Epsilon Theory examines how markets resemble a chaotic “Three Body Problem,” where traditional investing signals lose predictive power under massive central bank intervention. The piece argues that $20 trillion in global quantitative easing distorted relationships investors long trusted, challenging assumptions around quality investing and pricing.
The Three-Body Problem
Epsilon Theory
Ben Hunt
Research
13 Pages
Key Takeaways
Central Bank Gravity: The Big 4 central banks expanded balance sheets beyond $20 trillion, overwhelming traditional “good company equals good stock” relationships after March 2009.
Quality Factor Breakdown: A market neutral global quality index gained less than 3% across 8.5 years while the S&P 500 climbed nearly 300% during quantitative easing.
Sovereign Debt Distortion: Portugal’s 10 year yields once traded roughly 9% above U.S. Treasuries in 2012, yet later borrowed at lower rates despite worsening debt ratios.
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