WEBVTT - The Big Risk for Risk Parity 0:00:12.600 --> 0:00:16.120 Hello, and welcome to What Goes Up a weekly markets podcast. 0:00:16.200 --> 0:00:18.400 My name is Mike Reagan. I'm a senior editor at 0:00:18.400 --> 0:00:22.200 Bloomberg and I'm Boldana Higher, across asset reporter with Bloomberg 0:00:22.840 --> 0:00:25.759 at this week on the show, well, is the proverbial 0:00:25.920 --> 0:00:29.480 fed put dead or is the strike price just so 0:00:29.640 --> 0:00:32.440 low that it may as well be? That's the question 0:00:32.560 --> 0:00:35.400 on everyone's mind this week after Jerome pal signaled that 0:00:35.440 --> 0:00:38.120 the recent boltility in the stock market will not be 0:00:38.320 --> 0:00:40.880 enough to force the Central Bank to amend its plans 0:00:40.960 --> 0:00:44.320 to raise interest rates and shrink its balance sheet. What 0:00:44.479 --> 0:00:46.839 does it mean for markets? We'll get into it with 0:00:46.920 --> 0:00:49.880 the chief investment officer of a firm that focuses on 0:00:50.120 --> 0:00:54.720 artificial intelligence. But first, the two things I have to 0:00:54.800 --> 0:00:57.400 tell you, um. First of all, my crazy thing this 0:00:57.520 --> 0:01:00.600 week is custom made for you, so I okay, I 0:01:00.760 --> 0:01:05.880 expect big things from you on this Secondly, condolences UH 0:01:06.400 --> 0:01:09.800 to you and Jeffrey Gunlock and all the other Buffalo 0:01:09.959 --> 0:01:12.280 Bills fans out there. I know this is this is 0:01:12.319 --> 0:01:15.840 a bad week, so bad that it's Veldona's turn to 0:01:15.959 --> 0:01:19.240 hide under a blanket during the podcast this week. And Vildonna, 0:01:19.280 --> 0:01:21.960 I think if there were like a pure play company 0:01:22.640 --> 0:01:26.000 that makes folding tables, I would assorted them this week. 0:01:26.080 --> 0:01:29.759 What do you think? Uh, yeah, it's it's a bad 0:01:29.840 --> 0:01:32.520 time for Buffalo Bills fans for all of Western New York. 0:01:33.040 --> 0:01:36.600 I was depressed on Sunday on Monday. I'm depressed today. 0:01:37.120 --> 0:01:39.160 I don't know how I'm going to get through this answer, 0:01:39.280 --> 0:01:42.360 but thank you. I appreciate it. At least at least 0:01:42.880 --> 0:01:47.000 everybody watched the game was like record numbers of people 0:01:47.040 --> 0:01:51.280 who watched it. And now everybody's discussing overtime rules for 0:01:51.520 --> 0:01:54.080 the NFL, which is which is kind of cool. Yeah, 0:01:54.480 --> 0:01:56.840 but by everyone, you mean that the team that lost, 0:01:57.200 --> 0:01:59.160 the fans of the team that lost because of the 0:01:59.400 --> 0:02:01.920 Hey I saw, I saw Larry David was talking about 0:02:01.920 --> 0:02:06.440 it too. It is they've already amended it once. So 0:02:06.560 --> 0:02:09.200 we'll see. We'll see. One can hope maybe they'll they'll 0:02:09.240 --> 0:02:13.079 let them play that game over. But I'm excited about 0:02:13.160 --> 0:02:15.360 this guest. Uh this week. We haven't talked to him 0:02:15.360 --> 0:02:18.280 in a while. He's got a new firm he's involved with. 0:02:18.840 --> 0:02:20.600 Tell us about him. Bring him into the show here, 0:02:20.680 --> 0:02:23.720 let's get this going. Yeah, it's Max Kachman. He's the 0:02:23.800 --> 0:02:27.359 chief investment officer at Alpha. Trey, and Max, I want 0:02:27.360 --> 0:02:29.480 to welcome you back to the show. Thanks so much 0:02:29.480 --> 0:02:32.280 for having me. It's awesome to be back. Max. It's 0:02:32.360 --> 0:02:34.239 it's been a while, and I don't think i've talked 0:02:34.240 --> 0:02:37.480 to you since you've started this new gig. And I'm 0:02:37.480 --> 0:02:40.200 gonna I'm gonna confess something here. Max. Whenever I hear 0:02:40.280 --> 0:02:44.079 someone talk about artificial investing or part of me artificial 0:02:44.120 --> 0:02:46.720 intelligence in the investing world, you know what I do 0:02:46.880 --> 0:02:49.160 is I kind of nod my head and I stroked 0:02:49.200 --> 0:02:51.959 my chin as if I know what's going on. But 0:02:52.200 --> 0:02:54.440 just between us, don't let this get out. I really 0:02:54.480 --> 0:02:56.519 have no idea what they're talking about. I'm hoping you 0:02:56.600 --> 0:02:58.840 can give us all your takes on the market in 0:02:58.919 --> 0:03:01.080 the show. But but first let's get into that notion. 0:03:01.160 --> 0:03:03.560 What are you guys up to. What is sort of 0:03:04.160 --> 0:03:08.040 um going on with AI focused investing at the moment, 0:03:08.480 --> 0:03:10.760 What are the applications and where do you see it 0:03:10.919 --> 0:03:14.000 going uh in the future? And if you don't mind 0:03:14.040 --> 0:03:16.560 the for dummies version, I think it would probably be 0:03:16.639 --> 0:03:20.799 best for at least for me. I don't know about Baldonna. Sure, well, 0:03:21.000 --> 0:03:23.400 I'm sure. I'm sure e Donna would understand the intricacies 0:03:23.480 --> 0:03:27.000 of things like recursive neural networks and you know, transformers. 0:03:27.120 --> 0:03:30.760 But Mike, for you, I'll dumb it down. Yeah, thank you. 0:03:30.840 --> 0:03:34.120 I appreciate that. So, first of all, it's really important 0:03:34.160 --> 0:03:39.280 to differentiate artificial intelligence from the broader quant ecosystem because 0:03:39.280 --> 0:03:41.480 a lot of folks know about quant fund Systematic funds 0:03:41.560 --> 0:03:45.040 have trillions of dollars um you know, a stematic strategies 0:03:45.080 --> 0:03:48.600 have trillions of dollars under management. AI as in true 0:03:48.680 --> 0:03:52.160 artificial intelligence is very rare, and in fact, that's why 0:03:52.240 --> 0:03:56.040 I left a pretty strong position to to join this 0:03:56.360 --> 0:04:01.080 plucky startup to lead the new frontier. True artificial intelligence 0:04:01.480 --> 0:04:04.960 is really based on the concept of a neural network, 0:04:05.360 --> 0:04:07.560 and a neural network is kind of what it sounds like. 0:04:07.640 --> 0:04:10.480 It consists of neurons, just like your brain, and those 0:04:10.520 --> 0:04:13.960 neurons fire in different ways to process information, kind of 0:04:14.040 --> 0:04:16.880 the way human mind process it, but very differently from 0:04:16.960 --> 0:04:20.640 how a traditional systematic strategy process it. The best way 0:04:20.680 --> 0:04:25.040 to think about it is your typical quantitative strategy, even 0:04:25.080 --> 0:04:28.040 if it uses machine learning, which is kind of part 0:04:28.080 --> 0:04:31.520 of that AI phrase geology, but it's not quite what 0:04:31.640 --> 0:04:35.160 we consider authentic AI. It has a formula, and that 0:04:35.240 --> 0:04:40.200 formulas designed to systematize a way of thinking or an 0:04:40.240 --> 0:04:44.320 economic theory. And then that formula has you know, a 0:04:44.400 --> 0:04:48.719 bunch of factors, and those factors have coefficients, and basically 0:04:48.800 --> 0:04:51.000 the machine learning part will at a high level kind 0:04:51.040 --> 0:04:54.120 of adjust to coefficient so that we think that value 0:04:54.200 --> 0:04:56.839 is going to do well, it will be a positive coefficient. 0:04:56.960 --> 0:04:59.320 We think value is going to do not so well, 0:04:59.400 --> 0:05:01.400 that could be in that g of coefficient, right, but 0:05:01.560 --> 0:05:04.800 you're still basically making a decision. In that example of 0:05:05.160 --> 0:05:09.760 that we go longer short value factor. A unsupervised deep 0:05:09.839 --> 0:05:12.440 learning matterwork can actually create its own features. It can 0:05:12.480 --> 0:05:15.480 create its own view on what a factor is. It 0:05:15.520 --> 0:05:22.120 does not have to be this preconceived notion of value, large, momentum, quality, etcetera. 0:05:22.760 --> 0:05:27.440 And so that's a key thing about true AI strategies 0:05:27.520 --> 0:05:30.760 is they can adapt on their own without human intervention. 0:05:31.279 --> 0:05:34.000 They're also going to be unbiased. And and this is 0:05:34.080 --> 0:05:35.719 something that I think a lot of times when people 0:05:35.800 --> 0:05:39.320 think about quant funds, they say, well, quant funds don't 0:05:39.400 --> 0:05:42.840 have bias, and that's not quite true. They don't have 0:05:43.200 --> 0:05:46.280 emotion as in a formula. As a formula, it doesn't 0:05:46.320 --> 0:05:50.640 really care if the markets down fifty or up, you know, 0:05:51.480 --> 0:05:53.920 but it will have a bias because it's based on 0:05:54.400 --> 0:05:58.799 again systematizing a way of thinking. That thinking is inherently biased. 0:05:58.839 --> 0:06:00.760 As as I said, it was created by a human. 0:06:01.279 --> 0:06:04.800 An AI model actually does not have that bias in 0:06:04.920 --> 0:06:08.200 it if it's an authentic a A model. And that's 0:06:08.279 --> 0:06:10.160 something that I think is going to be even more 0:06:10.200 --> 0:06:12.680 important as we get into these markets, which will of 0:06:12.800 --> 0:06:15.920 course discuss where things are changing quite rapidly and we're 0:06:15.920 --> 0:06:18.600 going to see patterns emerge that we haven't seen before. 0:06:18.640 --> 0:06:22.240 You're gonna need something that can adapt on its own 0:06:22.360 --> 0:06:26.880 and adapt quite quickly, and that is to me a 0:06:27.040 --> 0:06:31.720 key hallmark of authentic artificial intelligence. So before we get 0:06:31.760 --> 0:06:34.520 to talk about the market, Max, I really like always 0:06:34.560 --> 0:06:36.600 talking with you because you're up for talking about lots 0:06:36.640 --> 0:06:40.479 of different things, including cryptocurrencies, and I believe you guys 0:06:40.720 --> 0:06:44.880 are working on an AI program for a crypto fund 0:06:45.240 --> 0:06:47.640 if you can tell us a little bit about that. Yeah, 0:06:47.720 --> 0:06:50.040 So this is currently kind of our cutting edge R 0:06:50.080 --> 0:06:53.360 and D efforts that we are working on. We're we 0:06:53.560 --> 0:06:57.120 think that AI and digital assets and I want to 0:06:57.160 --> 0:06:59.400 go beyond just saying cryptocurrency, because I think that actually 0:06:59.480 --> 0:07:02.880 is a arroware universe. So and I know you like 0:07:03.080 --> 0:07:05.480 things like pudgy penguins, um, you know, and n f 0:07:05.600 --> 0:07:09.040 t s. So those are all tradeable assets within the 0:07:09.160 --> 0:07:13.400 digital asset ecosystem, and we think that AI is a 0:07:13.600 --> 0:07:17.160 natural way to analyze those assets and trade them, in 0:07:17.240 --> 0:07:19.760 part because it's a brand new asset class. This is 0:07:19.840 --> 0:07:22.400 something that a lot of folks don't realize. I've seen 0:07:22.440 --> 0:07:24.760 a lot of traders who were good in currencies, are 0:07:24.800 --> 0:07:28.160 good in cross asset kind of jump into the crypto world. 0:07:28.720 --> 0:07:31.960 But they bring in those same concepts and they don't 0:07:32.040 --> 0:07:35.320 necessarily work in crypto space. Like, for instance, a lot 0:07:35.360 --> 0:07:39.440 of resistance and support bands in the currency markets are 0:07:39.480 --> 0:07:43.160 based on actually gentle bank purchasers or you know, companies 0:07:43.240 --> 0:07:46.239 that are hedging their their cost of goods. That doesn't 0:07:46.280 --> 0:07:50.080 exist in in crypto. So when you see our supported 0:07:50.120 --> 0:07:53.520 resistance level, it's actually driven by different factors. When we 0:07:53.640 --> 0:07:57.520 think about AI as as well, it really feeds on 0:07:57.720 --> 0:08:00.440 data of course, Like that's that's a something pbably should 0:08:00.440 --> 0:08:05.600 have said earlier, right, aies source of brain food is data. 0:08:06.120 --> 0:08:08.080 The higher quality of a data a smarter b AI 0:08:08.200 --> 0:08:11.440 will be able to be and data on the blockchain 0:08:11.640 --> 0:08:16.480 is very clean and therefore highly nutritious to an artificial 0:08:16.520 --> 0:08:21.480 intelligence engine. And addition to that, you have really low 0:08:21.640 --> 0:08:26.720 efficiencies in the market, so high quality data, low efficiency, 0:08:26.880 --> 0:08:29.280 and then sprinkling top about a really high volatility that 0:08:29.440 --> 0:08:32.680 is kind of the most fertile you know, a sybal 0:08:32.960 --> 0:08:37.920 if you will, for for AI to drive alpha from UM. 0:08:37.960 --> 0:08:40.679 In addition to that, you've got really unique parts within 0:08:40.800 --> 0:08:44.480 the crypto space, such as the actual code basis that UM. 0:08:44.559 --> 0:08:48.160 A lot of these protocols are developed in and those 0:08:48.200 --> 0:08:52.080 are things where you know, one bit of code, reading 0:08:52.080 --> 0:08:53.959 another bit of code and making a decision on it 0:08:54.080 --> 0:08:56.760 and analyzing it is actually something that opens up even 0:08:56.840 --> 0:08:59.320 more doors. So we think there's a lot of really 0:08:59.360 --> 0:09:02.880 amazing up tunities. I can't talk about too much on 0:09:02.960 --> 0:09:05.640 the specifics, but next time I'm on I hopefully we'll 0:09:05.679 --> 0:09:07.559 be able to share a lot more. But we do 0:09:07.760 --> 0:09:21.400 think that AI and digital assets are a perfect marriage. Max. 0:09:21.520 --> 0:09:24.840 Let's bring it into the present tense a little bit 0:09:24.960 --> 0:09:27.400 with what we saw this week in the markets, and 0:09:27.960 --> 0:09:30.400 I'm curious how AI would work with sort of an 0:09:30.440 --> 0:09:34.320 event risk type of situation like we saw this week 0:09:34.360 --> 0:09:36.120 with the fit. I mean, I know there's been a 0:09:36.240 --> 0:09:39.600 lot of work done on sort of natural language processing 0:09:39.720 --> 0:09:44.040 and try to you know, have computers listen or or 0:09:44.160 --> 0:09:47.599 read text and and and make a decision based on that. 0:09:48.280 --> 0:09:50.319 Where is that in in sort of the big scheme 0:09:50.360 --> 0:09:52.800 of things with with Aiyes, it's still you know, is 0:09:52.840 --> 0:09:56.079 that still a little too tricky to to do? Is 0:09:56.160 --> 0:09:58.480 it something that they need sort of the uh, you know, 0:09:58.600 --> 0:10:00.760 the the organic intelligence of a guy like you to 0:10:02.040 --> 0:10:04.360 handle that end of it. I mean, you know, can 0:10:04.480 --> 0:10:07.400 a I listened to Jerome palell and and pick up 0:10:07.400 --> 0:10:10.719 the nuances and and that or is it just you know, 0:10:10.800 --> 0:10:13.520 a matter of reacting to the market signals as he's speaking. 0:10:14.679 --> 0:10:16.920 It's a great question. There's going to be different answers 0:10:16.960 --> 0:10:18.640 depending on who you talk to. I know, on on 0:10:18.840 --> 0:10:22.880 one end, there's one fund that thinks they can actually 0:10:23.040 --> 0:10:26.120 train a camera. Well, they basically put a camera on 0:10:26.400 --> 0:10:31.160 Powell live and they try to to construct the nuance 0:10:31.400 --> 0:10:35.360 of his physical body language and the nu once of 0:10:35.480 --> 0:10:39.880 his speech inflections to figure out what he's doing. Yeah, now, 0:10:40.000 --> 0:10:42.840 I they when I asked him how well about work? 0:10:42.920 --> 0:10:46.280 They kind of got quiet, so I'll just leave it 0:10:46.360 --> 0:10:49.040 at that. Well, if Pal's got a pretty good poker face, 0:10:49.120 --> 0:10:51.360 so he might not be the best, he's he's gotten 0:10:51.400 --> 0:10:54.920 better since let's let's let's let's let's let's put it there. 0:10:55.200 --> 0:10:57.080 I think I think Marrio track he might have been 0:10:57.080 --> 0:10:59.240 a better test case so that you know a little 0:10:59.280 --> 0:11:01.480 more out of me, Yeah, a little more. You know 0:11:01.600 --> 0:11:05.640 his Italian. So there's there's that. But I do think 0:11:05.720 --> 0:11:07.360 when it comes to things like n LP, it's a 0:11:07.440 --> 0:11:12.040 question of the decay and what I mean by decays 0:11:12.640 --> 0:11:16.400 between when the word is uttered and transcripted to when 0:11:16.440 --> 0:11:19.000 the market reacts. What's the lag and can you actually 0:11:19.080 --> 0:11:22.480 capture that? A lot of times the answer is no, 0:11:23.200 --> 0:11:25.360 So we actually haven't found a lot of utility and 0:11:25.760 --> 0:11:29.480 kind of real time n LP because a real trader, 0:11:29.800 --> 0:11:32.240 who is you know, able to hit buy or sell 0:11:32.320 --> 0:11:35.439 as soon as they here even like half of the 0:11:35.520 --> 0:11:38.360 word is going to be a little bit quicker than 0:11:39.240 --> 0:11:43.640 you know a program will be. It's fascinating area of 0:11:43.800 --> 0:11:46.560 research because I feel like, you know, you could read 0:11:46.600 --> 0:11:50.320 the text of a speech and think one thing where 0:11:50.400 --> 0:11:53.920 you could see someone recite the same speech with different 0:11:53.920 --> 0:11:56.679 inflection and sort of different emotions and and come away 0:11:56.720 --> 0:11:59.360 with something something different. So it's a it's a fascinating 0:11:59.360 --> 0:12:01.600 area of recent I think, yeah, and and I think 0:12:01.640 --> 0:12:04.520 there's a lot of words that especially central bankers use 0:12:04.600 --> 0:12:08.480 were almost dead of vocabulary is not a normal person's vocabulary. 0:12:08.600 --> 0:12:10.839 And as FED watchers, like as economists, we kind of 0:12:10.960 --> 0:12:15.079 know what they mean when they say words um, like 0:12:16.080 --> 0:12:18.880 you know, we're gonna be humble um, or we're gonna 0:12:18.960 --> 0:12:22.079 be um, you know, like persistent for for instance, like 0:12:22.320 --> 0:12:24.800 different contexts that could be very hawkish are very dubbish. 0:12:25.679 --> 0:12:29.079 And a traditional n LP model is just gonna say 0:12:29.160 --> 0:12:32.360 this is positive or negative sentiment. It's not gonna be 0:12:32.800 --> 0:12:34.480 quite as good unless you train And this is this 0:12:34.559 --> 0:12:36.280 is actually where we get into some interesting stuff. And 0:12:36.320 --> 0:12:40.160 I have seen this work where you train a model 0:12:40.280 --> 0:12:43.400 on a specific person. You can do that of central bankers. 0:12:43.400 --> 0:12:45.719 I actually had this idea originally back in I think, 0:12:47.040 --> 0:12:49.480 and at the time it wasn't able to really figure 0:12:49.480 --> 0:12:51.760 out how to do that. But I actually wasn't going 0:12:51.800 --> 0:12:56.560 to train a model back then on Bernanky and uh 0:12:56.679 --> 0:12:59.840 and and draggy and say okay, can we figure out 0:13:00.480 --> 0:13:04.840 based on ner specific vocabulary they're specific mannerisms if they're 0:13:05.520 --> 0:13:08.319 you know, being hawkish or dubbish. But back then it 0:13:08.400 --> 0:13:11.280 definitely didn't work. Perhaps in the future, as compute increases, 0:13:11.960 --> 0:13:14.959 we can you know, really isolate that and and that 0:13:15.000 --> 0:13:18.000 will be a very interesting situation where you have actually 0:13:18.120 --> 0:13:22.040 algorithms making those split second decisions. But we're not quite 0:13:22.080 --> 0:13:25.720 there yet. So speaking about this week, I was hoping 0:13:25.760 --> 0:13:28.800 you could sort of just go over briefly and very 0:13:28.840 --> 0:13:31.920 quickly your takeaways from the FED meeting, and I wanted 0:13:31.960 --> 0:13:34.839 to ask you if you think the market is correctly 0:13:35.080 --> 0:13:38.640 interpreting what happened with Paul this week. I think the 0:13:38.760 --> 0:13:42.240 market is been having a really hard time get getting 0:13:42.240 --> 0:13:44.080 its sea legs this January, right. I mean, just look 0:13:44.120 --> 0:13:47.160 at the action we experienced kind of right after the meeting, 0:13:47.240 --> 0:13:51.440 we had the really big drop, then overnight we started 0:13:51.520 --> 0:13:55.440 dropping further and then came back up. I don't think 0:13:55.520 --> 0:13:59.360 Powell said anything really dramatically new. In fact, you and 0:13:59.400 --> 0:14:02.240 I were talking to about that um right right after 0:14:02.320 --> 0:14:04.559 the meeting. To me, it seemed like just the hope 0:14:05.240 --> 0:14:07.320 is gone, right, that was the initial reaction, like, okay, 0:14:07.400 --> 0:14:10.800 but the Powell put is out of the money. It 0:14:11.040 --> 0:14:14.559 may be completely off the table. And that was that 0:14:14.640 --> 0:14:17.400 Initially like oh crap, like we're the training wheels are 0:14:17.440 --> 0:14:22.200 off uh situation for for investors. But then overnight, all 0:14:22.200 --> 0:14:25.400 of a sudden, you know, we got some some I 0:14:25.480 --> 0:14:32.160 guess newfound hope or newfound um confidence that the markets 0:14:32.240 --> 0:14:33.760 can do well on their own. So if you think 0:14:33.760 --> 0:14:35.640 of like again with the training wheels example, it almost 0:14:35.640 --> 0:14:37.440 seemed like you know, you can take your your kid. 0:14:38.480 --> 0:14:40.000 You kind of sent them down the hill and they 0:14:40.000 --> 0:14:41.760 start really wobbly and they think they're going to fall, 0:14:41.760 --> 0:14:43.520 and then they eventually they start peddling and they're like, oh, 0:14:43.560 --> 0:14:46.640 look at me, I'm going But at no point that 0:14:46.720 --> 0:14:50.160 pow will say anything to me. That was different. That 0:14:50.400 --> 0:14:54.080 was you know, unexpected. They've done a really good jap 0:14:54.120 --> 0:14:55.960 of telegraphing what they were going to do. And the 0:14:56.040 --> 0:14:57.640 thing that I always watched for is kind of the 0:14:58.800 --> 0:15:01.440 speed speakers score on the fringes either the most hawkish 0:15:01.520 --> 0:15:03.800 or the most ubblish, and see if do they start 0:15:03.920 --> 0:15:06.080 changing their tune, And they did the most dubbish. Fet 0:15:06.160 --> 0:15:11.040 speakers UM and FMC members got a lot more hawkish 0:15:11.280 --> 0:15:13.480 in the you know kind of weeks coming up to 0:15:13.560 --> 0:15:15.720 this meeting, So it shouldn't have been a surprise that 0:15:15.840 --> 0:15:18.240 the Fed said, Yep, we're gonna hike in March, we're 0:15:18.280 --> 0:15:21.840 gonna end QE, and we're gonna look at tightening. That's 0:15:22.840 --> 0:15:25.440 pretty much what I think everyone should have expected. Yeah, 0:15:26.400 --> 0:15:28.480 and maybe that's you know, maybe they did, and that's 0:15:28.480 --> 0:15:32.200 why we saw such such altility before the meeting, even 0:15:32.360 --> 0:15:35.760 you know, kind of priced it in. But Maxell, well, 0:15:35.800 --> 0:15:39.120 how are you thinking about the rest of the year now, um, 0:15:40.280 --> 0:15:45.400 especially in context of well, if if treasuries and stocks 0:15:45.440 --> 0:15:49.080 are selling off together, you know, uh, that's sixty forty 0:15:49.160 --> 0:15:53.480 portfolio maybe is not as diversified as it once was. 0:15:53.880 --> 0:15:56.000 You know, I think this is a issue with people 0:15:56.000 --> 0:15:58.240 have been talking about for a year, year or more now, 0:15:58.320 --> 0:16:01.680 but it certainly seems to be an urgent topic now, 0:16:01.800 --> 0:16:05.080 you know. Or is it possible we'll see sort of 0:16:05.120 --> 0:16:08.320 assimule tenious weakness in both the bond and the stock 0:16:08.400 --> 0:16:11.520 market And how do you how do you play that? Yeah, So, 0:16:11.640 --> 0:16:14.440 first of all, the answer is yes, I think that's likely. 0:16:14.560 --> 0:16:17.120 That's actually my base cases that we will see weakness 0:16:17.960 --> 0:16:20.640 in stocks for at least some part of this year. 0:16:20.680 --> 0:16:23.480 I do think we'll um, eventually be a little bit 0:16:23.600 --> 0:16:27.920 higher than where we started, but we will likely see 0:16:28.000 --> 0:16:30.800 a bowl correction and we'll also see rates go up. 0:16:31.480 --> 0:16:34.080 And you know, the last time when rates were in 0:16:34.120 --> 0:16:36.360 a secular uptrend, I think Bill, Donna and I weren't 0:16:36.400 --> 0:16:41.280 even born yet. So Mike, Mike had been around for 0:16:41.400 --> 0:16:45.360 you for decades. But full disclosure, I was asked to 0:16:45.600 --> 0:16:49.720 uh to give Mike some some singers before this show started. 0:16:50.800 --> 0:16:52.480 I'll try to get him in where where I can. 0:16:53.960 --> 0:16:56.160 I remember putting my money in the bank and earning 0:16:56.280 --> 0:16:58.680 something on it that was for the Those were the days. 0:16:59.160 --> 0:17:02.560 What what's such bank? Is that like like like a 0:17:02.680 --> 0:17:07.000 physical ethereum wallet. I would I would roll up the 0:17:07.080 --> 0:17:09.800 quarters and nickels and dimes in the little paper wrappers 0:17:09.880 --> 0:17:12.680 from my paper routing and ride my bike down and 0:17:13.359 --> 0:17:16.480 on a little paper to deposit slip and the interest 0:17:16.640 --> 0:17:19.160 was good. Those were the days. Bring back bring back 0:17:19.240 --> 0:17:23.160 those you know, five percent savings deposit accounts. Max's he's 0:17:23.160 --> 0:17:27.119 talking about the early Yeah, I I think it's kind 0:17:27.119 --> 0:17:31.560 of turn up the sanctuary, you know, yeah, novel there 0:17:31.760 --> 0:17:36.160 that that Mike was was spinning a little little Oliver twist. Yeah, 0:17:37.400 --> 0:17:40.000 artificial intelligence back then was like if you got the 0:17:40.320 --> 0:17:42.440 cheap code to Donkey Kong. You know that that was 0:17:42.800 --> 0:17:44.840 that was about as far as it went. I I 0:17:45.000 --> 0:17:47.840 do think with that you may be careful what you 0:17:47.880 --> 0:17:49.600 wish for, because I think we could get those five 0:17:49.640 --> 0:17:52.560 percent interest rates, but that also, you know, I believe 0:17:52.640 --> 0:17:55.879 came with like a twelve percent mortgage. That's fair, so 0:17:56.240 --> 0:17:58.480 you know, fair point. Those of us who locked in 0:17:58.840 --> 0:18:02.679 you know, low mortgages are are pretty happy. Probably at 0:18:02.760 --> 0:18:04.840 this point, I do think we are going to see 0:18:04.920 --> 0:18:09.240 this secular rising rate environment come back, and that really 0:18:09.359 --> 0:18:11.399 posts the challenge not only for sixty forty, but the 0:18:11.480 --> 0:18:13.560 thing that kind of supplanted sixty four for a lot 0:18:13.600 --> 0:18:17.840 of institutional portfolis, which is risk parity. And while you 0:18:17.920 --> 0:18:20.680 know risk parity folks will tell you about it's very sophisticated. 0:18:21.080 --> 0:18:23.560 Um having run risparity strategies before, I can tell you 0:18:23.680 --> 0:18:28.400 that generally speaking, it still relies on the crucial concept 0:18:28.480 --> 0:18:32.440 of bonds go up when stocks go down, and duration 0:18:32.600 --> 0:18:35.800 risk diversifies equity risk. If that no longer is the case, 0:18:36.600 --> 0:18:40.480 you need to create something different. I think it's gonna 0:18:40.480 --> 0:18:43.480 be really important to be more dynamic. It's gonna be 0:18:43.960 --> 0:18:46.080 what I mean about its dynamic in terms of asset classes. 0:18:46.680 --> 0:18:51.000 So the concept of a balanced portfolio is really important. 0:18:51.119 --> 0:18:53.960 I think if we break it down to its really 0:18:54.000 --> 0:18:57.280 building blocks, it's a risk asset that can go up 0:18:57.359 --> 0:19:01.760 and produce capital gains, and then a diversifying outset that 0:19:02.040 --> 0:19:05.200 maybe produces a little bit of income and steady returns, 0:19:05.320 --> 0:19:09.000 but primarily is there to hedge the risky asset. So 0:19:09.200 --> 0:19:12.359 what those two components are. I think that's gonna be 0:19:12.400 --> 0:19:16.600 more dynamic going forward, and the new old Weather strategies 0:19:16.640 --> 0:19:18.800 are going to be playing with those concepts. So they 0:19:18.840 --> 0:19:23.760 may hold equities and bonds like current strategies do. They 0:19:23.760 --> 0:19:28.200 may also hold some amount of um commodities like some 0:19:28.320 --> 0:19:31.679 resperity strategies, but they may at various points hold totally 0:19:31.720 --> 0:19:34.400 different things. They may actually hold some amount of crypto 0:19:34.560 --> 0:19:37.760 and some amount of you know, loans, and some amount 0:19:38.000 --> 0:19:42.639 of stocks, and those assequences will have to keep varying. 0:19:42.640 --> 0:19:44.560 It's gonna be a bit of a musical chair strategy. 0:19:45.000 --> 0:19:46.959 And I know it sounds a lot more complex than 0:19:47.000 --> 0:19:51.600 it is, but the unfortunate byproduct of our reality is 0:19:51.680 --> 0:19:54.480 things do get more complex with time, and if you 0:19:54.680 --> 0:19:58.960 stick to you know your traditional approaches, I think you're 0:19:59.119 --> 0:20:03.520 more liable to actually suffer long term and not achieve 0:20:03.560 --> 0:20:06.560 your objectives as an institutional investor. Do you do, uh, 0:20:06.720 --> 0:20:10.080 commodities play a role in in diversification these days, there's 0:20:10.119 --> 0:20:11.960 that chip already say out of it, you already missed 0:20:12.000 --> 0:20:15.560 that boat. I I think they do. But again it's tricky. 0:20:15.880 --> 0:20:17.520 You know. I think a lot of times people say, oh, 0:20:17.520 --> 0:20:21.200 commodities are a good inflation hedge, and in my research 0:20:21.280 --> 0:20:24.359 I found that commodities are good as a hedge against 0:20:24.400 --> 0:20:30.760 inflation shocks, but there not necessarily a hedge against steady 0:20:30.960 --> 0:20:33.920 rising inflation. And there's a lot of factors that figure 0:20:33.960 --> 0:20:37.000 into commodities, especially once you started actively trading around them, 0:20:37.800 --> 0:20:42.240 that are very idiosyncratic. So you know, OPEC doesn't necessarily 0:20:42.320 --> 0:20:44.760 care about your inflation hedge, your your income story when 0:20:44.800 --> 0:20:48.040 they decide, however, to raise or lower supplies. And you know, 0:20:48.119 --> 0:20:52.359 when people in OPEC cheat and actually ignore the supply constraints, 0:20:52.440 --> 0:20:54.639 then you know, it creates a whole different situation. And 0:20:55.000 --> 0:20:56.720 you know, then we have things like, well, if we 0:20:56.840 --> 0:20:59.840 get the infrastructure bill pass, that will certainly send some 0:21:00.000 --> 0:21:05.359 commodities up higher. But if Conversely, people stops, you know, 0:21:05.480 --> 0:21:08.280 spending as much on restaurants, that will send other commodities down. 0:21:08.359 --> 0:21:12.720 So so it's a more complex ecosystem, and I think 0:21:12.920 --> 0:21:14.800 looking at it at a very high level, like as 0:21:14.880 --> 0:21:18.000 just a single as a class, is not a good idea. 0:21:18.000 --> 0:21:22.080 I think commodities are pretty idiosyncratic. So talking about the 0:21:22.359 --> 0:21:25.200 high level, I wanted to ask you about some maybe 0:21:25.280 --> 0:21:29.520 positive catalysts for the stock market, because the idea is, UH, 0:21:29.640 --> 0:21:32.800 sort of the Powell and the FED can move sooner 0:21:32.960 --> 0:21:35.639 and quicker in terms of hikes this year because the 0:21:35.800 --> 0:21:39.760 economic backgroup backdrop is strong, right. And then the second 0:21:39.800 --> 0:21:41.800 part of this is, and I've heard Gina Martin Adams 0:21:41.840 --> 0:21:44.280 talking about this on different interviews that she was giving 0:21:44.359 --> 0:21:47.680 this week, is earnings and how that might sort of 0:21:47.800 --> 0:21:53.240 help support stocks at least in the near term. Yeah, 0:21:53.440 --> 0:21:58.040 I think that the FED starting earlier is good. There's 0:21:58.160 --> 0:22:01.440 obviously some folks who think that OFF is starting late, 0:22:02.760 --> 0:22:05.119 and I I personally don't think they're starting late. I 0:22:05.160 --> 0:22:07.119 think they're starting at the right time, and I think 0:22:07.160 --> 0:22:11.119 they're signaling like signaling it well, So kudos to UH 0:22:11.480 --> 0:22:15.600 to share Powell on I think navigating this about as 0:22:15.680 --> 0:22:20.040 well as possible. I do think that earnings are also 0:22:20.119 --> 0:22:22.119 going to be a very important catalyst, and it's a 0:22:22.200 --> 0:22:25.399 question of not so much what the street expects, but 0:22:25.840 --> 0:22:29.000 what investors expected. We've seen a bit of a divergence there. 0:22:29.119 --> 0:22:32.240 So if we look at the most recent kind of 0:22:32.359 --> 0:22:34.920 you know, Q four earnings that have been released so far, 0:22:35.560 --> 0:22:39.520 I think um generally speaking, beats were punished a little 0:22:39.520 --> 0:22:43.879