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Jonathan Tepper

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2024-03-18
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2024-03-18
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  1. “If the auto leading indicators are turning down, that's interesting, but no one directly trades car sales in the US, right? It's not tradable what you trade is GM and Ford stocks. And stocks themselves are leading indicators because they're essentially forward-looking and investors talk to management. They go to showrooms. They're gathering a lot of data points. And so what you really want to do is get a lead on stock prices themselves. And so we've done an enormous amount of work on global financial conditions, liquidity conditions on a country specific basis, and then on an aggregate consolidated basis. And those are very, very useful because they tend to lead the economic leading indicators themselves by about six months, and they tend to lead asset prices too. So we have a lot of our liquidity indicators will lead commodity prices. They'll lead even stock prices by good 6, 9, 12 months.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “So the work on leading economic indicators goes back many decades, and we certainly are not the ones to invent them. You can go back to Victor Zarnowitz, Jeffrey Moore, and others, and then you have the OECD and the conference board with their leading indicators. And then if you look at the big banks, only Goldman has a few leading indicators. Most economists, like the Fed ignores them, the Wall Street banks ignore them. There is a very good research company called ECRI that does some leading indicators. But what we try to do, and the only reason we care about them, is because actually we want to try to help clients make money. So if a sector or an economy at large is turning down according to our tools, and the market.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “Indicators don't. The yoke curve, there's an extensive amount of academic research and research that we've done that shows that it's very useful. People tend to ignore it at most points in time. I mean, lately people are getting obsessed with it, which is quite rare. Normally people ignore it. But even there, for example, it makes complete sense, right? Banks are in the business of essentially borrowing short and lending long. And so to the extent that the yoke curve flattened significantly, it compresses net interest margins and therefore has an impact on lending and liquidity in markets. So we try to find things like that that make complete sense when you explain it to someone. There's no sort of real magic in what we do. It's identifying sensibly what things are useful and then aggregating them and turning them into an index where you can take multiple components together and then see what the overall picture is.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Certainly. So on the leading economic side, there are certain things that tell you where the economy is going to be in three, six, nine, or twelve months. And it's generally difficult to look out past that, particularly on the growth side. On the inflation side, because inflation is so lagging, so if you think of supermarkets don't immediately start raising prices until they're sure the demand is there, they don't start cutting prices until they're sure that it's dropping off. And then wage cycles are yearly, so you wait to ask for your raise, and then it takes time to feed through. So inflation lags considerably, but generally when you're looking at the economic cycle, there are certain things that intuitively make sense and have a clear cause and effect. So, for example, the building cycle, whether it's housing, particularly residential, when you get a building permit, you know that you've got this sort of long pathway of visibility where you're going to have to go break ground, hire workers, and when the house is done, people are going to go out and buy white goods and carpets. And so it gives you a long lead intuitively in the way that some other”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “I'm starting with this skeptical premise, then anytime you think about forecasting, there's always been so much noise around any signal. With that sort of healthy degree of skepticism, why don't you walk through how you sort of took apart what these indicators are?”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “So if you develop certain insights about how business cycles work, you should be able to apply this across multiple economies, and then you should be able to apply this across time.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “And then, more importantly, it doesn't matter whether the economy is good or bad. What matters is the change in the direction. So markets are all about surprise. So I thought if I can figure out where things are going and have a better sense of where assets are priced relative to what one would expect, I think that's where you get very interesting trading ideas. So variant what we do is build leading economic and leading liquidity indicators and to the extent that our tools diverge from what we're seeing in prices, that's where you end up with surprise and that's where you end up with trading opportunities. And the other thing I saw was that a lot of the research I was consuming was by people I respected and liked, but ultimately it was a guru. And I think that macro in particular has a focus and an emphasis on gurus. And the problem there is that it's a crystal ball in a way. It's like a black box. These guys supposedly can read the future and you don't really know how they do it, right? They have some sort of inspiration. And I thought, surely this could be done in a way that's robust, repeatable, and scalable.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Very perception is the economic research company that I started about 10 years ago with a couple colleagues, and that really almost grew up by accident. Before that, so I started out as an equity analyst at SAC Capital, but I still had that sort of economics bug in my brain. And a friend was running the prep desk at Bank of America in London, so I went over to work with him. And it was at the time that I just started consuming loads of economic research and realized that a lot of it was, I didn't think very suited to our purposes. So trying to figure out when the next recession was going to happen in 05, 07. And I started doing loads and loads of research. And I thought, surely some economists have already solved this one and realized that nine out of ten economists had missed the last four recessions where we had the blue chip consensus estimates. And so I thought all the bond traders that were sitting next to us on the prop desk were trading non-form payrolls. And I realized all this data gets heavily revised. It's pretty useless anyway. And I thought we only make money by what's going to happen, not by what has happened.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “My brother sent me his college economics textbooks, so I had already done like the first year of micro, macro, and international trade by the time I enrolled as a freshman. And so then it gave me time to do more advanced topics and then do my honors thesis, which was on optimal currency area theory. So that was sort of pre-euro. That was 97, 98. And I thought the euro was an incredibly stupid idea because I was looking at the correlation of employment shocks with Netherlands and Germany and Spain and Germany and the sort of core periphery issues quite were already evident then. And it was clear that there were different business cycles and so setting one interest rate or one monetary policy wasn't going to work.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “Because I realize that as long as I had the books and the desire, I could learn anything I wanted and I could go at whatever pace I wanted. And after that, when I did go back to school with my brothers, and my older brother went off to college, I got him to send me all his freshman textbooks. And so I then was able to take 10 advanced placement tests and got credit for about two years of college. So I could have gone through college in two years, but ended up doing four just because I thought I could only go through college once. Might as well take advantage of this time and be working the rest of my life.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “It was very strange because my parents were missionaries in the 1980s. And the way that it worked, a lot of American churches would send money. And I became acutely aware at the age of 10 that foreign exchange was a big issue because my grandparents would send me checks. And so I would get something like $20 for my birthday. And I would take my brothers to McDonald's, which is like a treat in the 1980s and in Madrid. And so I realized I was buying half as many Big Macs for my brothers as I used to by coincidence at the same time as the economist came out with the Big Mac index. And my father started explaining to me foreign exchange and economics. And I just thought it was so fascinating that I then became slightly obsessed by economics and finance because my parents also weren't getting their salary cut in half. It wasn't just my Big Macs. They didn't really have very much money. And so my mother taught us at home for two years. And one of my favorite pictures is of my mother teaching us at home. So homeschooling. And I hated it at the time because I thought it was very embarrassing not to be able to go to school with my friends. But it was extraordinary.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “One I saw my parents were real entrepreneurs, even though they were missionaries, they were starting businesses all over Spain, run by the attics. They trusted them. I also learned a lot of leadership lessons from my parents. There's a very good book called Mastery by Robert Green, and the True Simple Rules He has is one, finding great mentor, and two, get rid of them. And I think that what often happens in organizations is that the person running the show doesn't really want the mentee or the person under them to develop a lot. And I think that my parents did that very well, which is when people did very well, they got responsibility and were given their own sort of new center or new city to start. And I think you see that with some very good companies where people are sort of promoted and given more responsibility. And because of that, people stay for a long time because they can grow rather than feel that they're sort of stifled within, let's say, staying in the same city, in the same role, under the same person. And so I really learn quite a lot from them in terms of that aspect of management.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “What did they do before? My father and mother had been missionaries for about four years in Mexico and they'd been like student chaplains and so they thought they were going to go to Madrid and work with students and that was their line of thinking and then it was only by seeing the need in the neighborhood and it really started almost by accident there was a young Australian missionary Lindsay McKinsey whose now lives in Australia but one addict said that he needed to get clean before his court date he was a thief so he had to show up in court and he wanted to get clean and so he asked if he could stay for two weeks and then Lindsay invited him to live in his apartment then he brought eight of his friends in all the neighbors started complaining that there were all these addicts living in the building so my father and Lindsay went and found a farm and then they had 30 men living on the farm and it's just sort of growing exponentially like that because the need was so great people just wanted to get off drugs and almost all of the early addicts stayed and were helping others and then they ended up going off and starting the center in other cities”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “And it's all run by the attics themselves, so the drug rehab basically operates a series of businesses, you know, like sort of charity stores, whether it's a second-hand of furniture, second-hand clothing. I used to work in the summertime, so I'd work with the painting teams, and Brother Peter would work with the mechanics. And basically almost all the revenue for the entire center is generated by the attics themselves. So the sort of donations parts, less than three or four percent of the entire budget. So my father studied economics at Cambridge and then got his MBA at Harvard. And as it turned out, a lot of what he had been reading and learning ended up becoming useful.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “I suspect that my upbringing is one of the first things people notice because it is pretty weird when you're growing up often seem normal until you encounter other people who don't share the same background. So I think it was really sort of only late in high school and in college that I started realizing just how odd my childhood was. But my parents, my mother and father were Presbyterian missionaries and they moved to Spain in the 1980s and they started working with heroin addicts because Spain had one of the highest rates of heroin use in Europe. I mean it still has a pretty high rate and by coincidence they settled in Saint Blas which was a neighborhood of Madrid had about 10,000 gypsies living there and a huge drug problem and then they just started helping the addicts on the street realize that they were sending them off to drug centers particularly in the north of Spain and they thought that there was so much need in Madrid that they decided to start a drug center and so they started with one addict in 1985 and then today there's drug centers in about 25 countries with over 2,500 addicts.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “Natural and unnatural monopolies, examples in the tech giants, funeral home operators, airports, and hospitals, and what can be done to counter this negative trend. Please enjoy my conversation with Jonathan Tepper.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “My guest on today's show is Jonathan Tepper, the founder of Variant Perception, an economic research group that works with institutional managers, hedge funds, and allocators to provide objective and comprehensive data and actionable ideas from leading indicators and emerging trends. He's also the author of three books, the most recent of which The Myth of Capitalism, Monopolies and The Death of Competition received widespread acclaim earlier this year. Our conversation covers Jonathan's unusual upbringing, learning about currencies from Big Macs, building economic and liquidity forecasting models, and catering variant perceptions research to investors. We then turn to the myth of capitalism, discussing the history, causes, and ramifications of the absence of competition in US industries”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “Hello, I'm Ted Sides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can keep up to date by visiting Capitol Allocators Podcast.com”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “Capital allocators is also brought to you by admired leadership. Back in April on episode 497, I sat down with Randall Studman, the executive coach behind admired leadership, who advised more than 500 CEOs, including some of the most respected names in asset management. Randall introduced me to Alex, an AI leadership coach's team built on 40 years of proprietary research into what the best leaders actually do. For investment professionals, that means your entire team gets on-demand coaching grounded in the behaviors that drive results, and build the kind of followership that retains your top talent. We use Alex and our team at Capital Allocators Swears by it. Try Alex for yourself at the link in our show notes. Try Alex. Leadership.com.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

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    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  21. “To an exact verifiable source because the answer is only as good as what's underneath it, and without the sense you know exactly what that is. See it for yourself. Try a free trial at alpha-sense.com slash capital. That's alphacense.com with a hyphen in the middle slash capital.”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source

  22. “Capital allocators is brought to you by AlphaCents. Here's something for you. Most AI tools today are very good at sounding right. But can you actually trace it back to a filing, transcript, or specific passage that drove the answer? Or are you just trusting the confidence of the output? For allocators, that's not a minor concern. A missed filing, incorrect source, or context that gets lost somewhere in a retrieval chain aren't edge cases. They're how decisions go wrong. AlphaSense is the AI platform built specifically for this. They own the content over 500 million curated documents from broker research and expert transcripts to filings and earnings calls. And they own the retrieval layer on top of it. That means every answer can link back”

    2024-03-18 · Capital Allocators · [REPLAY] Jonathan Tepper - Variant Perception of Capitalism (Capital Allocators, EP.110) · IDENTIFIED FROM THE TRANSCRIPT · source