous investor
has. They can present their opinion presented as fact. And then and that really will change
behavior, depending on how influential that missionary is. And you can actually measure this stuff
now. You can measure how influential the different missionaries are. As you'd expect, the two
most powerful missionaries in the world are whoever is the Chairman of the Federal Reserve and
whoever is the president of the ECB. So right now, Powell and Draghi are, by far, by an order of
magnitude, more influential in shaping, creating these narratives than any one else--like, 1/10 the
influence of a Powell or a Draghi is going to be a Trump or a Merckel. Well, the story we
believed in-- value investing or quality investing-- it's not that it went away-- this is the point of the
three-body problem-- it just doesn't matter as much anymore.

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GW: Yeah. But what does that mean it doesn't matter as much anymore, and that's a forward-
looking statement. Or is that, are we at a moment in time? You spend your life in this business.
And you experience things, and you read history, and you understand you haven't you have an
understanding of how things work. And I think that's all been upended by exactly what you talk
about. But it feels to me as though, at some point, if history is any guide-- and it normally is a
pretty good one-- that the pendulum has to go back to a point where the stuff does matter. But
maybe that's changed now.

BH: Well I don't think that the role of value has gone away. And this is again, that notion of the
three-body problem. Let's say that value exerts gravity and that it's been eclipsed for now. And it's
influenced by this enormous gravitational body of $20 trillion worth of force of buying stuff. If
that's all there is, right then Marx, well, all right, it's not still growing, the gravity is not getting
bigger. It will still play a role. And the bodies will swing around so that, at some point, value will
really pull on us. And value will really work. What I'm trying to say is that because it hasn't
worked for so long, and because you do have this new big gravitational body of central banks--
and that's not going away--

GW: Right, well, it can't.

BH: It's not that it's not that value doesn't exist anymore or value doesn't work anymore. It's that
it's going to work differently. What do I mean by that? What I mean by that is that the impact of
central bank buying-- the mechanistic $20 trillion, and the impact of everybody is now in on the
act of creating narratives and doing it in a very effective way-- what I think that means is these
things create what I call, "meta stability." And what I mean by that is that the period of time where
value doesn't work is going to, I think, last a lot longer than it has in the past. And that's so
difficult for people in our business.

GW: Yeah, particularly value investors because they don't believe in anything else.

BH: And what I'm saying is that it's not just value. It's also growth. It's also momentum. What I
think it means for value investing or growth, or any of these ideas that we have about investing, is
that it's going to be more and more constrained, pushed down, at times, propped up, like growth
investing has been, by the narrative. What I think that narrative and our reliance on it today-- the
way I think it impacts us is it makes these periods of under-performance and the periods of out-
performance last for a lot longer than they otherwise would, which is really hard if you're out of
favor, and really nice if you're in favor. The world is different. It doesn't mean that value will
never work and it's not a thing. It is a thing. But its impact is going to be, I think, more muted, or
more constrained, by these other very powerful forces.

And in a lot of ways, the great financial crisis and then the willingness, and the ability of central
banks to come in and prop the entire system up-- I think it saved the world in March of '09. I really
do. But we've seen this in other periods of enormous debt-- the 1870s, the 1930s, where
emergency government action becomes permanent government policy. And I'm saying that's good
or that's bad. I'm just saying it is.

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GW: Yeah, it is. Yeah.

BH: And so that's what we have to recognize about our world today so that if went back from two
years ago to one year ago, and you take a narrative snapshot of all the articles that talk about
inflation in these major-media megaphones, or platforms, the inflation narrative was peripheral,
meaning the articles that would talk about inflation weren't really about inflation. They were about
some Fed meeting, or Trump campaign speech, oh, and this would have this sort of impact on
inflation. It was a throwaway line. Over the past year, enormous change-- not just more articles,
although yes, that-- but the articles now-- and you can see this. You can visualize this with this
technology. The articles now are at the heart of conversations of stories that we are being hit with
about what's important in the markets. So it's all of the strategist for all the big Wall Street firms.
They all are writing about inflation. And two years ago, they weren't. Today, they are. Today, the
article about the jobs number is about the wage inflation. That's what it's about. And you can
actually see that in the data-- this measurement.

So what are we waiting for? What triggers what I think we saw kind of in a mild way that first
week in February of this year, where markets sold off so dramatically after we had a hot wage-
inflation number that first Friday in April, and people said, oh, my god, is inflation here-- what we
have right now-- and this is at the core of the common-knowledge game. We have the crowd of
professional investors. Were all looking around each other, saying, is inflation a problem? Should
we be worried about it? Are you worried about it? I'm kind of of thinking about inflation. Are you
thinking about it? Yeah, I'm thinking about inflation. And you see that in what I'll call all the
"articles" about it. What turns that tinder into a fire is the statement of the missionary. It's then in
the statement of a Powell, who says, you know what? Yeah, we feel like we're behind the curve a
little bit. We're kind of worried about wage inflation. That's the sort of missionary statement where
then that's the freak-out moment. So you what I'm saying is that we can use these tools and this
technology to identify the, I'll call it the "necessary conditions" for the story changing and
breaking. And then I don't have the algorithm. Then it's when you have a missionary make that
statement. That's when the story breaks. And that's when you have these big inflection moments.
And that's though, how you can set up trades in advance of that. That's how you work on the
timing because if you have a missionary statement without the necessary conditions of, are you
thinking about inflation? I'm thinking about it.

GW: It doesn't have the same effect.

BH: It doesn't have the same effect, right. And so that that's why I think this is really, a new way of
trying to improve the timing. And I know that's a bad word. Oh, you can't time markets. What I'm
saying is you can see the dynamics of these narrative changes. You can see them grow. You can
see them decline. And it's a new input for how to think about any sort of investing-- value investing
on individual stocks, macro investing on countries and large markets. Whatever your aspect of
investing is, understanding what is, and be able to see it, and then be able to know how one
reacts when you get that spark from a missionary statement-- that's what I think is really possible
now and I'm really trying to write about.

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GW: A big part of Ben's work in Epsilon Theory is to help educate investors about the importance
of understanding what is, and to help them think about markets and investing in a different and
original way. By doing so, he opens up outcomes that many simply wouldn't have deemed
possible. But there's one corner of financial markets where all the aspects of Epsilon Theory seem
to coalesce. And it's something about which Ben has written some of his most opinionated
commentary.

What fascinates me about this is for the first time ever for me, there are supremely intelligent
people, who I have the utmost respect for, telling me completely different things.

BH: Very different things, yeah.

GW: I've got you on one end. I've got Mark Yusko and John Burbank on the other. And I have
nothing but tremendous respect for all of you. And yet, the message is so different. But in Bitcoin,
you can see missionaries. You can see narrative. You can see common knowledge. So let's talk
about the cryptocurrency space and how you see everything that you do, through the Epsilon
Theory lens, represent itself in that space.

BH: So I'll start with this. I mentioned earlier how when the fundamentals don't seem to matter as
much-- and again, I think that happen for all investors after March of 2009 and with the central
banks buying so much stuff, and lifting all the price of all securities-- not just quality securities, or
value, or what have you. It was a rising tide that truly lifted all votes. What happens when the
fundamentals, like quality, or value, or the like, don't matter as much anymore is that the power of
narrative that we ascribe to why things go up and down-- it becomes so much more powerful.

GW: Yeah, right.

BH: And what crypto has-- what I believe is that fundamentals are nonexistent in crypto. So I'm
going to start with that premise because if you are someone who says, no, look, I actually think
there is fundamental value in Bitcoin, well, I don't have a lot to say, again. So therefore, I just
don't think that's right. So what I'm starting from is a place from a pure narrative. And pure
narrative-- there can be long-lasting and decent value in that. But when I look at the narratives that
are at play with crypto and how those narratives have waxed and waned with time, my view
remains that yes, there is some value. But it's pretty mediocre-- I'll call it "value." There's a pretty
mediocre price that I would assign to that. So at what price what I buy Bitcoin? I'd buy it at
$1,000. Because it's interesting to me because I value it for its elegance and its art. And I know
that sounds pejorative to say that it's an elegant piece of art. But it but in my book, it's not. That's
kind of the highest praise I can give something.

GW: Right, Plus, you're entitled to that assessment of it. This is the thing. There are so many--

BH: That’s what I think it is because I think that has been the dominant narrative around Bitcoin.
And again, I used this phrase. And it's a little--But I think it's an effete act of rebellion. Owning
Bitcoin right has been a source of identity. As a Bitcoin owner, I am I'm fighting the man a little bit.
To me, owning Bitcoin is like getting a tattoo but getting it on your upper arm, where you can hide

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it with your sleeve. It's a mild way of expressing an identity as a rebel. And here's the story that I
think that has really damaged crypto in general the most, including Bitcoin, has been the growth
of a story. And it is a narrative-- like all narratives, with a grain of truth-- that governments are
going to shut it down. And I think that that's the narrative that's in the ascendancy today, as
opposed to the narrative of, oh, this is my way of--

GW: Getting out of the system.

BH: Getting out of the system, right? So when I look at the competing narratives around crypto,
that's what I think when I step back. Gold is a story too. It's just it's just a story that has a lot more
time and weight behind.

GW: Well, the more generations a story gets told, the more it gets reinforced.

BH: That's right.

GW: The more people believe it.

BH: The more people believe it.

GW: Yeah, not just listen to it and accept it, but believe it.

BH: Believe it, right. And that's what’s a great story-- when it becomes a meme, when it becomes
when it takes on a life of its own. What I think matters for the price of Bitcoin or any crypto is,
what are these competing narratives which are on the ascendancy and which are not?

GW: Well, it's you talk about that-- the illegality narrative, which is definitely there. You wrote in
letters from a Birmingham hospital recently to your father. And this idea that making something--
outlawing something--

BH: Defining it as criminal meant that my father would never participate in it.

GW: Exactly right, which, to me, is why I think that narrative is—

BH: --so powerful.

GW: Yeah.

BH: Absolutely.

GW: Let's face it. If someone told us that standing in a field like this, talking, was illegal, our
camera guys-- they do all sorts of stuff. They wouldn't listen. But you and I would say, well, we're
not going to go and talk in the field anymore because it's illegal.

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BH: Right. And so what it's showing me is that there are powerful missionaries in some fields, like
when Warren Buffett gets on CNBC. And this is what Warren Buffett does. He talks his book. I'm
not saying that's bad. I'm just saying, he's one of the most effective missionaries-- what I call a
"coyote"-- someone who plays the meta game incredibly well. When he is talking about Apple,
which he has, then people say, oh, yeah, that's a narrative then that he, as a missionary, can
have an impact. But when he or Charlie Munger starts dinging Bitcoin, that's like a Trump tweet.
That has a half-life of about a day. And you can see it. You can see it when you visualize what
narratives stick and how they grow. Nobody who's engaged in crypto really cares what Warren
Buffett thinks about it. He can be the grumpy grandpa all he wants about it. That's not going to
impact. That that's not a narrative that has legs. The two narratives that have legs are, I'm a rebel--
I'm fighting the system by participating. That's very positive for Bitcoin. The negative is that you
are part of a criminal enterprise. Those are the two narratives that have legs. And that's what I'm
watching for the price of Bitcoin.

GW: And what is it do you think that that has intelligent people so split? Normally, when you get
issues like this that come up, you get investment ideas. People pull. And generally speaking, the
intelligent people, or people with similar intelligence, pull on one side of a pendulum, and at
different stages of it. But they're all kind of over here, and you have consensus. But this is, as I
said, this is something I find truly fascinating because there's zero consensus. And brilliant people
are not clustered around the middle. They've picked a side. And is that representative of the times
we're in, where you kind of have to pick a side? Or does that got nothing to do with this, do you
think?

BH: A, yes. So the other-- is it this or that? The answer is yes. So it is indicative of the times where
you can't not have an opinion on things today. And Bitcoin does not lend itself well, or easily, to
the, oh, it was worth a couple of thousand dollars. It's either, oh, my god. It's going to be worth
everything or worth zero. I will be honest. It surprises me because I agree with you. There are
very smart people, whose opinions I respect, who are on the, oh, my god, "it's going to be
everything" stage. And that surprises me. I think part of it is-- when we were talking about earlier,
there is this realization that there's something wrong with the whole system. And in the end you
look at some of the people who are on the, oh, it's going to zero side-- they're kind of the cartoon
villains of the global central banking, I know what's best for you, Grant. You just don't worry your
pretty head about that. We don't need to have cash money. We're just going to put a chip in your
hand here. That will take care of everything.

And I feel that. I feel such an antipathy for that entire, again, what I call the "nudging state" and
the nudging oligarchy, that I want to resist and resist powerfully against that. And if that means
getting behind Bitcoin, by God, sign me up. I think there's a strong element to that. I get that.
What I believe very strongly, though, is that is doomed to failure as a means of social change. But
I think that for some of the people on the, OK, Bitcoin is going to be everything, it's wishful
thinking that I share. But I feel certain that this is the wrong instrument with which to exercise
efforts to try to change the system of a nudging, "we know what's best for you way.

GW: Yeah, which is everywhere. Let's face it. That nanny state is just getting bigger, and deeper,
and broader.

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 Grant Williams in Conversation with Ben Hunt

BH: And more and more accepted every day.

GW: Ben, it's been so much fun. We've spent the--

BH: Oh, my god, Grant.

GW: --pretty much the entire day. It's always fun when we get to do this. And hopefully, we get to
do it again sometime pretty soon.

BH: Please.

GW: Thanks for having us.

BH: Thank you.

GW: My day on Little River Farm had drawn to a close. As I knew would be the case, I left not
only with much to think about, but also, with a profound admiration for the clarity with which Ben
conveys the fruits of his contemplation. The quality of the Epsilon Theory readership is testament to
Ben's skill and the consistency of his work, and having the time to soak up not just his ideas about
investing behavior, but also, some of the lessons he's learned as his transition from academia, to
business, and into finance, was a priceless experience.

Ben's understanding of the narratives that shaped not just our investments, but our everyday lives,
is peerless. And to listen to him explain how the process of breaking a wild Mustang can help us
understand the way we are manipulated by politicians and press alike is to have someone open a
window into our own minds. Horses, poker players, raccoons, and coyotes seem unlikely sources
of ways to become a better investor. In the company of Ben Hunt, everything just seems to fall into
place. And as I once again swapped the countryside for the city, I realized that if you do want to
be successful in the world of finance, perhaps the Osmonds had it right after all. Maybe we all
need to be just a little bit country.

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