Using AI to Find Investing Stories with Perscient Co-Founder Ben Hunt

Barry speaks with Ben Hunt is president and co-founder of Perscient, an AI research firm and software company that pioneered the use of language models and unstructured data analysis for investment strategies. They discussed how emerging narratives move a market, and how AI has revolutionized Perscient's computing power. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  At Brookfield, we believe you can own wealth that's measured in generations. Because true ownership looks beyond today and beyond cycles. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future. Providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Past performance is not indicative nor a guarantee of future results. Please review performance and offering materials before investing.

• 0:38Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 1:21Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 2:03Speaker 02

  Bloomberg Audio Studios, podcasts, radio, news.

• 2:11Speaker 02

  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:17Barry Ritholtz?

  On the latest Masters in Business podcast, what a fascinating conversation. I sit down with Ben Hunt. He writes Epsilon Theory, but he is also the president and co-founder of Persian. What a fascinating analytics story they've put together. They essentially take feeds of everything that's published around the world, whether it's in English, or Chinese, or Russian. They create these large language models and use artificial intelligence to identify rising narratives. In other words, they're looking for the things that will become storylines, but haven't quite hit that yet.

• 3:02Barry Ritholtz?

  I found this conversation to be absolutely fascinating, and I think you will also. With no further ado, my conversation with Persian's Ben Hunt. Ben Hunt, welcome to Bloomberg.

• 3:15Speaker 04

  Thanks for having me.

• 3:15Barry Ritholtz?

  Well, this is-

• 3:16Speaker 04

  I love the intro. I gotta have you at all my events.

• 3:18Barry Ritholtz?

  That's right. I'm available for hire. I can introduce you at weddings, bar mitzvahs, wherever you're giving a toast, I'll be happy to tee you up. This is long overdue. I've followed your work for so long. I'm fascinated by both what you put out in your blog, Epsilon Theory-

• 3:36Speaker 04

  Thank you.

• 3:36Barry Ritholtz?

  And, um, which is now a blog and a newsletter, and the work you do at Persian. We're gonna get to that stuff, but before we do, I gotta ask. PhD from Harvard, you were a tenured political science professor. Was academia the original career plan?

• 3:55Speaker 04

  You know, it's interesting. Academia was always a, I'll call it a waystation for me. It ended up being

• 4:03Barry Ritholtz?

  A ten-year waystation.

• 4:04Speaker 04

  Ten-year waystation, plus grad school. But I

• 4:08Barry Ritholtz?

  That's a little more than a waystation.

• 4:09Speaker 04

  It's a little more than a waystation, but I bet this will be familiar for a lot of your listeners. I always had an entrepreneurial bug.

• 4:16Barry Ritholtz?

  Uh huh.

• 4:17Speaker 04

  You know, I started my first company when I was in grad school, started another one when I was a professor. And, as I know you know, a lot of your listeners, viewers know, it is a bug. It's not a feature.

• 4:32Barry Ritholtz?

  Yes, for sure.

• 4:33Speaker 04

  You can't help yourself.

• 4:35Barry Ritholtz?

  So let me ask you a question about that.

• 4:36Speaker 04

  Academia is not the place to be.

• 4:38Barry Ritholtz?

  For sure. So I know why I've started a series of companies. I can't work for other people. Why did you have that bug? What motivated you to say, "I gotta get this out into the world"?

• 4:53Speaker 04

  I love playing games and solving problems. I have a similar issue about working for other people, which fortunately academia solves that to a large degree. I mean, you are working on your own stuff. You follow your own intellectual bliss in a way that I've really never rediscovered. But the problem with academia, of course, is, you know, it's very, very low stakes. It don't pay.

• 5:23Barry Ritholtz?

  That's why, that's why the academic fights are so vicious.

• 5:27Speaker 04

  Because there's nothing at stake. And that is actually true. That's actually true. And so you learn

• 5:36Speaker 04

  survival techniques in that kind of jungle where nothing is really at stake, at least monetarily. Because the goal of any sort of academia conference or presentation like is to appear smart. Right? It's not to actually be smart. You're not actually listening to a presentation to listen to it. What you learn to do is you're listening to the presentation. The whole time you're trying to calculate, what's the most devastating question I can ask?

• 6:08Barry Ritholtz?

  So you're gonna rock this guy back on his heels with a devastating?

• 6:12Speaker 04

  Devastating question. And

• 6:15Speaker 04

  Boy, that gets old after a while, Barry. I gotta tell you.

• 6:18Barry Ritholtz?

  Yeah.

• 6:18Speaker 04

  It really does. I, I loved the teaching. I loved the, the research because like I say, nobody tells you what to work on. But the, the church of academia, the, the actual institution of academia. A, it's for the birds, even back when I was doing it.

• 6:37Barry Ritholtz?

  Right.

• 6:37Speaker 04

  And I think it's gotten significantly worse.

• 6:41Barry Ritholtz?

  I can imagine. I can imagine what's happening with that. So, but the question that this leads me to is, you've had all these jobs within the world of finance. How did your background in academia shape how you view, uh, investing, risk management, allocation?

• 6:58Speaker 04

  Barry, starting from academia and then getting into our business of investing, I think it was the best thing that could have happened for me for when I got into it, which was kind of later in life, right?

• 7:13Barry Ritholtz?

  Same, same.

• 7:14Speaker 04

  Because, you know, after I left academia, I started a software company. And after we sold that software company, you know, a buddy of mine, that I think this happens a lot, right? A buddy of, you know, you have a buddy who's in the business.

• 7:30Barry Ritholtz?

  Hey, you seem to be pretty smart. How would you like to apply this to this?

• 7:33Speaker 04

  We're always, we're always talking about company X or technology Y. Why don't, you know, why don't you come in? Let's, let's give this a try. So that was my path, if you want to call it a path. And what really sold me on it was that markets, it's the biggest game in the world.

• 7:54Barry Ritholtz?

  For sure.

• 7:55Speaker 04

  And like I say, I'm a game player. I love games.

• 7:58Barry Ritholtz?

  And a game theorist. Let's, let's, let's work down on that.

• 8:01Speaker 04

  I, I don't like to talk about that because, you know, because the...

• 8:04Barry Ritholtz?

  The real game theorists get angry.

• 8:06Speaker 04

  Yeah, well, yes. And, and I, I am a real one because that was, that was my field.

• 8:12Barry Ritholtz?

  For a while.

• 8:12Speaker 04

  And it's a real field and it's a real thing. But it's been so trivialized when some talking head will come on, well, let's look at the game theory of this. And you just want to just, you know, shoot yourself when somebody does this.

• 8:26Barry Ritholtz?

  So... The other part of your research, the other part of your academic focus was on narrative theory, and so let's talk about how did that focus develop, and we'll talk a little later about what you do today at Persiant with the narrative machine.

• 8:46Speaker 04

  Believe it or not, it all ties together.

• 8:49Barry Ritholtz?

  I don't doubt that for a second. What initially led you down that rabbit hole?

• 8:55Speaker 04

  When we think about kind of who's been an influence on you in your life, I had a very influential undergrad professor in political science, and then I had a very influential graduate advisor, again, they don't call it political science up at Harvard, they call it government or something.

• 9:16Barry Ritholtz?

  Right.

• 9:17Speaker 04

  But it's political science, and the reason I say they were influential is that they really got me focused on the science side of political science. And that science side, yes, it's kind of some of the typical terrible stuff you see in all social sciences, like economics, where you've got to learn how to deal with structured data, right? And there was a lot to learn, and it's worth talking about because I see the same mistakes

• 9:56Speaker 04

  being made over and over again by people in our business who want to try to, you know, apply math to data. And there are some real pitfalls and some real intellectual capital, I think, that you can achieve within academia that you can then bring in and apply to the investment world.

• 10:22Barry Ritholtz?

  Well, we've certainly seen amongst the quants a very successful application of math theory to data. In fact, some of the best performing hedge funds are quantitatively driven. That's not where you're going.

• 10:38Speaker 04

  Well, it's part of where I'm going, right? So there's a transition in all of...

• 10:46Speaker 04

  All of the sciences, honestly, but certainly the the social sciences where where yes, you start with numbers, structured numbers, right? Price over time, you know, falls to those things you can calculate and measure as those numbers. But what was clear immediately in politics, and I think has become increasingly clear in the world of investing, is that it's not just the numbers that you get on your Bloomberg terminal. It's also the words and the stories and the narratives that are told to us. Politicians have known this forever,

• 11:27Speaker 04

  right? So the story of politics is the story of people suggesting laws or policies and then having to present it in a way that gets them elected or keeps them in power or whatever that is. So there's always been a focus, I'll say more of a focus in political science than in economics with words. Economics is almost seen as a sideline, right? It's somehow lesser than the numbers. So what was kind of early on was applying the same techniques

• 12:11Speaker 04

  that we have for understanding matrices and structured data, but applying it to unstructured data, which, you know, full circle. This is at the heart of all of the generative AI and the AI that we have today.

• 12:29Barry Ritholtz?

  You're getting way ahead of me now with generative AI. We'll circle back to that.

• 12:33Speaker 04

  But it's all the the math has not changed.

• 12:38Speaker 04

  Thirty-five years since I started working with network math around unstructured data. I mean, we didn't call it natural language processing back then, and we didn't call it, you know, large language modeling, but that's exactly what we were doing.

• 12:54Barry Ritholtz?

  So what was, what was the moment or the catalyst for you to say, hey, I'm working in all these other areas, but the narratives continue to pop up over and over again on all sorts of different data sets, and I think in the financial markets, I can use a novel approach to identifying narratives and anticipate where the market's going. What led to that sort of insight?

• 13:26Speaker 04

  Not the, not the Great Recession, right, but the aftermath.

• 13:31Barry Ritholtz?

  Meaning the 2010s, following the Great Financial Crisis.

• 13:35Speaker 04

  Starting in, in, in 2009 and the recovery that we had out of 2009.

• 13:40Barry Ritholtz?

  Uh huh.

• 13:41Speaker 04

  And in particular, when Ben Bernanke and the Federal Reserve moved towards a very explicit effort, to use their words, to impact markets.

• 13:55Barry Ritholtz?

  So let's talk a little bit about that, because I have some really specific memories of the low, of the, the run-up afterwards, all the noise that was going on. Some of the phrases that have come out of that era, like financial repression and other such things, are just the tip of the narrative iceberg. So, so walk us through your insight. It's 2009.

• 14:26Speaker 04

  Yep.

• 14:26Barry Ritholtz?

  The market bottoms, really kind of a V-bottom, and took off from that, what was that, March 9th, March 7th, something like that?

• 14:34Speaker 04

  Yep.

• 14:34Barry Ritholtz?

  Oh nine, and there was no turning back. What were you seeing? How were you integrating that into a concept of, let's identify narratives in order to anticipate market moves?

• 14:48Speaker 04

  Well, so I was, co-founded a long-short fund inside of a larger asset manager going back in '05. And '05, '06, '07, we did well.

• 15:05Speaker 04

  Like everyone else did well. And then in oh eight, we did great.

• 15:09Barry Ritholtz?

  Really?

• 15:09Speaker 04

  In oh eight, we did.

• 15:10Barry Ritholtz?

  Oh eight, I think, want to say S and P down thirty seven percent?

• 15:13Speaker 04

  Yeah, we were up twenty something net.

• 15:15Barry Ritholtz?

  Anything in the green, not in the red is.

• 15:17Speaker 04

  Yeah, amazing. And now I'll tell you, and we can come back to this. Like, the real question you should ask is that, given what we believed, why wasn't, why weren't we up forty percent? That, that's actually, that, that's actually a question you can ask, but.

• 15:34Barry Ritholtz?

  I'm, I'm gonna say a forty seven percent relative price swing, I, I'll take.

• 15:40Speaker 04

  Had a, had a, had a great year in oh eight and.

• 15:44Barry Ritholtz?

  Did that continue in oh nine?

• 15:46Speaker 04

  Flatlined.

• 15:48Barry Ritholtz?

  All right.

• 15:48Speaker 04

  From oh nine. So from March of oh nine, so we did well in January, February, the first quarter, right? The rest from, from March of oh nine, our returns flatlined. So we never, we never lost money for our clients and our fund.

• 16:02Barry Ritholtz?

  But you didn't catch that recovery?

• 16:04Speaker 04

  Did not catch the recovery. Absolutely did not. And

• 16:10Speaker 04

  the, the recovery was interesting, right? You're, you're right, there was a V, but there were, there were starts and stops to it. So the, the big move up from the bottom in late March going into April. It's like, all right, that actually, we caught a little bit of that and that, that made sense.

• 16:29Barry Ritholtz?

  Uh huh.

• 16:30Speaker 04

  Right? There was a second leg to the rally.

• 16:35Barry Ritholtz?

  Oh, for sure.

• 16:36Speaker 04

  And then in June, in June, it was a ferocious rally.

• 16:40Barry Ritholtz?

  Ferocious is the right word.

• 16:41Speaker 04

  But June in particular was a classic crap rally. Right? It was a low quality, low quality stuff, right? The, the end of March going into April rally, it was, right, this makes sense, right? We bottomed, Fed's.

• 16:59Speaker 04

  The June rally? No, no, it was, we didn't, we didn't

• 17:03Barry Ritholtz?

  Really?

• 17:04Speaker 04

  Oh.

• 17:05Barry Ritholtz?

  That's fascinating.

• 17:06Speaker 04

  Go back, go back and look at it, right? And let me tell you.

• 17:08Barry Ritholtz?

  Oh, I don't, just so you know.

• 17:10Speaker 04

  Yeah.

• 17:11Barry Ritholtz?

  I have a vivid recollection of chatting with Jim Bianco about this. And we were both bullish, but for completely different reasons. To me, anytime US equity markets are cut in half, I'm a buyer. And people say 1929, I'm like, great, you gotta go back a century to find the exception that proves the rule. But Jim was early on in the Tina trade. Hey, the Fed has made everything cash, trash, bonds. They're forcing you into equities, which is what led my post, which everybody stole the line. This is the most hated bull market in history.

• 17:45Speaker 04

  Yeah.

• 17:45Barry Ritholtz?

  And I wrote that up, I sent that out, and I heard everybody borrow that. But I'm curious as to where the June rally took you.

• 17:55Speaker 04

  Well, this, and this is where I'm going about the role of forward guidance in Jim Bianco's point about, because what the Fed did wasn't just its policies around interest rates. You know, they took them to zero and that's where we stayed.

• 18:18Barry Ritholtz?

  Started buying mortgage backs and QE.

• 18:21Speaker 04

  Balance, balance sheet operations.

• 18:23Barry Ritholtz?

  Right.

• 18:23Speaker 04

  Right.

• 18:24Barry Ritholtz?

  Conducive easing.

• 18:24Speaker 04

  Actual, you know, actually, and I, look, I think QE won. I think it saved the world.

• 18:29Barry Ritholtz?

  Right. And what was that, a trillion dollars, something crazy?

• 18:32Speaker 04

  Something, yeah, something.

• 18:33Barry Ritholtz?

  Eight hundred billion?

• 18:34Speaker 04

  Something like eight hundred billion.

• 18:35Barry Ritholtz?

  Unthinkable number.

• 18:36Speaker 04

  So I, I think that, so those were specific actions it took. But, but even if you, people often say things when they're leaving office. So, so Bernanke's last speech, his valedictory address.

• 18:49Barry Ritholtz?

  Right. More honest than intended?

• 18:51Speaker 04

  Much more so. And you see this all the time, right? George Washington leaving office.

• 18:56Barry Ritholtz?

  I was gonna say.

• 18:57Speaker 04

  Eisenhower.

• 18:58Barry Ritholtz?

  Yeah, that's a big.

• 18:58Speaker 04

  I mean, when, when, when, when freaking Eisenhower warns you against the defense industrial complex, you know, you might, you might, I'm just saying.

• 19:07Barry Ritholtz?

  That's general like to you.

• 19:09Speaker 04

  That's right, general like to me. What Bernanke said, when he's leaving his terms of office, he said, look. We had, we had two toolkits. One was traditional stuff. Interest rates down to zero. At the time, we didn't know we could have negative interest rates. So, you know, that's where we were. Second were the balance sheet operations. Large scale asset purchases. QE, quantitative easing. They said, you know, QE1 was great. Did what we hoped it would do. QE2, eh. Operation twist. QE3. This is Bernanke saying, I'd you. He said, I actually think that might have been a little counterproductive.

• 19:48Barry Ritholtz?

  Huh.

• 19:49Speaker 04

  They said, but we had another toolkit. And that was our communication policy. That was forward guidance. That we started using our words, not to communicate to the market what we actually felt. We started using our words and coordinating our words to change the market, to change market behavior. This is what I mean about making a conscious effort to tell a story. I did, it's not that it was necessarily lying, but they, they were using their words and choosing their words for effect.

• 20:29Barry Ritholtz?

  To shape perception of their underlying behavior.

• 20:33Speaker 04

  To shape market behavior. And he said, that worked better than we had any hope that it could. And that's where we are now.

• 20:43Barry Ritholtz?

  So, so for the youngins listening, I have to point out, and you and I are old enough to remember, back in the days where there were no minutes released, there, there wasn't an announcement, forget a press conference, you had to be watching the bond market to figure out what the Fed just did. Like today, there's, we're holding, having this conversation, there was a Fed, the October meeting, a quarter point rate cut, a conversation about all sorts of stuff. I really didn't pay a lot of attention to it. Lack of clarity, no data, blah, blah, blah.

• 21:20Speaker 04

  Worse than that, Greenspan would be intentionally vague and obtuse.

• 21:26Barry Ritholtz?

  If you understood what I said, then, then you misunderstood, you misinterpreted it. Right. If you think you don't understand what I'm saying.

• 21:34Speaker 04

  You know who led the committee to make all that change? Janet Yellen.

• 21:38Barry Ritholtz?

  Really?

• 21:39Speaker 04

  When she was vice chair.

• 21:40Barry Ritholtz?

  Yep. Back, back in, during the financial crisis.

• 21:42Speaker 04

  Yep. So this was, it was a concerted effort. Bernanke yelling to, this is when they also started going, putting all the Fed governors on a common calendar.

• 21:53Barry Ritholtz?

  Right.

• 21:54Speaker 04

  And when they started assigning the fake, you're going to speak this day, you're going to speak that day. That's when all this started. It was an intentional effort. And again, this is something that politicians have known forever. Right? Politicians craft the message and use their words. So I knew the tools to try to understand this. But what I wasn't prepared for was how, and neither was Bernanke, was how powerful this would become. To the point where today, it's not just central bankers using their words as their main policy toolkit, but it's every CEO. It's every CEO now.

• 22:34Speaker 04

  You go on this network or one of the other networks, and what makes for a good CEO is can you tell the story? Can you tell the narrative of your company to get a multiple? Right? Because a multiple is a narrative. A multiple is a story. They're all stories.

• 22:54Barry Ritholtz?

  Well, look at some of the most successful CEOs throughout history. I would throw Jack Welsh into that pile because he was a fabulous, fabulous. He was a fabulous fabulous. Because the stories he told were great, right up into the point where we found out that he was running a hedge fund with GE Capital and they magically always beat by a penny.

• 23:18Speaker 04

  So I remember vividly when GE was coming to our shop. What they wanted was a financial multiple. Right? So they were making, they wanted-

• 23:34Barry Ritholtz?

  Even though they're an old world industrial.

• 23:36Speaker 04

  Even though they're an industrial, this, that, this was, they wanted to tell a story that they should be seen as and get the multiple of a financial. That's what GE was all about in those years leading up to the GFC. So- My, my poster child for this is, is Marc Benioff.

• 24:00Barry Ritholtz?

  Uh huh.

• 24:00Speaker 04

  Salesforce. Because he's probably, you often see this with people who come out of sales like, like

• 24:08Barry Ritholtz?

  Right.

• 24:08Speaker 04

  Mark did. But

• 24:10Barry Ritholtz?

  It's all about storytelling.

• 24:11Speaker 04

  It's all about storytelling and

• 24:14Barry Ritholtz?

  What isn't that true for, go through the great, see, look,

• 24:18Speaker 04

  Hmm.

• 24:19Barry Ritholtz?

  Steve Jobs, Reed Hastings, uh, Larry Ellison at Oracle, to some degree, uh, Steve Ballmer at Microsoft, who wasn't a great CEO, but he was a great cheerleader and a great storyteller.

• 24:33Speaker 04

  Great storyteller.

• 24:36Speaker 04

  What all of those companies have in common is that they're great storytellers and those are trillion dollar companies today, right? What I would say to you is that you don't remember or hear about the companies that did not have CEOs who are great storytellers.

• 24:52Barry Ritholtz?

  Well, uh, Ken Lay was a great storyteller until you found out that it was all nonsense and you could say the same thing about folks like Bernie Madoff.

• 25:01Speaker 04

  There are a lot of stories that get told that are not true, right? What, and I think even today, people think of this word narrative, they have a pejorative sense to it. It's like, um,

• 25:16Barry Ritholtz?

  Oh, really? That's interesting.

• 25:17Speaker 04

  Oh, oh, for, for, for, for sure. That's just your narrative, man. You know, the big Lebowski, you know, that's, that's the, and it's not that a story is a lie. It's that the story is constructed for effect. It's, it's not, and it's presented to you as if this is my true and inner thoughts, but the construction of the, the intentionality behind these stories phenomenal. Benioff, for example, you know, created the metrics by which he wanted Salesforce to be judged. Not metrics of profitability, but metrics of what he called pro forma net revenue growth,

• 26:02Speaker 04

  whatever the hell that means, right? And because if you can construct the story, you can construct it in a way that, yes, I can beat and raise pretty much every quarter. So.

• 26:15Speaker 04

  There was, there were three, I think, big changes that happened to make the role of narrative overwhelming as it is today, whereas before it's always been there. To your point, it's always been there.

• 26:28Barry Ritholtz?

  Mm-hmm.

• 26:30Speaker 04

  Today, it's overwhelming. And I think it's not just the success that first central bankers and then CEOs. I mean, Wall Street's the greatest copying machine. We, Wall Street copies what works.

• 26:43Barry Ritholtz?

  Sure.

• 26:43Speaker 04

  So when you see that something's working, oh, they're getting a multiple by telling the story and going on Kramer, you know, four times a year.

• 26:51Barry Ritholtz?

  It's endless iteration. You're just constantly tweaking it. And if it works, do more of it. And if it doesn't, toss it out.

• 26:59Speaker 04

  So it was the fact that it works to tell a story and people got good at telling stories. It's the growth of 24/7, I'm going to use air quotes here. I'm glad we're taping this.

• 27:12Barry Ritholtz?

  Well, it's media, social media, news.

• 27:14Speaker 04

  Right. Now.

• 27:15Barry Ritholtz?

  News-like, news-light.

• 27:17Speaker 04

  That wasn't the case.

• 27:19Barry Ritholtz?

  So I want to, I want to annotate what you said slightly.

• 27:22Speaker 04

  Okay.

• 27:23Barry Ritholtz?

  Because I think CEOs have always been storytellers, but they were storytellers to their boards, to their employees, to their shareholders.

• 27:33Speaker 04

  Correct.

• 27:33Barry Ritholtz?

  They always, the, you're hitting now on the modern world of 24/7 media. Telling a story in a boardroom is very different than sitting in a TV studio and talking about, hey, here's why our new chip is going to catch up to Nvidia and it's the greatest thing ever.

• 27:51Speaker 04

  Yep.

• 27:52Barry Ritholtz?

  That's a different skill set.

• 27:53Speaker 04

  It changes the time horizon. It is a very different skill set because you're not telling the story of, oh, I'm getting another, you know, turn of leverage in our operations or, you know, our capacity utilization in this factory went up by 5%, which are the kind of stories you would tell even on earnings call or certainly to a board. Now, this is the story where you've got a segment.

• 28:18Barry Ritholtz?

  You've got to stick it up a little bit.

• 28:19Speaker 04

  Yes. You've got a segment, you're going on Kramer.

• 28:22Barry Ritholtz?

  You've got four minutes.

• 28:23Speaker 04

  You've got to get him to say bye, bye, bye. You've got at most four minutes.

• 28:26Barry Ritholtz?

  Right.

• 28:26Speaker 04

  Right? How are you going to tell that story that sings to that audience? Enormous change, change, structural change in our media, both quote-unquote "news media", but also financial news media.

• 28:42Barry Ritholtz?

  Mm-hmm.

• 28:43Speaker 04

  The Wall Street Journal today is a 24/7 news, financial news organization.

• 28:48Barry Ritholtz?

  What isn't? The New York Times, Bloomberg, the Washington Post? They all have websites that get updated around the clock.

• 28:55Speaker 04

  And here's the thing, there's not enough hard news to fill the time or to fill the space. So what takes the space? Opinion. Story.

• 29:06Barry Ritholtz?

  You are channeling-

• 29:07Speaker 04

  Story takes the place of hard news.

• 29:08Barry Ritholtz?

  You are channeling Michael Crichton from 25 years ago. Most of what you see in the media is speculation, opinion, and theory, not news.

• 29:18Speaker 04

  I've written so much about Crichton and his-

• 29:21Barry Ritholtz?

  I know, that's why I threw that back to you.

• 29:23Speaker 04

  He was so far ahead of all of this.

• 29:26Barry Ritholtz?

  A quarter-century ahead of what took place.

• 29:29Speaker 04

  And there's a third piece, though.

• 29:32Barry Ritholtz?

  Give us the third piece before we go to our next segment.

• 29:35Speaker 04

  Third piece that's changed everything is our smartphones.

• 29:39Barry Ritholtz?

  That you're walking around with not only a studio, but a dopamine device that you're constantly-

• 29:48Speaker 04

  It's my dopamine machine. And I, we do it to ourselves. It's not that someone forces us to hear these stories over and over again. We do it to ourselves. I mean, I get a little nervous if I, you know, "Pat, where's my phone? Where's my phone?"

• 30:03Barry Ritholtz?

  That's right.

• 30:04Speaker 04

  I get a little nervous. And it's, it is absolutely a neurotransmitter addiction.

• 30:09Barry Ritholtz?

  Mm-hmm.

• 30:12Speaker 04

  I think it's so important to keep that from our kids, that's a whole nother-

• 30:18Barry Ritholtz?

  There's a whole depression situation with teenagers today, and it all traces back to the phone and social media.

• 30:24Speaker 04

  These are three, I think, real secular changes we've had. Markets become this political utility.

• 30:31Barry Ritholtz?

  Mm-hmm.

• 30:33Speaker 04

  The success of constructing a story.

• 30:39Speaker 04

  Structural changes in social media and the devices that we insist on carrying with ourselves all the time.

• 30:47Barry Ritholtz?

  Absolutely fascinating. Coming up, we continue our conversation with Ben Hunt, president and co-founder of Persian, explaining how he's using AI to identify narratives in real time. I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio.

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• 32:26Barry Ritholtz?

  I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio. My special guest this week is Ben Hunt. He is an academic, fund manager, risk manager, entrepreneur, tech startup person. He is currently co-founder and president at Persian, which applies AI tools to map and measure market narratives in real time. It's really more than market narratives. It's politics, it's economics, it's markets. You cover a whole lot of stuff.

• 32:59Speaker 04

  100%. So what we're able to do today, and this is the crazy change in the world back from when I was... Doing this on microfiche back in

• 33:10Barry Ritholtz?

  1980s.

• 33:11Speaker 04

  Yeah, exactly.

• 33:14Speaker 04

  We get, we have access to everything that's published publicly in the world. And there are a couple of big data aggregators, Dow Jones one, LexisNexis another. Everything that gets published in the world, all these languages, it's available to you. And it's, it's not cheap, but it's not crazy expensive like it used to be. It's always getting cheaper. So we're able to take everything in the world that gets published, all the newspapers, all the websites, all the transcripts, everything that's published publicly. We can pull in and then we can process it.

• 33:55Speaker 04

  Process it with, really it's the same math that I was using 30 years ago. Nobody's invented cold fusion here.

• 34:03Barry Ritholtz?

  But the software tools are faster, stronger, better.

• 34:07Speaker 04

  And infinite. So the, the calculations here are not particularly complicated, but you have to do them at enormous scale.

• 34:16Barry Ritholtz?

  It's, it's a ton of volume.

• 34:17Speaker 04

  So, I mean, it's crazy that the, just the, the scale of the numbers.

• 34:23Barry Ritholtz?

  petabytes, terabytes, just crazy.

• 34:25Speaker 04

  I mean, yeah, in the last couple of months, we've processed over 200 billion tokens, billion.

• 34:33Barry Ritholtz?

  And a token is how much?

• 34:34Speaker 04

  A, a token is like a word or a phrase. And so that's the, kind of the unit that you talk about when you're putting through, when you're putting something through a linguistic calculator.

• 34:45Barry Ritholtz?

  So 200.

• 34:46Speaker 04

  Which is what all of the, the

• 34:49Barry Ritholtz?

  LLMs.

• 34:50Speaker 04

  All the LLMs are, they're linguistic calculators. And so, you know, we've processed, you know, several hundred billion tokens.

• 34:59Speaker 04

  Again, it's not complex, but it is at scale. And what we're doing with that is we're reading the world's news to understand the world's stories and narratives. And you're right, it's much bigger than, or it's much more focused. We have much higher resolution than just saying, "Oh, I'm bullish on financials." I mean, that's a narrative, sure. But there are 20 different variations of that. You're bullish on financials, why?

• 35:35Barry Ritholtz?

  So, wait, let me, let me-

• 35:36Speaker 04

  And we can track all those. We can track all those stories and how they wax and wane over time.

• 35:40Barry Ritholtz?

  So, let me roll back to, I want you to explain what Persian is, who are the clients? I don't mean names, but what type of clients do you have? And what do they do with Persian's output?

• 35:53Speaker 04

  So, we started Persian in 2018. My partner from, we were at an asset manager, spun out there to take the technology that I've been working on for years, and really been writing about with Epsilon Theory. So, we started that in 2018 to do the basic research into processing enormous amounts of financial news data, and to track the stories, and how they rise and fall, and wax and wane over time. So, that was, that was the story, that was the goal.

• 36:34Barry Ritholtz?

  So, I love that description because there are a lot of trades going on where the storyline changes on a regular basis. Probably the Mac Daddy of that is crypto. First, it's, "Hey, you know, there's fiat currency, this is outside of the system, it's DeFi, then it's a hedge for deflation, then it's a hedge for inflation, now it's scarcity."

• 36:58Speaker 04

  And digital gold.

• 37:00Barry Ritholtz?

  Digital gold.

• 37:01Speaker 04

  It's, there are no fundamentals, right, with crypto. People will say there are, but there aren't, right? It's driven by- The waxing and waning of stories.

• 37:12Barry Ritholtz?

  Uh huh.

• 37:12Speaker 04

  And do they find purchase? Do they, or do they kind of, people get tired of them?

• 37:19Barry Ritholtz?

  Well, they got tired of the DeFi story and then once JP Morgan and BlackRock started creating that like the iBit is the fastest ETF to $100 billion. And so the old story of DeFi is gone and the new story is, oh no, this is an asset class that Wall Street's embracing, that's why you have to own it.

• 37:40Speaker 04

  That story, that story was in very, that was a very similar story, by the way, or a transition in story from physical gold to GLD.

• 37:49Barry Ritholtz?

  Uh huh.

• 37:49Speaker 04

  When that ETF came out, right, which was a very similar pattern.

• 37:55Barry Ritholtz?

  Mm hmm.

• 37:55Speaker 04

  Because once it became a Wall Street, a table at the Wall Street casino.

• 38:01Barry Ritholtz?

  Right.

• 38:02Speaker 04

  Then it takes on a different meaning, specifically around gold. Gold changed from being, okay, something that you bury in your backyard or you're having your vault, you know, along with ammo and seeds for when the, the hard times come.

• 38:19Barry Ritholtz?

  Bottled water.

• 38:20Speaker 04

  Right.

• 38:20Barry Ritholtz?

  Meals ready to eat, gold and lead.

• 38:22Speaker 04

  It becomes a security and its meaning changes from that, you know, apocalyptic bottled water.

• 38:30Barry Ritholtz?

  Right.

• 38:31Speaker 04

  And the meaning of gold today is as an insurance policy, a security against central bank error or government error. That's the meaning of gold today and.

• 38:43Barry Ritholtz?

  Is that the dominant narrative that you're identifying as gold rallied over through 4,000?

• 38:49Speaker 04

  Absolutely. So, and we've really been able to track that one in specifically.

• 38:54Barry Ritholtz?

  So here's the really big, here's the million dollar or trillion dollar question. How do you identify a narrative and say, oh, gold is going to double from here based on this narrative? Or, or are we not there yet?

• 39:08Speaker 04

  No, you, you identify the narratives because the narrative, the stories don't ever change.

• 39:13Barry Ritholtz?

  Uh huh.

• 39:13Speaker 04

  Right, so the, the story that. Leave gold aside for a while. Think about, you know, we're talking about you're bullish on company XYZ because there are about, I don't know, depending on how, again, how finely you want to resolve that, there are only about a dozen stories for why you're bullish on something, right? They can be management change, top line growth opportunity, consolidation in the industry.

• 39:42Barry Ritholtz?

  Upcoming catalyst.

• 39:44Speaker 04

  Catalyst. So every catalyst story.

• 39:46Barry Ritholtz?

  New product.

• 39:47Speaker 04

  New product.

• 39:48Barry Ritholtz?

  FDA is going to approve the new drug, new molecule.

• 39:50Speaker 04

  So that story, you just changed the name. That's the same story that's repeated over and over again about any pharma or biotech company. The stories, we think that they're amorphous and variable. The fact is that the core of the story, what we call the semantic signature, the meaning of a story, they're amazingly constant over time. So what we're looking for is for, and it could be dormant for a long time, but what you want to know

• 40:29Speaker 04

  is when that story starts picking up again. When someone starts playing that story, when it appears on Kramer and starts happening in the financial press, that's the stuff we can pick up with real precision. So it's both the stories that are starting to fade. But I think the really interesting stories are the stories that have been dormant for a long time and they start picking up again.

• 40:56Barry Ritholtz?

  You are reminding me of Campbell's Hero's Journey, that there's only so many.

• 41:02Speaker 04

  My hero, right? There are only so many stories.

• 41:05Barry Ritholtz?

  Right.

• 41:06Speaker 04

  In the world. And that's it. Now.

• 41:10Speaker 04

  I like to talk about in Hollywood.

• 41:13Barry Ritholtz?

  Uh huh.

• 41:13Speaker 04

  Famously, there are only like five scripts.

• 41:16Barry Ritholtz?

  That's right.

• 41:16Speaker 04

  Right? Tolstoy, supposedly Tolstoy, he said there are only two stories. That a man goes on a journey or a stranger comes to town. Those are the only two stories in the world.

• 41:28Barry Ritholtz?

  And. Not quite, but he's.

• 41:29Speaker 04

  Not quite, but you're on, you're on the right track.

• 41:31Barry Ritholtz?

  Right, right.

• 41:32Speaker 04

  The point is, there's a finite number of stories. You can drill down, so you can get a couple of dozen about any sector you want to talk about. Or like, but it's, it's a finite number. And so what we do, and what I think is really interesting, is to track that finite number of stories. And you're right, it's not just around markets. We track several thousand of these stories today.

• 41:59Barry Ritholtz?

  How, so let's, let's delve into that. So, so how do you, you have this massive database, you're sucking in every news feed. Magazine, newspaper, anything that you could quantify and, and run into a linguistics model. What's the process for analyzing this? How to use artificial intelligence to, to go through this? And how do you make sense out of that heap of? How do you find signal amidst all that noise?

• 42:31Speaker 04

  The crucial thing is, you can't just ask AI an open ended question, say, what are the narratives in this comp, for this company or for this sector? Don't do that, right? And this is a mistake that people make all the time. They ask open ended questions of ChatGPT or whoever. The problem is ChatGPT will give you an answer.

• 42:54Barry Ritholtz?

  Just not a good one.

• 42:55Speaker 04

  Not a good one. It'll hallucinate a lot.

• 42:57Barry Ritholtz?

  Yeah.

• 42:58Speaker 04

  Right? It'll go out, it'll find its own data. The, the secret to, to using AI successfully is to take this magic genie, because it's a magic genie.

• 43:09Barry Ritholtz?

  Hmm hmm.

• 43:09Speaker 04

  And you stuff it into that bottle, right? You do not let it out. You constrain it dramatically. You don't let it go out and find data. You give it the data. Crucial thing, you don't allow it to think.

• 43:26Speaker 04

  You tell it how to think. So the, the most important step that we do is we don't ask AI, what are the narratives that you will get? We tell it, this is human direction. You have to have human control.

• 43:39Barry Ritholtz?

  So I'm hearing data set is controlled by you as well as

• 43:45Speaker 04

  The thinking.

• 43:45Barry Ritholtz?

  The prompts.

• 43:47Speaker 04

  Yes, and it's more than prompt, right? So the, it, it includes prompt, but the, the phrase that's used in this world is called not prompt engineering, but context engineering.

• 44:01Barry Ritholtz?

  Okay, that makes sense.

• 44:02Speaker 04

  You want to, you want to control everything around the AI because you want to limit it to being that linguistic calculator. You want it to be your operating system.

• 44:15Barry Ritholtz?

  Mm hmm.

• 44:16Speaker 04

  That's really the way, and, and if you do that, then it will give you the same answer twice for the same inputs and the same question. That's the crucial thing.

• 44:26Barry Ritholtz?

  So it's consistent.

• 44:27Speaker 04

  For it to be consistent, for it to be real signal. So this is a human directed process. You can't ask AI an open ended question. You have to control all the inputs. You have to control the output, meaning you judge it, you run it back through a different AI system to say, how'd they do? Did they go off the rails here? But the most important thing is you have to give it the scaffolding, you have to give it the, the skeleton, you have to tell it, these are the thoughts you are allowed to think about. And those are the, those are the, the signatures.

• 45:01Barry Ritholtz?

  I, I've kind of learned I have to avoid asking questions that have a, a, a human emotional subtext. Like, tell me what was most surprising about this. It doesn't know what a surprise is. Tell me what was most interesting about this. It does, it's not able to do that. You really have to treat it like it's a dumb machine.

• 45:26Speaker 04

  Well, that's right. That's why I mean, you treat it, you, you need to treat it as an operating system. You need to constrain every bit about it, particularly in how you allow it to think, because it wants to please you so badly.

• 45:39Barry Ritholtz?

  Right.

• 45:40Speaker 04

  It does. So if you ask it what's interesting, it will look back at its history of communication with you and it'll think, what will Barry find interesting?

• 45:48Barry Ritholtz?

  Mm-hmm.

• 45:49Speaker 04

  And it will give that answer to you. And if it can't find it easily, it'll make it up. It'll make up an answer that you will find interesting.

• 45:56Barry Ritholtz?

  I find when I, I try and prompt, "Hey, tell me about Ben Hunt's background and give me the timeline of his career."

• 46:06Speaker 04

  Yeah.

• 46:07Barry Ritholtz?

  That it's good at. "Hey, what was Ben Hunt really good at?" It has, it's got no idea.

• 46:12Speaker 04

  So what, what you're able to do, if you're able to, again, put the genie in the bottle.

• 46:18Barry Ritholtz?

  Mm-hmm.

• 46:19Speaker 04

  Tell it how to think about a problem, is you're able to identify, and this does go back to the work from 35 years ago, the type of stories we tell, that we humans tell about stocks or politics, we tell two types of stories. We tell descriptive stories.

• 46:41Barry Ritholtz?

  Mm-hmm.

• 46:42Speaker 04

  "Oh, the, you know, the Fed cut rates by 25 basis points today." A descriptive story. But, and we can also tell the, you know...

• 46:53Barry Ritholtz?

  It's the because clause. Because we're seeing slowing, increasing layoffs and slowing consumer demand.

• 47:01Speaker 04

  And, and that's high resolution and very descriptive, right?

• 47:05Barry Ritholtz?

  Mm-hmm.

• 47:06Speaker 04

  The, the, Powell was surprisingly hawkish today.

• 47:11Barry Ritholtz?

  Mm-hmm.

• 47:12Speaker 04

  And he was. That's a description. There's another type of story we tell Barry, and that's prescriptive.

• 47:20Barry Ritholtz?

  Meaning?

• 47:21Speaker 04

  Meaning, "The Fed should be hawkish. The Fed should cut by 25 basis points." Those are the stories that are indicative of an effort being made to move public opinion in a certain direction.

• 47:40Barry Ritholtz?

  Mm-hmm.

• 47:41Speaker 04

  That's like the forward guidance that...

• 47:46Speaker 04

  The Fed still does, right? Using their words for effect. They're using words to nudge you and how you should think about the world, how to think about the world. So the crucial thing when we're doing these, when we're asking AI to, here's, here's all the text in the world, here are the stories that we want you to identify. We can also boil that down into identify the stories that are trying to tell the reader how they should think or how policy should go. That we find has a lot of predictive capability to it.

• 48:26Barry Ritholtz?

  So you're in the business of analyzing the world's narratives every day. How is that even possible? It seems like that is an impossible task.

• 48:37Speaker 04

  Doesn't seem crazy.

• 48:38Barry Ritholtz?

  Crazy, right?

• 48:39Speaker 04

  And, and it used to be. It used to be crazy. I, I mean, Barry, I, I really do remember in the academic days, I would literally hire grad students and give them a cup of dimes so they go down to the microfiche machine.

• 48:54Barry Ritholtz?

  I remember those machines in the library.

• 48:56Speaker 04

  You remember those machines?

• 48:57Barry Ritholtz?

  Yes, yes.

• 48:58Speaker 04

  I would code, hand code the, or hand record the coded data. I would type it into a remote access for a digital equipment mini-frame and the next day, you know, something would churn out for me. Today it's, they say we're, we're processing hundreds of billions of tokens. We get millions of documents overnight like that.

• 49:25Barry Ritholtz?

  Is there?

• 49:26Speaker 04

  And we have infinite computing resources available to us.

• 49:28Barry Ritholtz?

  Is there anything you can't access that you wish you had access to? Any data source?

• 49:36Speaker 04

  So one of the things that's happened on Wall Street is that the banks and the sell side have become very jealous of their publications. Because they tend to think, and they're wrong, that they're good at it, right? That they're good at analysis. I personally don't think they are.

• 49:57Barry Ritholtz?

  Well, let's, let's just say some are better than others.

• 50:00Speaker 04

  Some are better than others, but, but none of them are really.

• 50:05Speaker 04

  If they were, if there was, I'll call it kind of significant alpha there, they wouldn't be a bank.

• 50:12Barry Ritholtz?

  They'd be a hedge fund.

• 50:13Speaker 04

  Yeah, they wouldn't be on the sell side. Now, so I'm interested in reading the sell-side research, not because I think there's some nugget of truth in there, but because I want to see what they're all talking about.

• 50:25Barry Ritholtz?

  Right, it's reflective of, if not a consensus, certainly a popular set of ideas.

• 50:32Speaker 04

  And this is a crucial thing to talk about, what we do. I don't know what the truth is.

• 50:38Barry Ritholtz?

  Right.

• 50:39Speaker 04

  I have no idea.

• 50:40Barry Ritholtz?

  Does it matter?

• 50:41Speaker 04

  And I don't think it matters. I want to provide this information to people who do have a view on the truth. Let's say you're a value investor, right? You're running a fund. You've got your views, you've done your homework, you've done your research.

• 50:55Barry Ritholtz?

  You've got a good back test.

• 50:57Speaker 04

  Yeah, you've got, so I'd say I've got, here are the companies where I think I've identified something special, something that's valuable, that the market does not recognize.

• 51:08Barry Ritholtz?

  Mm-hmm.

• 51:09Speaker 04

  And so I want to buy it, and then I'm just going to wait. I gotta wait until one day, the market realizes, the market comes to their senses and says, "Oh, wow. That should trade at a higher multiple or a higher price because that special thing that you saw, that source of value, the rest of the world comes to see that." Well, what I can, think I can show you, is when the rest of the world starts to wake up to whatever it is you're looking for.

• 51:39Barry Ritholtz?

  So you're catching the early lift off the bottom. That's the goal.

• 51:43Speaker 04

  I'm saying, when a value investment only works when the market recognizes it. And we are tracking when something like that gets discovered by the market.

• 51:54Barry Ritholtz?

  So before Nvidia is 5 trillion, when it starts ramping up to 500 billion, hey, something's going on here.

• 52:04Speaker 04

  What I found in my experience as an investor is that you make the most money on a trade during what I call is the discovery phase of a trade. When the rest of the world wakes up to something that you had noticed and identified before. That's when the money is made. Once it gets out there.

• 52:26Barry Ritholtz?

  Then it's reflected, then the market is eventually efficient.

• 52:31Speaker 04

  It's a different, it's a different risk and reward profile. Let me, let me put it that way.

• 52:36Barry Ritholtz?

  Fair.

• 52:36Speaker 04

  You, you get, you get a lot more ups and downs post that discovery phase. Then you do when you're enjoying the discovery phase. It's a lot harder once you have, now, we may say, oh, but there's going to be this other catalyst. And then say, well.

• 52:53Barry Ritholtz?

  But that discovery phase is, I'm going to quote Doug Cass, that's the, there's a phrase he uses, it's like a contrarian perspective, a variant perspective where you have some insight that is not widely held.

• 53:11Speaker 04

  Right.

• 53:11Barry Ritholtz?

  And the market being mostly kind of sort of eventually efficient, if there's a truth or at least a good story in your variant perspective, the market gets it.

• 53:23Speaker 04

  All it takes is a story.

• 53:24Barry Ritholtz?

  Right.

• 53:24Speaker 04

  All it takes is a story.

• 53:25Barry Ritholtz?

  It's got to be a good story, though.

• 53:26Speaker 04

  Yeah, it's got to be, well, I'll call it, it's got to be a compelling story.

• 53:29Barry Ritholtz?

  Right.

• 53:30Speaker 04

  Right? And that's, that's why you're looking for a CEO who can tell that compelling story. You're looking for the ability to tell a compelling story because that is what gives you a multiple.

• 53:43Barry Ritholtz?

  So let me.

• 53:44Speaker 04

  Multiple is story.

• 53:45Barry Ritholtz?

  So let me ask you a few more questions on, on Persian before we go into a few other areas. So first, you've been doing this for seven years. What are you doing today that was unimaginable four, five, six, seven years ago?

• 54:02Speaker 04

  I'll tell you something that was unimaginable really two years ago.

• 54:06Barry Ritholtz?

  That's amazing.

• 54:06Speaker 04

  And that is the AI. So what we were doing in our early days, we were basically doing small language models. We were making the language models essentially by hand.

• 54:17Barry Ritholtz?

  Uh huh.

• 54:17Speaker 04

  And, you know, we did our first models and our first versions of this and we licensed it to some big banks and.

• 54:26Speaker 04

  Here's the problem, Barry. We had constructed a net and it was a pretty good net. I mean, when we would dip it into a data stream, we'd catch a fish, meaning a signal. And the signal, oh, that signal works. You know, good hit on the signal that we put up. The problem was, we were missing too many damn fish. Our net was too small and we'd say, oh, we got this one. And then we'd look back at whatever it was we were designing the models for and say, well, how did we miss all these other fish? And the answer was, the small language model we were constructing, it's incredibly complex if you're building these models without the

• 55:12Speaker 04

  probabilistic approach that modern LLMs allow you to take. So this is the whole notion of embedding, so that there are a million ways to say, I'm bullish about the management change at company XYZ. There are a million ways you can say that. And if you're in the business, as we were, of kind of hand crafting, let's write down all the ways you can say that.

• 55:35Barry Ritholtz?

  Oh, really?

• 55:36Speaker 04

  You miss a lot. You've made a small net and what you're trying to-

• 55:41Barry Ritholtz?

  And a small data set.

• 55:43Speaker 04

  And it's a pretty small data set. So we rebuilt all of our software, again, using AI as an operating system. Context engineering, control, how you dole out the text data, how you test it, how you allow it to think. And we thought, all right, you know what? We're building a bigger net. I bet we see five, maybe even six X improvement in our signal-

• 56:13Barry Ritholtz?

  And what did you end up with?

• 56:14Speaker 04

  Over 100 X.

• 56:15Barry Ritholtz?

  That's unbelievable.

• 56:16Speaker 04

  Over 100 X. It's over, and now it's, we've had a multiple of that again. It is hard to describe in the expansion of the net is in so many different directions. Everything we were doing before was just English language.

• 56:32Barry Ritholtz?

  So now you're global and how many languages are you pulling into the?

• 56:36Speaker 04

  Anything that an AI has been trained on, we read it.

• 56:42Barry Ritholtz?

  Is that 40 languages? Is that like how many?

• 56:45Speaker 04

  Well, there are about a dozen languages that are useful in markets.

• 56:51Barry Ritholtz?

  So it'll be Japanese, Chinese, a variety of European languages.

• 56:55Speaker 04

  So we can tell.

• 56:56Barry Ritholtz?

  Indian.

• 56:57Speaker 04

  Here's a story about Chinese domestic markets. There's a Western story, Western narrative.

• 57:05Barry Ritholtz?

  And there's a domestic Chinese story.

• 57:07Speaker 04

  And the domestic Chinese story.

• 57:08Barry Ritholtz?

  Which is very different.

• 57:10Speaker 04

  Often it's very different. So we were able, for example, picking up, we were able to pick up way before it got picked up in Western press. The demand for luxury goods in China went off a cliff. In last November.

• 57:31Barry Ritholtz?

  Listen, you can't go from a double-digit GDP to like low to mid-single digits and not have an effect, especially in a country like that.

• 57:39Speaker 04

  But it's interesting, right? Because they've had, you know, ups and downs on business cycle before. But this is the first time where you saw consumer behavior that really was kind of similar to what you might find in a Western consumer behavior. Point being, you didn't hear that from LVMH or the Macau gaming guys until February. And we were picking that up in November from the domestic Chinese media.

• 58:06Barry Ritholtz?

  So that raises a really interesting question. You know, at the end of the day, clients want to be able to make money on your research. How are people putting this to work? How does what you're building help your clients generate alpha?

• 58:23Speaker 04

  What we think we've discovered is an entirely new source of data. And what we're confident is that we've built the systems that are very different from what you see with this sort of. Analytics that are out there from anyone else, right? So this is not sentiment, right? We're not tracking or using mean words or nice.

• 58:45Barry Ritholtz?

  By the way, that was a big thing. I don't know, was that 10 years ago? We're scanning Twitter to identify investor sentiment.

• 58:52Speaker 04

  Oh, my God. I mean, but I was just looking today and not to pick on Bloomberg, but you know, it was their live coverage of the Fed statement.

• 59:03Barry Ritholtz?

  Right.

• 59:04Speaker 04

  And they were analyzing the sentences in the Fed statement for hawkish and dovish sentiment.

• 59:10Barry Ritholtz?

  How it changed from the last meeting.

• 59:12Speaker 04

  And so.

• 59:14Barry Ritholtz?

  So you're saying there's not a whole lot of signal there?

• 59:16Speaker 04

  I want to be careful with what I say, right? Which is that there are a number of, I'll call them high-frequency stat arb guys where if it's important for you to note the difference in word choice on a millisecond level, I think there, I think you can get something out of that. I do. And so there are firms that can do that very well. That's not our game, right? This is not the, what we're trying to identify is not just sentiment, not just word choice. This is not Google Trends and how many times did they mention AI in the earnings report, right?

• 59:59Speaker 04

  There's, we're able to track the actual stories that drive behavior.

• 1:00:02Barry Ritholtz?

  So that, that's the next question and, and I'm going to give Dave Nata credit for asking this. Does every narrative turn into a decision? How do you know when something is merely noisy versus where there's a significant tradable signal?

• 1:00:22Speaker 04

  I don't, right? So this is, my goal is not to, you know, do the trades. My goal is, Mr. Hedge Fund Guy, Mr. Asset Allocator, you've got a, you know China, right? You know your companies, you know your commodities. Here is data that.

• 1:00:49Speaker 04

  I think you'll find useful. The efficacy of it, though, is up to you. I don't know what you want to do with it. I want to sell the picks and shovels, honestly, for this vast new dataset that we all know is important, but we haven't been able to measure it in a very predictive way before.

• 1:01:07Barry Ritholtz?

  So let's talk about a few things related to that.

• 1:01:09Speaker 04

  Can I say one more thing?

• 1:01:10Barry Ritholtz?

  Sure.

• 1:01:11Speaker 04

  And it's not just about using this for investment. So we have a product for financial advisors.

• 1:01:16Barry Ritholtz?

  Uh huh.

• 1:01:17Speaker 04

  Right, which is your client's coming in, you've got a portfolio, you need to be able to say, what is my client? What are they worried about? What are they nervous about? What are they hopeful for? What are the stories they're reading?

• 1:01:34Barry Ritholtz?

  And you're pulling this out of the flow of media.

• 1:01:36Speaker 04

  And we can tell you exactly, for the portfolio you've got for that client, here's what they're going to be asking about, worried about, and here are the answers you can give them to show, this is when it's happened before, when this story has come up, stay the course, it's going to be fine. This is the sort of stuff we can do for financial advisors.

• 1:01:54Barry Ritholtz?

  Huh, that's really interesting. I would love to see some of that.

• 1:01:57Speaker 04

  It's not just in markets, Barry. I got to tell you, the...

• 1:02:01Barry Ritholtz?

  Policymakers? Corporate executives?

• 1:02:04Speaker 04

  Positive. So we did, you know, we did before, in the run-up to the Russian invasion of Ukraine.

• 1:02:11Barry Ritholtz?

  Uh huh.

• 1:02:12Speaker 04

  And we published this on Epsilon Theory. And this is my old academic work.

• 1:02:16Barry Ritholtz?

  Right.

• 1:02:17Speaker 04

  The book, Getting to War. Before a country starts a war, they mobilize public opinion.

• 1:02:21Barry Ritholtz?

  Right.

• 1:02:22Speaker 04

  And so we were looking at domestic Russian media, looking and saying, friends, this isn't going to be a limited thing.

• 1:02:30Barry Ritholtz?

  This is happening.

• 1:02:31Speaker 04

  This is happening. It's going to be a full-scale invasion. Because that was the messaging in domestic Russian media to the Russian people.

• 1:02:38Barry Ritholtz?

  Wow.

• 1:02:39Speaker 04

  So... Brands, right? So you are, you know, we're working with some, some, it sounds crazy, but pro sports teams.

• 1:02:49Barry Ritholtz?

  Mm-hmm.

• 1:02:50Speaker 04

  You want to tell a story to

• 1:02:53Barry Ritholtz?

  Your fanbase.

• 1:02:53Speaker 04

  Build a stadium.

• 1:02:54Barry Ritholtz?

  Sell some tickets.

• 1:02:55Speaker 04

  To sell some tickets.

• 1:02:55Barry Ritholtz?

  Build a stadium.

• 1:02:57Speaker 04

  Give me some examples of people who've told good stories and how did that work for them? How can we do the same thing?

• 1:03:04Barry Ritholtz?

  So, so if Jeff-

• 1:03:05Speaker 04

  So, what you're trying to look at is storytelling.

• 1:03:06Barry Ritholtz?

  If Jeff Bezos was a subscriber to this back when he was trying to build a tax-funded HQ on Hudson, um, had he had your data and you were crunching all the New York City, uh, news stories about this, might you have been able to give him advice that

• 1:03:26Speaker 04

  A million percent.

• 1:03:28Barry Ritholtz?

  He suffered such a backlash.

• 1:03:29Speaker 04

  Because you know what we have today? We have polls.

• 1:03:32Barry Ritholtz?

  Right.

• 1:03:32Speaker 04

  Because we-

• 1:03:33Barry Ritholtz?

  Which are terrible.

• 1:03:33Speaker 04

  Which are terrible.

• 1:03:34Barry Ritholtz?

  Mostly terrible.

• 1:03:35Speaker 04

  Which are mostly terrible. Now, you know, and, and I love the polymarket stuff and other things where you try to get as many people as possible to put money on something.

• 1:03:42Barry Ritholtz?

  Right. So, you know, when you ask a person a question, you're asking them, hey, what do you think you think and what do you think you're going to do in the future? When we know people are terrible at both of those things.

• 1:03:53Speaker 04

  Terrible at both of those things.

• 1:03:54Barry Ritholtz?

  But if you put a little money on it, all right, maybe they might be a little more circumspect.

• 1:03:58Speaker 04

  That, that, that helps, that helps a ton. So, so in places where you can have them make a bet, I think that improves the kind of information you can get. It still lends itself to a lot of manipulation and a lot of

• 1:04:10Barry Ritholtz?

  Sure. They're not, listen. Polymarkets and calci and all those things, it, it's not the bond market, it's not a hundred and something trillion dollars, it's a couple of bucks on each of these and sometimes a million dollars moves them, or half a million dollars can move a market.

• 1:04:25Speaker 04

  But for a lot of things, let's say you're polling for a political candidate, right? You can't ask them to put money down on something, right? But, but you really want to know, these, these policies that my candidate is thinking about taking on, is that popular? Does it resonate? Is it a compelling story? We can absolutely see if that is true by looking at local media, local social media, all of that. So it's- It's pretty wild there. I mean, once you start looking at how important stories are, and once you've got a tool where you can actually measure them and visualize them, it's like, it's like, I feel like it was like when they invented, whoever was Loven Hook or whoever, they did the microscope.

• 1:05:10Barry Ritholtz?

  Mm-hmm.

• 1:05:10Speaker 04

  When you're actually to see something that we all know is there.

• 1:05:13Barry Ritholtz?

  Well, now we do, back then.

• 1:05:15Speaker 04

  Right, right, right.

• 1:05:15Barry Ritholtz?

  Like, remember germ theory took, what, a century to catch on?

• 1:05:18Speaker 04

  It took a century, and it takes, it takes seeing it, right? It takes an instrument to actually measure it before you actually believe in it. And so, I feel like that's kind of where we are right now. It's these early days, but to actually see and measure the storytelling at this level of resolution, this magnification, is pretty freaking cool.

• 1:05:37Barry Ritholtz?

  So, so we're having this conversation with market at all-time highs.

• 1:05:41Speaker 04

  Mm-hmm.

• 1:05:41Barry Ritholtz?

  And you've written about the ravine.

• 1:05:44Speaker 04

  Yep.

• 1:05:45Barry Ritholtz?

  Tell us a little bit about what is the ravine? How does, does your data identify that? Tell us what this means.

• 1:05:54Speaker 04

  Well, there's, there's, there's clearly been a change in policy regime out of, of Washington, and...

• 1:06:02Barry Ritholtz?

  New administration and a radically different...

• 1:06:04Speaker 04

  Radically different approach.

• 1:06:05Barry Ritholtz?

  Even from the first, uh, Trump presidency?

• 1:06:08Speaker 04

  Even from the, the first presidency. And so what we're able to, to measure, really measure, is how does that, I'll say, play? But also, what comes... Narratives never happen in a vacuum.

• 1:06:24Barry Ritholtz?

  Mm-hmm.

• 1:06:25Speaker 04

  There's always a counter-story. For every bull story, there's a bear story. Uh, and they, they, they, you can almost kind of see the battlefield of ideas, the battlefield of stories, and how it emerges. So, my strong sense, Barry, is that we are going towards, politically, in this country, towards...

• 1:06:51Speaker 04

  Trench warfare, greater and greater, I'll call it narrative violence.

• 1:06:56Barry Ritholtz?

  Mm-hmm.

• 1:06:58Speaker 04

  And it, if you look historically, how that plays out in countries, it doesn't, it doesn't play out well.

• 1:07:04Barry Ritholtz?

  Civil war, domestic political violence, things like that?

• 1:07:08Speaker 04

  Sadly, yes. Exactly like that. Exactly like that. So, there's that element, and so, that's a, that's a sad one, or a very troubling one, in trying to, well, how do we navigate that? But even when, in, in markets, and I alluded to this earlier, how capital markets have become a political utility.

• 1:07:29Barry Ritholtz?

  Mm-hmm.

• 1:07:30Speaker 04

  And, the, the role of markets in our society, you can really see how that changes in the stories we tell ourselves about the role of markets, what it's there for. And I-

• 1:07:46Barry Ritholtz?

  End of day options and speculation. What else is it supposed to be there for?

• 1:07:49Speaker 04

  But that, but that's kind of what I'm getting at, Barry, right? You, you can see an enormous change in the meaning of markets, and it connects with, yes, they'll call it the speculation layer, but it also connects with financial nihilism, YOLO. It, it, it leads to a very, I think, less attractive future-

• 1:08:20Barry Ritholtz?

  Mm-hmm.

• 1:08:21Speaker 04

  -for how we think about money and the role of markets and the role of capitalism.

• 1:08:28Barry Ritholtz?

  Coming up, we continue our conversation with Ben Hunt, president and co-founder of Persian, discussing how money managers use their output to generate alpha. I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio.

• 1:09:01Speaker 05

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• 1:09:27Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Ben Hunt. He is president and co-founder of Persiant, a data analytics, narrative storytelling, large language model using artificial intelligence to find some signal amongst the noise firm. Their clients range everything from large money managers to hedge funds to academics and corporate America.

• 1:10:07Barry Ritholtz?

  So you write epsilon theory and some of it is for subscribers, some of it is public. A lot of it's public, yeah. One of the things you wrote is absolutely my favorite item from the first few months of the Trump presidency because I like to talk in probabilities because I don't know what's going to happen. But here's the best case scenario, here's the worst case, here's all the middle scenarios. You wrote a piece, "The End of Pax Americana," that I thought was the most cogent, imaginative, well-thought-out, "Hey, here's the worst-case scenario and we are becoming dangerously flirting

• 1:10:52Barry Ritholtz?

  with this possible outcome." And I use that as, "All right, so here's what I think is high probability, here's the best case, but if you really want to think about how this can go off the rails, check out what Ben wrote." And so tell us a little bit about how did Persiant... Inform the end of Pax Americana because I get the sense that domestically that wasn't really where a lot, what, how a lot of people were thinking, but I got the sense from overseas that was a much more common thought. Tell us a little bit about both the piece and how the data informed it.

• 1:11:33Speaker 04

  I'll start with the, I'll call it the international dimension. I want to come back to the domestic dimension because I think we've got some really interesting data recently to share. It goes back to this, again, I cringe when I talk about, but it is, it is game theory, right? And all game theory is, is strategic interaction. It's that the United States, yes, is the most powerful player on the world stage, but every country has some degrees of freedom and some autonomy in their, in the policies that they, that they implement. There is not a dominant strategy, meaning an outcome, an equilibrium outcome. Again,

• 1:12:17Speaker 04

  I hate using these words, but I'll use them anyway. All an equilibrium means is it's a balancing point where both parties, let's call them the United States and a European country, where do they end up where they all say, okay, I can live with this, where I can live with this. And the America first set of policies, and there's all these set of policies, what you end up with is less potential economic growth, trade, all, all of these things.

• 1:12:50Barry Ritholtz?

  All those things that we enjoyed post-World War II, that realignment that imbued to our benefits so greatly.

• 1:12:58Speaker 04

  Enormously to our, to our, to our advantage.

• 1:13:00Barry Ritholtz?

  Our advantage.

• 1:13:01Speaker 04

  Enormously to our advantage. It goes by the name of soft power and, you know, the dollar system, the Bretton Woods system, all of this.

• 1:13:09Barry Ritholtz?

  Reserve currency on and off.

• 1:13:10Speaker 04

  Reserve currency to finance our deficit. All of this is enormously to our advantage. And yes, there are free riders on that system. Yes, there are costs to that, particularly on defense and some other, some other areas. Tariffs are another area where there's absolutely free riders on that. So there's improvement that can be made in that system for sure. But this is not, this is a different system. This is a different set of rules of the road and it leads to a different strategic interaction between, between countries. So, that's what the note was about and it's, it's, I'm not trying to predict, I'm just, I'm just trying to observe.

• 1:13:50Speaker 04

  And which is a great line actually by George Soros, which is, I'm not predicting, I'm observing, which I love that as a line. I'm not, and our technology is not there to try to predict the future, it's trying to tell you what is true in the present today.

• 1:14:07Barry Ritholtz?

  I, I'm amazed how many people think they can forecast the future when they have no idea what's happening.

• 1:14:14Speaker 04

  I wanna, I want to now cast, is what I want to do. Not, not forecast, I want to now cast. And I guess the way I wanted to talk about kind of domestic. So, we started tracking the different narratives around immigration policy, um, early last year. And what you saw in some of the kind of simp-

• 1:14:37Barry Ritholtz?

  This was during the run-up to the election?

• 1:14:39Speaker 04

  Yes, exactly. And what you saw in really going back, because we can take, we take this stuff back for a decade or more. And what you absolutely saw, up to last October, there's a, there was an event from last October, not the election, but an event from last October. You see a steady increase in, regardless of your political affiliation, you know what? Immigration isn't working for us, isn't, as, as Americans. So a steady increase. Starting with, the, they're eating the, the cats.

• 1:15:15Barry Ritholtz?

  They're eating the cats, they're eating their dogs.

• 1:15:18Speaker 04

  They're eating the dogs. When you saw the Columbus, when you, that, that moment.

• 1:15:23Barry Ritholtz?

  One of the most surreal moments in debate history.

• 1:15:27Speaker 04

  And we see very clearly in our media data. And this is, this is not mainstream media, this is everything that we're pulling up.

• 1:15:39Speaker 04

  We've seen a really significant decline in the volume and density of, oh my God, immigration is a problem, we need mass deportations. On the contrary, we've seen an enormous increase, again regardless of political affiliation, including Republicans.

• 1:15:58Speaker 04

  No, immigration is a good thing for this country. The stories of America that are pro-immigrant in immigration. Now, you would not believe that if you were looking at the policies that the White House has implemented during these first, you know, 10 months of the administration.

• 1:16:16Barry Ritholtz?

  So, wait, when did you first notice that regardless of policy, we think immigration is a net benefit to America? When did that first start showing up?

• 1:16:27Speaker 04

  It started changing, right, in October, because it was like a bridge too far. It was like, this is just stupid. This is silly and stupid. And it's been a steady increase. You know, and you wouldn't, you wouldn't believe that if you were, you know, immersed in Twitter stuff, but, but our country is actually quite pro-immigrant. I know that sounds, but-

• 1:16:52Barry Ritholtz?

  We are a nation of immigrants. Here's another data point that's kind of mind-blowing. We were talking about a different data point. In the entirety of the US history, 2025 looks like the first year where the US population will decrease. So, it's a decrease in legal immigrants, not, not only illegal immigrants, but legal immigrants, add that with the deportations, and just people staying away.

• 1:17:19Speaker 04

  Well, this, this gets back to the, the economic picture and from other, so what you've had is a clear, and again, we, we see this in our data from other countries, there's a clear effort to repatriate assets and funds away from the US. There's been a clear effort outside the US. You see this with central banks, but also with-

• 1:17:42Barry Ritholtz?

  Hence, gold, the big lump in gold, sure.

• 1:17:45Speaker 04

  Treasuries used to be a safe haven asset.

• 1:17:48Barry Ritholtz?

  Right.

• 1:17:49Speaker 04

  No more. That's, that's, it's.

• 1:17:51Barry Ritholtz?

  Do you understand how significant that charge is that you're making? You're basically accusing the president of submarining one of the single greatest assets America holds.

• 1:18:04Speaker 04

  Well, that, it's a, it is built up to such an extent, right? That the way I think of this is an iceberg that is melting, but it is melting. What we do not see, we do not see capital flight.

• 1:18:18Barry Ritholtz?

  Right, we, we saw it for like a week in April and then it quickly reversed.

• 1:18:22Speaker 04

  That was it. So there's, there is, there's no capital flight. There, there are no.

• 1:18:26Barry Ritholtz?

  But there was some fears about that.

• 1:18:28Speaker 04

  Investors leaving the country. There were fears and we can track it. If that starts to happen, we'll see it immediately. That's not happening. Repatriation continues to happen.

• 1:18:38Barry Ritholtz?

  Slowly, measured, balanced.

• 1:18:40Speaker 04

  Melting iceberg.

• 1:18:41Barry Ritholtz?

  Uh huh.

• 1:18:41Speaker 04

  Right? Because there are limits to if you're a Bermuda reinsurer. I mean, you're kind of, you're, you're stuck with treasuries.

• 1:18:48Barry Ritholtz?

  Right, right.

• 1:18:49Speaker 04

  You're.

• 1:18:50Barry Ritholtz?

  You could buy some gold to offset it, but you can't sell a hundred billion dollars worth of treasuries.

• 1:18:54Speaker 04

  You can't, you can't. So it's a melting iceberg, but we can clearly see that. The dog is not barking yet and maybe never will is capital flight.

• 1:19:05Speaker 04

  What we see in politically domestically is that actually, and this was validated by a Gallup poll. They've been doing 20 years, which also showed what we had saw, started seeing a lot earlier. Uh, where

• 1:19:20Speaker 04

  immigration as a thing is actually pretty darn popular in the United States.

• 1:19:25Barry Ritholtz?

  Yeah, but so are, so is restricting assault rifles and we can't get any change on that. That's 75, 80% or the extra large.

• 1:19:36Speaker 04

  I gotta tell you, I gotta tell you, that depends very much on how that question is asked.

• 1:19:40Barry Ritholtz?

  Well, that's true for all polling.

• 1:19:41Speaker 04

  Well, this is the benefit of what I'm trying, so, so when, when we're doing these semantic, we call it the semantic signatures. It has nothing to do with how you're phrasing the question. We're not doing polling. We're seeing what people are actually. The meaning of what they're talking about in media.

• 1:19:58Barry Ritholtz?

  So how does that play out if people are legitimately saying, no, immigration is a good thing for America? Is there an impact on population and the economy? Is there an impact on markets? Is there an impact on policy and politics?

• 1:20:13Speaker 04

  I think there's an impact on the election, the midterms next year.

• 1:20:17Barry Ritholtz?

  So we're talking, we're talking literally 12 months from now?

• 1:20:23Speaker 04

  Yeah, because that's how this, the stuff gets, on the political front, narratives and opinions, they get cashed out in elections, right? Markets are different. You cash stuff out every day, right?

• 1:20:37Barry Ritholtz?

  The feedback loop is so rapid with markets.

• 1:20:40Speaker 04

  Exactly. Politics is a different story, right? It gets cashed out in the elections.

• 1:20:46Barry Ritholtz?

  If you were to ask me before this conversation, what's the most significant impact on the midterm elections? There was just a Gallup poll yesterday. GOP questions on the economy, they were plus 14% two years ago. They're minus 4% this year.

• 1:21:04Speaker 04

  I saw that.

• 1:21:05Barry Ritholtz?

  And that's an amazing swing. And I'm, I'm saying to myself, you know, listen, the out of power party usually picks up, you know, 10, 15 seats. You have the redistricting question, which may blunt that, but if, if the most important question during the election was on the economy, and that's an 18% swing, this is looking like a pretty substantial shift. What I'm hearing from you is, hey, this isn't just about the economy.

• 1:21:33Speaker 04

  It's not. It's not.

• 1:21:35Barry Ritholtz?

  So it's the economy, it's immigration, what else? What else are you seeing that's interesting?

• 1:21:40Speaker 04

  Now, there are other aspects, though, where the, the stories, it, this is, this is people talking about immigration as a thing. Now, whether, now whether that gets translated into a political party position, because I got to tell you, the Democratic Party is enormous enough. There are no, there are no narratives that are being put forward by the Democrats that are powerful or, or, or popular, so I, I don't.

• 1:22:10Barry Ritholtz?

  Other than the mayoral contest in New York?

• 1:22:12Speaker 04

  Yeah. Yeah, right.

• 1:22:13Barry Ritholtz?

  That's this one.

• 1:22:15Speaker 04

  What I'm saying is that the, is that the, many of the policies that are being presented by this administration are unpopular, not just with the Democrats, but with Republicans, and increasingly so. Immigration being one of them. I think economy being another one.

• 1:22:36Barry Ritholtz?

  Tariffs aren't really popular amongst, uh, people perceive that as a tax increase or, or a pressure on small business.

• 1:22:44Speaker 04

  Government shutdown, right? So both in polls and also in this, it's, it's that, because the question, oh, well, the Democrats will get blamed. Well, that's not really true. That's not what's happening.

• 1:22:55Barry Ritholtz?

  Mm-hmm.

• 1:22:56Speaker 04

  Uh, now, how that all pans out is a long way off.

• 1:23:00Barry Ritholtz?

  And by the way, listeners should know, you're not a hard, you're not a Democrat.

• 1:23:03Speaker 04

  Oh, my God. No.

• 1:23:05Barry Ritholtz?

  Like, I know you and your politics and the stuff you're saying, I, I could hear people shrugging and saying, oh, that Ben Hunt is just a liberal Democrat. I'm like, no, no, no, that's not who Ben is.

• 1:23:15Speaker 04

  No, no, it's not.

• 1:23:16Barry Ritholtz?

  You're just talking about, here's what I see in the data.

• 1:23:20Speaker 04

  I'm saying, I'm observing.

• 1:23:21Barry Ritholtz?

  Mm-hmm.

• 1:23:22Speaker 04

  I'm observing, and I think that a lot of times if we are, like me, very online and on Twitter too much.

• 1:23:30Barry Ritholtz?

  Right.

• 1:23:31Speaker 04

  You, you don't see the broader picture of what is happening on blog posts and local newspapers and, and, and everything else. So I think having the ability to read everything and track these stories that, you know, they don't, they, they, like I say, they wax and wane, but they don't, they don't ever go away. The, it's, it's, it's something we're very excited about, to track the stories of America. Uh, I'll, I'll give you another one, and this one actually, I don't know what to do with this.

• 1:24:15Speaker 04

  One of the stories of America is that America has...

• 1:24:21Speaker 04

  Raised the world's wealth, right?

• 1:24:26Barry Ritholtz?

  Global standard of living.

• 1:24:27Speaker 04

  Global standard of living, that America has been this powerful force to and capitalism in America have been this powerful force to raise people out of poverty. That's a story that in other periods of time has been out, has been prominently talked about.

• 1:24:46Barry Ritholtz?

  Very resonant.

• 1:24:47Speaker 04

  That story is non-existent today.

• 1:24:49Barry Ritholtz?

  Well, you cut things like HIV, a few million dollars to inoculate all of Africa from HIV, that's gonna have repercussions.

• 1:24:59Speaker 04

  Well, it's, it's not just that, that, that has the conquer, those repercussions that you're describing. What I'm saying is that the story that would support that, it's gone.

• 1:25:15Barry Ritholtz?

  Is it gone forever?

• 1:25:17Speaker 04

  No, no, that's a point. These things are never gone, these stories, stories have, they never die, right? They're, they're, they're waiting for a new force to give them life.

• 1:25:28Barry Ritholtz?

  The next version of it. If US is not seen as a force for raising people out of poverty around the world, do people see China as that force?

• 1:25:37Speaker 04

  Haven't looked at that. We've been looking at the, the US story, but I, but I, my, my personal sense is, is that we've essentially seeded the field.

• 1:25:46Barry Ritholtz?

  Mm-hmm.

• 1:25:47Speaker 04

  C-E-D-E-D.

• 1:25:48Barry Ritholtz?

  With a C, not an S, right?

• 1:25:49Speaker 04

  Yeah, with a C, not an S. Particularly in South Asia and Africa.

• 1:25:53Barry Ritholtz?

  Uh-huh.

• 1:25:54Speaker 04

  To, to, to China. I, I mean, that, that seems, that seems pretty, pretty clear.

• 1:25:59Barry Ritholtz?

  You know, this is, I'm glad I asked the question about the end of Pax Americana 'cause I, I, I've just found that piece so insightful and so useful, and I could keep you here talking about this stuff for hours, but out of deference and respect for our listeners' time, I'm gonna jump to our favorite questions that I asked.

• 1:26:20Speaker 04

  Oh, sure.

• 1:26:21Barry Ritholtz?

  All of our, all of our guests, but before I do, there's a question that I, I have to pose to you, which is, so you get to see things before they sort of bubble up into the mainstream, before they become a well-understood narrative.

• 1:26:40Barry Ritholtz?

  What's a narrative that you're just starting to sniff out that most of the world or most of the country or most of Wall Street and finance hasn't seen yet?

• 1:26:54Speaker 04

  It's a story that people are talking about since Tri-Color and First Brands went out.

• 1:27:01Barry Ritholtz?

  Right, the, the-

• 1:27:03Speaker 04

  So it's a story on, on credit.

• 1:27:05Barry Ritholtz?

  Uh huh.

• 1:27:05Speaker 04

  Story of credit and-

• 1:27:07Barry Ritholtz?

  I mean, First Brands is legitimate. It sounds like felonies were happening there, so we'll have to see with, how that plays out.

• 1:27:15Speaker 04

  I think probably Tri-Color as, as well, but my point is that every day you have a new bank CEO come out and say, "No, no, everything's fine." Right, so yesterday it was David Solomon at Goldman Sachs saying, "No, no, it's fine." Uh, today I was hearing the Brookfield guy saying, "No, no, it's fine." For every story, every interview, the guy says, "It's fine." You're getting two articles in the FT or the Journal saying, "Ain't fine." So the-

• 1:27:47Barry Ritholtz?

  You think thou doth protesteth too much? Is it that?

• 1:27:50Speaker 04

  Well, I am, I, all I'm saying is I am observing, I'm not predicting, I am observing the level of volume for, "Hmm, alternative asset managers, their exposure to private credit, this is problematic." "Oh, I'm wondering what's going to happen when the music stops." "Oh, I think that these, this blows back into the commercial banking system." Those stories, those narratives are higher by an order of magnitude than they've been at any point in the last 10 years.

• 1:28:21Barry Ritholtz?

  Hmm.

• 1:28:22Speaker 04

  At any point, including during COVID, during, when you had similar concerns over, "Oh my God, private credit's going to be a problem."

• 1:28:29Barry Ritholtz?

  COVID was easy to rationalize everything. "Hey, listen, we're all frozen, just ignore it."

• 1:28:34Speaker 04

  But I- This is a story that has legs.

• 1:28:37Barry Ritholtz?

  Uh huh.

• 1:28:38Speaker 04

  It is growing in a way that I rarely see. And once a story like this grows, it doesn't just go away. And it's not fixed by Bernanke saying, oh, subprime is contained.

• 1:28:51Barry Ritholtz?

  Right. It's immediately what I thought of as soon as you mentioned.

• 1:28:53Speaker 04

  Absolutely. It does not get fixed by people saying, don't worry, there's no problem.

• 1:28:59Barry Ritholtz?

  Jim Grant said he was right. It was contained to Earth.

• 1:29:03Speaker 04

  Yes, yes.

• 1:29:04Barry Ritholtz?

  The rest of the solar system was fine, which turned out to be a very witty and clever observation.

• 1:29:09Speaker 04

  This story, this worry, this concern absolutely has legs.

• 1:29:13Barry Ritholtz?

  Uh huh.

• 1:29:14Speaker 04

  And we're seeing no signs of it easing off in financial media and press.

• 1:29:21Barry Ritholtz?

  So the, the big question is, is it systemic? Or is it the specific?

• 1:29:27Speaker 04

  I say, I, I don't know the truth.

• 1:29:29Barry Ritholtz?

  Right.

• 1:29:29Speaker 04

  I don't know reality. All I can tell you is.

• 1:29:33Barry Ritholtz?

  We're seeing more of this.

• 1:29:34Speaker 04

  Well, we're seeing this is, this is the story.

• 1:29:37Barry Ritholtz?

  Ha, really, really interesting. Let, let's jump to our favorite questions, starting with, who are your mentors who helped shape your career?

• 1:29:47Speaker 04

  Hmm, that's good. Well, I, you know, I mentioned that, uh, the people both in undergrad and graduate school who turned me on to the science part of political science.

• 1:29:58Barry Ritholtz?

  Uh huh.

• 1:29:58Speaker 04

  And in particular, uh, in graduate school, Gary King, uh, who runs the whole social science research center up there at Harvard, uh, and has for a long time now. He wrote the original, really the book on inference. You hear about inference all the time now.

• 1:30:12Barry Ritholtz?

  Chaldini, of course.

• 1:30:14Speaker 04

  So the, the notion of inference, taking large data sets and pulling out.

• 1:30:19Barry Ritholtz?

  Oh, inference. I thought you said influence.

• 1:30:21Speaker 04

  No, no, no, no.

• 1:30:22Barry Ritholtz?

  Inference.

• 1:30:23Speaker 04

  Inference.

• 1:30:23Barry Ritholtz?

  Uh huh.

• 1:30:24Speaker 04

  So the science of inference, the, I learned that from Gary, you know, 30 years ago. And it's so interesting to see that come full circle because that's at the core of. You know, Jensen Wong's always talking about it and the whole notion of AI to that inference spend they talk about. I was there at the beginning for how you, what inference is and why it is so powerful. That was a huge influence on me.

• 1:30:52Barry Ritholtz?

  Let's talk about books. What are you reading now? What are some of your favorites?

• 1:30:57Speaker 04

  I'm a science fiction guy.

• 1:30:59Barry Ritholtz?

  Okay.

• 1:30:59Speaker 04

  I really am.

• 1:31:00Barry Ritholtz?

  You're talking to another sci-fi guy, so let's.

• 1:31:02Speaker 04

  So I, I.

• 1:31:03Barry Ritholtz?

  Give us something new and something classic.

• 1:31:05Speaker 04

  Well, something classic would be Liu Xishan and the Three Body Problem.

• 1:31:10Barry Ritholtz?

  Right. By the way, the Netflix show on that was surprisingly watchable.

• 1:31:14Speaker 04

  I thought it was excellent. Before that, and you know, I named a company after him, was the Foundation trilogy.

• 1:31:22Barry Ritholtz?

  Asimov.

• 1:31:22Speaker 04

  With Asimov. Those books hold up less well, honestly, and I thought the, the series was, it had its moments.

• 1:31:28Barry Ritholtz?

  I didn't love the series.

• 1:31:29Speaker 04

  It was, it was so, pretty so so to me. Current science fiction, Rebecca, she goes by R.F. Kuang, and she wrote a book called Babel. And she's got a new one out.

• 1:31:45Barry Ritholtz?

  Two Bs or one B?

• 1:31:46Speaker 04

  I like Tower of Babel.

• 1:31:48Barry Ritholtz?

  Right.

• 1:31:48Speaker 04

  B-A-B-E-L. And she's got a new one out, Catastasis, I think it is. But science fiction, dealing with language and linguistics, I love that stuff.

• 1:31:57Barry Ritholtz?

  That, that, that sounds like that's right in your, your sweet spot. Let's talk about streaming. What are you watching or listening today? Podcasts or Netflix or whatever?

• 1:32:06Speaker 04

  So honestly, I don't listen to any podcasts. Isn't that terrible to admit?

• 1:32:10Barry Ritholtz?

  Well, if you host, I will say this, if you host a podcast, you're either preparing for a podcast, doing a podcast, or ordling a podcast.

• 1:32:18Speaker 04

  Right, right.

• 1:32:19Barry Ritholtz?

  So it's like, all right, that's three or four.

• 1:32:21Speaker 04

  That's all it is, yeah.

• 1:32:22Barry Ritholtz?

  Right. Every now and then I'll, I'll catch something because I want to either listen to this, a specific guest. Like I, I will not listen to any podcasts that you're on before we do our podcast.

• 1:32:33Speaker 04

  Right.

• 1:32:33Barry Ritholtz?

  Because I don't want to steal anybody else's.

• 1:32:35Speaker 04

  Yeah, or.

• 1:32:36Barry Ritholtz?

  Narrative or questions or line of thinking. So I, that's purposeful. But every now and then, so I listen to. The things I listen to are like John Pezzarelli's Radio Deluxe.

• 1:32:49Speaker 04

  Yeah, yeah.

• 1:32:51Barry Ritholtz?

  Which is sort of like a podcast slash music series.

• 1:32:55Speaker 04

  Something a little different.

• 1:32:56Barry Ritholtz?

  Yeah.

• 1:32:56Speaker 04

  Exactly right.

• 1:32:57Barry Ritholtz?

  What about streaming? What are you watching?

• 1:33:00Speaker 04

  Well, you and I are both big Godfather fans, so we love all the mobster. Have you seen Mob Land yet?

• 1:33:05Barry Ritholtz?

  No.

• 1:33:06Speaker 04

  All right. Worth your time.

• 1:33:08Barry Ritholtz?

  Okay.

• 1:33:09Speaker 04

  Pierce Brosnan eats up every scene. Tom Hardy is awfully good. I just love him in anything. If you, I don't know if you ever saw Peaky Blinders, right?

• 1:33:18Barry Ritholtz?

  I started that and I kinda fall.

• 1:33:20Speaker 04

  Couldn't get into it?

• 1:33:21Barry Ritholtz?

  So my issue is I have to watch something that my wife tolerates. Like I have, I have friends.

• 1:33:27Speaker 04

  That's a struggle.

• 1:33:28Barry Ritholtz?

  Who, like, he goes into this room, she goes into that room, they don't watch anything together. Like, I don't know how that works. Like, she will watch some stuff without me, I will watch some stuff without her.

• 1:33:40Speaker 04

  Right. You gotta have your own space.

• 1:33:41Barry Ritholtz?

  But eighty percent of what we watch, so I have fallen down the British upstairs, downstairs, Gilded Age.

• 1:33:49Speaker 04

  Yeah.

• 1:33:49Barry Ritholtz?

  So we watch The Crown, we watch The Gilded Age, we finally.

• 1:33:53Speaker 04

  Let me give you one.

• 1:33:54Barry Ritholtz?

  We went back to Downton Abbey, which I missed when it first rolled out.

• 1:33:58Speaker 04

  Check out, so My Guilty Pleasure, and I do watch this with my wife, is Diplomat.

• 1:34:03Barry Ritholtz?

  The new series just, the new season just dropped.

• 1:34:05Speaker 04

  Yeah.

• 1:34:06Barry Ritholtz?

  And that's teed up for this weekend. I'm looking forward to that.

• 1:34:09Speaker 04

  Excellent.

• 1:34:09Barry Ritholtz?

  That, the first, was the season two or season three? The first season was great.

• 1:34:14Speaker 04

  Yeah, yeah.

• 1:34:15Barry Ritholtz?

  And I'm gonna give you, if you like that, um, so my wife finds these really interesting. She got me into Killing Eve, which was a little more spy fare than diplomacy. Um, and if you get a chance to watch Slow Horses.

• 1:34:30Speaker 04

  Oh, that's the one I've gotta see, yeah.

• 1:34:32Barry Ritholtz?

  It's really, so the first season is great, and people have told me the most recent season. It, it, some people will say, I don't like the second or third. I, I know people who loved it all the way through, but it's, it's really, um, it's really an interesting, well-told, beautiful cast.

• 1:34:51Speaker 04

  Fantastic.

• 1:34:52Barry Ritholtz?

  Yeah, you'll, you'll love that. Um, our final two questions.

• 1:34:56Speaker 04

  Yeah.

• 1:34:57Barry Ritholtz?

  What sort of advice would you give a recent college grad interested in either investing or working with large language models, working with narrative analysis and artificial intelligence?

• 1:35:11Speaker 04

  Hmm. Don't.

• 1:35:16Speaker 04

  And I say that tongue in cheek.

• 1:35:18Barry Ritholtz?

  You had a lot of fits and starts going back seven, eight years.

• 1:35:22Speaker 04

  For sure. And I.

• 1:35:28Speaker 04

  I tell you what I, I think is important.

• 1:35:36Speaker 04

  You have to, what do you, what I think you can accomplish in academia, either grad school or whatever it is, is you build your intellectual capital. And so I think a lot of times when you get out of college, you say, okay, I'm just ready to kind of live my life and start something. And you haven't built that intellectual capital yet.

• 1:35:59Speaker 04

  The, the issue is though, is that once you enter, particularly the investment world, where if you're responsible for managing other people's money.

• 1:36:10Speaker 04

  Brother, that's it. Right? I mean, you're, you're, there's, there's not, you've, that's got to be your, your total focus. You are spending your intellectual capital. You're not gaining intellectual capital. Once you take on a role like that. So I, my first advice is find a path where, and that's often in, in academia, where you're building intellectual capital, because once you leave that environment.

• 1:36:41Barry Ritholtz?

  Then you're spending it down.

• 1:36:42Speaker 04

  You're spending it down.

• 1:36:43Barry Ritholtz?

  Makes sense.

• 1:36:44Speaker 04

  Spending it down.

• 1:36:44Barry Ritholtz?

  Our, our final question, what do you know about the world of fill in the blank, investing, uh, data analytics, narrative storytelling today would have been helpful 25, 30 years ago?

• 1:37:00Speaker 04

  In investing,

• 1:37:03Speaker 04

  I wish, I wish I had understood.

• 1:37:08Speaker 04

  The role of... Let me step back a second. I think that whether you're talking about data or whether you're talking about investing. I'll speak for myself, but I think there are a lot of people like me. We think there's an answer with a capital A.

• 1:37:26Barry Ritholtz?

  Uh huh.

• 1:37:27Speaker 04

  Right there in the, in the numbers. And if you just look hard enough and if you work hard enough, you'll find that answer, right? You'll find the secret, the secret formula.

• 1:37:38Barry Ritholtz?

  And you have learned since then?

• 1:37:40Speaker 04

  Ain't no such thing. Right now, there is magic and there are patterns, but it's, it's, it's not in the structured data, it's not in the numbers. It's actually in the error. It's in the probabilities. It's in, we're calling, you know, the stochastic element, right? The, the, the role of chance and understanding that there are patterns and there's real magic in understanding that. I didn't get that when I was either starting with data analysis or with investing. I was looking for the answer with a capital A as opposed to a process with a capital P.

• 1:38:21Barry Ritholtz?

  I, I love that answer because, so my exercise in confirmation bias is, I love the fact that you looking back, we all have the benefit of hindsight.

• 1:38:34Speaker 04

  Yeah.

• 1:38:35Barry Ritholtz?

  And unfortunately, that can be a bias to certain people, but when you're looking back at it, you know how it happens. At the moment, when you don't know what the outcome is, thinking about it probabilistically is a much healthier approach than saying, here's a binary, up or down, yes or no, and I'm either right or wrong. And I see people struggle with that constantly.

• 1:38:59Speaker 04

  Constantly. When I first started in the investing world, getting late, I got two pieces of good advice, right? One was, never go all in.

• 1:39:08Barry Ritholtz?

  Right.

• 1:39:09Speaker 04

  Which is, which is really interesting because it's, this, this business of investing, it's a wonderful life. You were solving puzzles, we meet interesting people, we get to have these sort of conversations. It's a, it's a career for a lifetime and...

• 1:39:27Speaker 04

  The two pieces of advice are laid, never go all in. And also, reputation is absolutely the most important thing. And again, especially when you're young, you think, oh, well, that's not the most important thing, you know, being right is the most important thing. It ain't. It's playing the long game here, what you want to. It's never go all in. And the reputation is-

• 1:39:54Barry Ritholtz?

  By never go all in, by never go all in, you mean never put everything at risk so that if it doesn't work out, you're out of the game?

• 1:40:02Speaker 04

  You're out of the game, stay in the game.

• 1:40:04Barry Ritholtz?

  Was it Gerald Loeb's book, The Battle for Investment Survival?

• 1:40:07Speaker 04

  Stay in the game. Avoid that risk of ruin, you just, or don't ever risk ruin.

• 1:40:14Barry Ritholtz?

  That makes sense.

• 1:40:15Speaker 04

  Because-

• 1:40:16Barry Ritholtz?

  People don't think in those terms, but that's really, all in means risk of ruin.

• 1:40:20Speaker 04

  It's the risk of ruin. And it also connects with reputation, because once you-

• 1:40:29Barry Ritholtz?

  Once you blow up, it's tough to go back.

• 1:40:31Speaker 04

  And you start saying, oh, I can fix it by taking this shortcut or doing this other thing.

• 1:40:37Barry Ritholtz?

  Right.

• 1:40:38Speaker 04

  And once you do that, it never ends well.

• 1:40:40Barry Ritholtz?

  All right.

• 1:40:41Speaker 04

  And you tell yourself, oh, just this one time, it's never this one time.

• 1:40:45Barry Ritholtz?

  Ben, this has been absolutely delightful. I'm so glad we've finally-

• 1:40:50Speaker 04

  Me too.

• 1:40:51Barry Ritholtz?

  -gotten around to doing this. I'm just entranced by your thought process, some of the things, like, I love reading stuff of yours that I totally disagree with. And then, because it forces me to say, well, he's not just making this up, I know how you, your brain works. And it's like, all right, if Ben is saying this, then I'm gonna make this my worst case scenario. Because it's easy to dismiss it. Everybody goes out seeking, confirming information. And rather than being dismissive of it, all right, you claim to think probabilistically, where does this fit into the range of probabilities? And once you start thinking in those terms, it's like, oh, so the worst case scenario

• 1:41:34Barry Ritholtz?

  is worse than my worst case scenario. I gotta move the bottom of my range down further, because if this goes off the rails, this is really bad. That's what your Pax Americana piece did with me.

• 1:41:47Speaker 04

  Well, thank you, Barry.

• 1:41:48Barry Ritholtz?

  And it really, it really helped me figure out how to think about, especially in that week. Between April 2nd and 9th, where everyone was losing their mind. It's like, oh no, so they're losing their mind because hey, this could happen, but maybe something good comes out of it.

• 1:42:04Speaker 04

  Trying to avoid tunnel vision, I think is so important in our business, or any business, but especially our business.

• 1:42:09Barry Ritholtz?

  In our business in particular. Well, thank you for being so generous with your time. We have been speaking with Ben Hunt. He is the co-founder and president of Perscient, and you can find his writing at Epsilon Theory. If you enjoy this conversation, well, check out any of the 593 we've done over the past 11 and a half years. You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Be sure and check out my new book, How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth and How to Avoid Them at your favorite bookseller. I would be remiss if I did not thank the crack staff

• 1:42:54Barry Ritholtz?

  that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna-Luke is my podcast producer. Sage Baumann is the head of podcasts here at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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