1 00:00:02,720 --> 00:00:07,200 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,000 --> 00:00:09,880 Speaker 2: I think there's a chance you might have to re 3 00:00:09,880 --> 00:00:12,920 Speaker 2: record an intro, or at least the intro might be 4 00:00:12,960 --> 00:00:15,080 Speaker 2: out of date by the time the episode comes out. 5 00:00:15,400 --> 00:00:16,000 Speaker 3: That's how you know. 6 00:00:16,280 --> 00:00:18,360 Speaker 2: That's how you know it's bad. That and when people 7 00:00:18,400 --> 00:00:22,040 Speaker 2: start waving around standard deviations standard V. And also when 8 00:00:22,079 --> 00:00:25,120 Speaker 2: people start saying it's a healthy correction in the market, 9 00:00:25,200 --> 00:00:26,360 Speaker 2: although I haven't seen. 10 00:00:26,160 --> 00:00:27,840 Speaker 3: That much, it's pretty gnarly. 11 00:00:28,400 --> 00:00:31,240 Speaker 4: Also when we don't just say the date that we're recording, 12 00:00:31,280 --> 00:00:33,920 Speaker 4: what we say the minute we're recording. This At seven 13 00:00:34,040 --> 00:00:38,080 Speaker 4: oh four am on February sixth, twenty twenty six, all 14 00:00:38,159 --> 00:00:43,000 Speaker 4: the signs are back, Joe, I. 15 00:00:42,960 --> 00:00:47,080 Speaker 2: Want a T shirt that says ruthless utility maximizer black gold. 16 00:00:47,400 --> 00:00:50,320 Speaker 2: Let's talk about losers, Hooker. I've decided I'm going to 17 00:00:50,320 --> 00:00:53,280 Speaker 2: base my entire personality going forward on campaigning for a 18 00:00:53,320 --> 00:00:55,200 Speaker 2: strategic pork reserve in the US. 19 00:00:55,320 --> 00:00:56,279 Speaker 3: Skull's unlimited. 20 00:00:56,640 --> 00:00:57,560 Speaker 2: What's the ticker for that? 21 00:00:57,760 --> 00:00:57,920 Speaker 1: No. 22 00:00:58,000 --> 00:01:01,280 Speaker 4: I think that like in a couple years, the AI 23 00:01:01,480 --> 00:01:03,319 Speaker 4: will do a really good job of making the odd 24 00:01:03,400 --> 00:01:04,200 Speaker 4: launch podcast. 25 00:01:04,280 --> 00:01:06,479 Speaker 2: How do I get more popular and successful? 26 00:01:06,800 --> 00:01:09,479 Speaker 3: One day that person will have the Mandate of Heaven. 27 00:01:09,720 --> 00:01:10,920 Speaker 1: We do have the. 28 00:01:13,080 --> 00:01:15,240 Speaker 4: Welcome to lots More, where we catch up with friends 29 00:01:15,280 --> 00:01:17,160 Speaker 4: about what's going on right now. 30 00:01:17,319 --> 00:01:20,840 Speaker 2: Because even when Oddlots is over, there's always lots More 31 00:01:21,480 --> 00:01:21,840 Speaker 2: and we. 32 00:01:21,880 --> 00:01:29,680 Speaker 4: Really do have a perfect guest. But it is weird, 33 00:01:29,800 --> 00:01:31,920 Speaker 4: isn't it, because it's you know, it's a little different. 34 00:01:32,120 --> 00:01:33,080 Speaker 2: It's been very strong. 35 00:01:33,200 --> 00:01:36,560 Speaker 4: It's a surreal it's a surreal type of market environment, 36 00:01:36,640 --> 00:01:37,840 Speaker 4: especially over the last week. 37 00:01:37,760 --> 00:01:40,920 Speaker 2: Right so if you've been living under a rock, markets 38 00:01:41,080 --> 00:01:43,479 Speaker 2: have been tanking. There have been a bunch of different 39 00:01:43,480 --> 00:01:45,959 Speaker 2: things going on. But first of all, gold and silver 40 00:01:46,080 --> 00:01:49,400 Speaker 2: and the metals complex started plunging, and then you had 41 00:01:49,760 --> 00:01:54,960 Speaker 2: like basically a slaughter in software socks. What else there 42 00:01:55,000 --> 00:01:55,240 Speaker 2: is one? 43 00:01:55,360 --> 00:01:56,840 Speaker 3: Oh, crypto Crypto. 44 00:01:57,280 --> 00:01:59,720 Speaker 2: Crypto is a big one. So bitcoin has like down 45 00:01:59,800 --> 00:02:05,040 Speaker 2: to sixty six thousand something like that. Yeah, six oh wow, 46 00:02:05,520 --> 00:02:09,360 Speaker 2: And that's the thing. I can't keep up anymore. And 47 00:02:09,600 --> 00:02:13,520 Speaker 2: also there's concern about private credit because private credit has 48 00:02:13,840 --> 00:02:17,120 Speaker 2: so much exposure to software and they basically lent all 49 00:02:17,160 --> 00:02:19,640 Speaker 2: the money at the top of the valuation cycle, which 50 00:02:19,720 --> 00:02:22,880 Speaker 2: I wrote about in the newsletter yesterday. But anyway, there's 51 00:02:22,919 --> 00:02:24,960 Speaker 2: a lot to talk about in markets who do we 52 00:02:25,040 --> 00:02:26,919 Speaker 2: call when markets are moving? 53 00:02:27,000 --> 00:02:29,200 Speaker 3: That's right, So Charlie, you guys are amazing. 54 00:02:29,520 --> 00:02:32,120 Speaker 2: So this is Charlie mcgallighan. Of course, he is the 55 00:02:32,320 --> 00:02:36,079 Speaker 2: cross asset macro strategist over at Nomora. I'm gonna start 56 00:02:36,120 --> 00:02:39,720 Speaker 2: with the simple question. Maybe it's not an easy question, 57 00:02:39,840 --> 00:02:42,560 Speaker 2: but what was the proximate catalyst for all of this? 58 00:02:42,680 --> 00:02:45,720 Speaker 2: Because you have a bunch of different things going on, including, 59 00:02:45,760 --> 00:02:49,280 Speaker 2: by the way, the nomination of worsh at the FED. 60 00:02:49,639 --> 00:02:54,639 Speaker 1: So absolutely part of the feedback loop. But these things 61 00:02:54,680 --> 00:02:58,240 Speaker 1: are never singular input, you know, in a world of 62 00:02:58,400 --> 00:03:03,320 Speaker 1: thousands of macro factoriariable in this case, and you know, 63 00:03:03,440 --> 00:03:06,520 Speaker 1: I'm an ambulance chaser. That's kind of what my gig is. 64 00:03:06,560 --> 00:03:10,239 Speaker 1: A grave robber, a carpetbagger, you know, all those things. 65 00:03:10,560 --> 00:03:13,720 Speaker 1: I try to reverse engineer car accidents. Yeah, And kind 66 00:03:13,720 --> 00:03:17,400 Speaker 1: of the qualitative starting point of that is to locate 67 00:03:19,600 --> 00:03:27,839 Speaker 1: consensus positions that tend to then crowd in positioning when 68 00:03:28,800 --> 00:03:34,600 Speaker 1: trend trades develop. That's usually accompanied or requirement or requirement 69 00:03:34,639 --> 00:03:40,160 Speaker 1: being low volatility to accumulate those kind of smooth trends. 70 00:03:40,240 --> 00:03:43,400 Speaker 1: So point being, I think there were a number of 71 00:03:44,480 --> 00:03:50,080 Speaker 1: market narratives that got a little lazy. You know, for instance, 72 00:03:51,320 --> 00:03:55,000 Speaker 1: Q four of last year, as we recall, I think 73 00:03:55,400 --> 00:03:57,640 Speaker 1: there was you know, somewhere three to four months ago, 74 00:03:57,680 --> 00:03:59,760 Speaker 1: there was still a fair bit of concern with regards 75 00:03:59,760 --> 00:04:03,120 Speaker 1: to this idea of like labor cracking, you know, and 76 00:04:03,680 --> 00:04:07,320 Speaker 1: there was still a lot of feedback with regards to 77 00:04:08,120 --> 00:04:11,960 Speaker 1: Liberation Day and the policy volatility dynamics. You know, before 78 00:04:12,000 --> 00:04:14,800 Speaker 1: things really got hot with policy volatility most recently. But 79 00:04:15,560 --> 00:04:18,520 Speaker 1: and that was leading to some you know, some skepticism. 80 00:04:18,600 --> 00:04:21,479 Speaker 1: And as it relates to kind of the equities world, 81 00:04:22,680 --> 00:04:24,920 Speaker 1: what did you do? You just stuck in the stuff 82 00:04:24,960 --> 00:04:27,640 Speaker 1: that kept working, And that was that same dynamic we 83 00:04:27,680 --> 00:04:29,640 Speaker 1: spoke about a number of times last year, you know, 84 00:04:29,720 --> 00:04:33,599 Speaker 1: that crowding into secular growth, megacap tech AI. They just 85 00:04:33,720 --> 00:04:37,520 Speaker 1: keep growing earnings, profitability, all of those metrics, and they 86 00:04:37,520 --> 00:04:39,960 Speaker 1: took up this massive part of the market. That's part 87 00:04:40,000 --> 00:04:42,360 Speaker 1: of this positioning that set. You know, at some point 88 00:04:42,400 --> 00:04:46,760 Speaker 1: Q four run hot starts happening. You start seeing data 89 00:04:46,800 --> 00:04:51,599 Speaker 1: upside surprising again. Right, he starts openly and more recently 90 00:04:51,880 --> 00:04:58,760 Speaker 1: transitioning into January talking openly advocating his week dollar policy. Right, 91 00:04:59,000 --> 00:05:01,440 Speaker 1: you know, so you start having these things where people 92 00:05:01,440 --> 00:05:05,200 Speaker 1: were really accumulating around effectively a lot of short dollar trades. 93 00:05:05,720 --> 00:05:07,880 Speaker 1: And when I'm sitting there and I'm seeing like, how 94 00:05:07,880 --> 00:05:10,640 Speaker 1: do these narratives go wrong? How does this crowding go wrong? 95 00:05:10,680 --> 00:05:14,840 Speaker 1: And I'm seeing you know, gold and silver being attributed 96 00:05:14,920 --> 00:05:19,160 Speaker 1: to this debasement narrative or this de dollarization narrative. There's 97 00:05:19,200 --> 00:05:22,880 Speaker 1: credibility in those arguments, but I'm also a skeptic with 98 00:05:22,920 --> 00:05:26,960 Speaker 1: regards to the flows and the actual like singular catalyst 99 00:05:27,000 --> 00:05:30,279 Speaker 1: of those. But I start seeing those positionings really overshoot. 100 00:05:30,320 --> 00:05:33,599 Speaker 1: We're not talking like linear projections like bending off the 101 00:05:33,680 --> 00:05:36,800 Speaker 1: curve type of you know, price performance of late I 102 00:05:36,839 --> 00:05:41,520 Speaker 1: see em equities crowding. I see cyclical equities because everybody 103 00:05:41,560 --> 00:05:45,320 Speaker 1: owned secular growth and nobody had enough economic sensitivity. So 104 00:05:45,360 --> 00:05:47,680 Speaker 1: I start seeing these kind of positioning overshoots. You know, 105 00:05:47,760 --> 00:05:50,479 Speaker 1: that's all the work that we do internally. And it 106 00:05:50,640 --> 00:05:54,440 Speaker 1: just said, if the dollar starts agitating and it stops 107 00:05:54,480 --> 00:05:57,720 Speaker 1: going lower and you start losing these short term trend windows, 108 00:05:58,839 --> 00:06:01,440 Speaker 1: and then you get maybe a little bit of wow, 109 00:06:01,440 --> 00:06:05,600 Speaker 1: we didn't get the max dubbish hasset trade, right, Oh, 110 00:06:05,640 --> 00:06:08,479 Speaker 1: we start seeing upside surprise data when everybody's short dollar 111 00:06:08,520 --> 00:06:10,760 Speaker 1: and thinking rest of world growth and actually US is 112 00:06:10,800 --> 00:06:14,760 Speaker 1: maybe leading to the upside again and reaccelerating dollars starts performing, 113 00:06:15,880 --> 00:06:18,760 Speaker 1: people start monetizing, and you start taking money out of 114 00:06:18,800 --> 00:06:21,160 Speaker 1: these trades, and that turns into a bigger de risking. 115 00:06:21,720 --> 00:06:24,720 Speaker 4: Obviously, we want to get into, like got to get 116 00:06:24,920 --> 00:06:27,480 Speaker 4: into everything, including like the software sell off and its 117 00:06:27,480 --> 00:06:30,440 Speaker 4: connection to silver, et cetera. You know, it occurs to 118 00:06:30,480 --> 00:06:32,120 Speaker 4: me speaking of the software. 119 00:06:31,760 --> 00:06:34,400 Speaker 3: Thing, and I'm glad you brought up a liberation day. 120 00:06:34,680 --> 00:06:36,880 Speaker 3: One of the memes of twenty twenty. 121 00:06:36,560 --> 00:06:40,839 Speaker 4: Five was just this idea that, well, look, we don't 122 00:06:40,839 --> 00:06:42,839 Speaker 4: really know what tariffs are going to do. We're not 123 00:06:42,880 --> 00:06:45,039 Speaker 4: really sure what effect they're going to have on the economy, 124 00:06:45,200 --> 00:06:47,279 Speaker 4: but one thing we could be pretty sure of is 125 00:06:47,279 --> 00:06:49,520 Speaker 4: that it's totally gonna affect the sort of physical goods 126 00:06:49,560 --> 00:06:52,880 Speaker 4: economy and not the digital economy. And so tariffs in 127 00:06:52,920 --> 00:06:56,800 Speaker 4: away sort of seemed to embolden the software maybe crypto 128 00:06:56,960 --> 00:06:59,760 Speaker 4: digital trade because it's like this stuff is borderless, it 129 00:06:59,800 --> 00:07:01,839 Speaker 4: does and it's not going to get held up in customs, 130 00:07:02,040 --> 00:07:05,280 Speaker 4: so let's lean into this. And then so it's interesting 131 00:07:05,320 --> 00:07:07,239 Speaker 4: to hear. You know, then you get this bigger reversal. 132 00:07:07,360 --> 00:07:09,800 Speaker 4: Can we measure it when you talk about like how 133 00:07:10,080 --> 00:07:13,840 Speaker 4: leverage and how consensus these trades were, whether we're talking 134 00:07:13,880 --> 00:07:17,800 Speaker 4: about software or whatever, can we measure how crowded those 135 00:07:17,840 --> 00:07:19,360 Speaker 4: trades were, how levered these trades were. 136 00:07:19,360 --> 00:07:22,600 Speaker 1: Absolutely, I mean, I'll look across you know, we we 137 00:07:22,600 --> 00:07:26,400 Speaker 1: we have internal money that we were on within QIS 138 00:07:26,520 --> 00:07:30,480 Speaker 1: businesses where there's billions of dollars behind, you know, very sophisticated, 139 00:07:30,560 --> 00:07:34,480 Speaker 1: not like naive toy models from trend to risk parity, 140 00:07:34,920 --> 00:07:39,400 Speaker 1: you know, vaull control target volatility. So I look at 141 00:07:39,520 --> 00:07:42,840 Speaker 1: where those gross exposures are, and like period point blank 142 00:07:43,400 --> 00:07:46,360 Speaker 1: grosses were too big. Right if you look at a 143 00:07:46,400 --> 00:07:50,640 Speaker 1: snapshot of a model risk parity portfolio, four assets long 144 00:07:50,680 --> 00:07:59,000 Speaker 1: only using leverage to allocate your volatility right, long only, inequities, bonds, credit, commodities, 145 00:07:59,720 --> 00:08:02,600 Speaker 1: different waitings based on different economic scenarios, like a very 146 00:08:02,680 --> 00:08:07,080 Speaker 1: kind of generic versu parity. We're seeing on a let's 147 00:08:07,080 --> 00:08:09,320 Speaker 1: say a five year look back ninety nine spot seven 148 00:08:09,320 --> 00:08:13,440 Speaker 1: percentile gross exposure. It just so happens, right, you know. 149 00:08:14,080 --> 00:08:17,640 Speaker 1: Goldman Sachs Prime brokerage data with regards to equity hedge 150 00:08:17,640 --> 00:08:22,360 Speaker 1: fund grosses as of last Friday one hundred percentile on 151 00:08:22,440 --> 00:08:25,080 Speaker 1: a five year look back. So like these are these 152 00:08:25,080 --> 00:08:29,240 Speaker 1: are synonymous. Now, Now, gross exposure is not purely a 153 00:08:29,280 --> 00:08:34,559 Speaker 1: function of trailing realized volatility. Right, Different strategies deployed, different leverage, 154 00:08:35,120 --> 00:08:39,040 Speaker 1: different strategies, you know, will try to amplify a market 155 00:08:39,120 --> 00:08:42,480 Speaker 1: neutral versus a net lean or a directional lean. But 156 00:08:43,000 --> 00:08:45,840 Speaker 1: by and large, the grosses were too damn big. It's 157 00:08:45,880 --> 00:08:47,720 Speaker 1: like the guy that used to run for air. And 158 00:08:47,800 --> 00:08:51,360 Speaker 1: when you see grosses being that big, and you see 159 00:08:52,240 --> 00:08:55,640 Speaker 1: prices bending off the curve, and you see the thesis 160 00:08:55,760 --> 00:08:58,559 Speaker 1: behind it, and this is where I'm pumped to tie in. 161 00:08:58,640 --> 00:09:02,640 Speaker 1: Like the bitcoin read right, if debasement was actually what 162 00:09:02,720 --> 00:09:07,400 Speaker 1: people are saying it was, right, this idea that in dedollarization, 163 00:09:07,640 --> 00:09:12,000 Speaker 1: you know, moving away from fiat you know, US policy volatility, 164 00:09:12,320 --> 00:09:15,880 Speaker 1: US fiscal deficit, which, by the way, okay, like same 165 00:09:15,920 --> 00:09:18,640 Speaker 1: with Europe, same with Japan. Now you know with their 166 00:09:18,679 --> 00:09:21,599 Speaker 1: little trust moment, you know, Europe is taking the austerity 167 00:09:21,600 --> 00:09:25,200 Speaker 1: break off. That's a global phenomenon with fiat currency. So like, okay, 168 00:09:25,240 --> 00:09:27,240 Speaker 1: I can get with that to a certain extent. But 169 00:09:27,320 --> 00:09:29,520 Speaker 1: like why didn't bitcoin participate if that's what people kind 170 00:09:29,559 --> 00:09:31,800 Speaker 1: of claim, as you know, bitcoin's a shape shifter, as 171 00:09:31,880 --> 00:09:36,240 Speaker 1: is gold. But you know, my story, in my skepticism 172 00:09:36,280 --> 00:09:39,880 Speaker 1: with regards to that debasement or that dedollarization, was the 173 00:09:39,880 --> 00:09:43,080 Speaker 1: way that bitcoin absolutely did not participate when it was 174 00:09:43,120 --> 00:09:45,120 Speaker 1: gold and silver. And look, you know, I sit in 175 00:09:45,120 --> 00:09:49,360 Speaker 1: an options business. I see just outrageous call skews and 176 00:09:49,920 --> 00:09:53,080 Speaker 1: demand for upside and people, you know, keep putting on, 177 00:09:53,360 --> 00:09:56,000 Speaker 1: keep reloading into these, you know, the call spreads and 178 00:09:56,080 --> 00:09:59,320 Speaker 1: upside trades and SLV and GLD. The options volumes are massive. 179 00:09:59,320 --> 00:10:03,079 Speaker 1: It became a s aculative macro tourist retail type of 180 00:10:03,080 --> 00:10:06,199 Speaker 1: a trade on top of all this, but Bitcoin kept 181 00:10:06,240 --> 00:10:09,480 Speaker 1: going lower and I started seeing one, if people are grabbing, 182 00:10:09,600 --> 00:10:12,560 Speaker 1: people clearly have this preference for real assets, you know, 183 00:10:12,600 --> 00:10:16,439 Speaker 1: physical assets. Right now, in this world of debasement, of FIAT, 184 00:10:16,920 --> 00:10:23,040 Speaker 1: of fiscal deficits, spend, perpetual issuance, all those things, Bitcoin 185 00:10:23,120 --> 00:10:26,200 Speaker 1: is trading like software. It's trading like SaaS, which is 186 00:10:26,200 --> 00:10:30,360 Speaker 1: going through an existential crisis right now for really justified reasons, 187 00:10:30,480 --> 00:10:34,200 Speaker 1: especially with regards to valuation. Right And the funny thing is, 188 00:10:34,240 --> 00:10:37,800 Speaker 1: when we were talking about you know how AI was 189 00:10:37,840 --> 00:10:40,280 Speaker 1: actually going to I was making the point kind of 190 00:10:40,640 --> 00:10:43,600 Speaker 1: Q four start of Q four last year, there's two 191 00:10:43,679 --> 00:10:48,280 Speaker 1: major tailwinds for equities that become potential headwinds in twenty 192 00:10:48,320 --> 00:10:52,880 Speaker 1: twenty six. They're very well socialized, but they still ring true. Ironically, 193 00:10:52,920 --> 00:10:55,120 Speaker 1: we kind of got a backdoor on one. Was that 194 00:10:55,200 --> 00:10:58,520 Speaker 1: the CAPEC spending with regard to AI, you know, was 195 00:10:58,520 --> 00:11:02,120 Speaker 1: burning your cash when you're moving through the cash so fast, right, 196 00:11:02,160 --> 00:11:05,600 Speaker 1: and the cash that made these companies so preferred, so 197 00:11:05,920 --> 00:11:08,600 Speaker 1: you know, screening is quality and profitability and all these 198 00:11:08,640 --> 00:11:10,800 Speaker 1: great things. They're liquid, they're big, you can move in 199 00:11:10,840 --> 00:11:13,200 Speaker 1: and out of them. They only go higher, you know. 200 00:11:13,240 --> 00:11:14,760 Speaker 2: And they did a bunch of buybacks. 201 00:11:14,880 --> 00:11:17,240 Speaker 1: Well that's the trick, right, So like you aggregate kind 202 00:11:17,280 --> 00:11:19,360 Speaker 1: of like the mag seven or like you know, maybe 203 00:11:19,360 --> 00:11:23,040 Speaker 1: the twelve biggest kind of like AI contingent types of players. 204 00:11:23,280 --> 00:11:25,680 Speaker 1: You're talking like twenty to thirty percent of the overall 205 00:11:25,760 --> 00:11:27,600 Speaker 1: S and P five hundred buy back. So that's a 206 00:11:27,679 --> 00:11:30,760 Speaker 1: huge point for me because I've made this before. Buybacks 207 00:11:30,840 --> 00:11:33,360 Speaker 1: are like seven to eight x the largest source of 208 00:11:33,400 --> 00:11:35,880 Speaker 1: demand for equities over the past fifteen years. Wow, And 209 00:11:35,920 --> 00:11:38,960 Speaker 1: it's a val suppressor yep, right, I mean you are 210 00:11:39,040 --> 00:11:41,920 Speaker 1: a bigger if you're a passive bin under the market 211 00:11:41,960 --> 00:11:45,320 Speaker 1: on a view up order, or more importantly, when there 212 00:11:45,400 --> 00:11:47,240 Speaker 1: is a draw down, that's when they get most active. 213 00:11:47,480 --> 00:11:49,439 Speaker 1: So it's like long gamut. It's like synthetical long gam in 214 00:11:49,440 --> 00:11:51,560 Speaker 1: the market. So one you're burning through your cash and 215 00:11:51,559 --> 00:11:55,000 Speaker 1: you're no longer doing that. Two you're burning through your 216 00:11:55,000 --> 00:11:57,080 Speaker 1: cash and you're no longer buying back stock. Is this 217 00:11:57,160 --> 00:12:00,079 Speaker 1: vall shock absorber and passive bin into the market fromkin 218 00:12:00,160 --> 00:12:01,640 Speaker 1: of sort of a quarter to a third of the 219 00:12:01,679 --> 00:12:05,240 Speaker 1: overall S and p's buyback that you're then too having 220 00:12:05,280 --> 00:12:07,640 Speaker 1: to take on this new debt, you take on new loans. 221 00:12:07,880 --> 00:12:09,559 Speaker 1: You know, to a certain extent, you're trying to lever 222 00:12:09,640 --> 00:12:12,199 Speaker 1: the bow sheet. But you know, more importantly, what does 223 00:12:12,200 --> 00:12:15,040 Speaker 1: that mean for credit? Credit has been this perpetual kind 224 00:12:15,080 --> 00:12:19,400 Speaker 1: of vauld bleed. Yeah, because spreads are so tight credit. 225 00:12:19,200 --> 00:12:21,720 Speaker 2: People have been issuing to fund buybacks as well. 226 00:12:21,760 --> 00:12:24,240 Speaker 1: Yeah, one hundred percent. I mean, ironically that's probably a 227 00:12:24,240 --> 00:12:27,079 Speaker 1: separate podcast. But remember we used to kick and scream 228 00:12:27,120 --> 00:12:29,920 Speaker 1: like ah kiuie, this is crazy, like this malinvestment, Like 229 00:12:29,960 --> 00:12:32,640 Speaker 1: they're bringing debt for buybacks and they're not doing you know, 230 00:12:33,280 --> 00:12:35,160 Speaker 1: R and D, and they're not spending capex, they're not 231 00:12:35,160 --> 00:12:37,720 Speaker 1: building plans. Well, here you go. You know, Drug said 232 00:12:37,800 --> 00:12:40,760 Speaker 1: something like this, you know, many years ago in an interview. 233 00:12:40,760 --> 00:12:43,320 Speaker 1: He's like, actually, when you start to see you know, 234 00:12:43,800 --> 00:12:47,520 Speaker 1: the cash turn into capex spend, there's usually kind of 235 00:12:47,559 --> 00:12:50,520 Speaker 1: a point of agitation. It's not always in the right direction. 236 00:12:50,600 --> 00:12:52,880 Speaker 1: For equities, let's say, right, and in this case, I 237 00:12:52,920 --> 00:12:55,040 Speaker 1: think we're starting obviously we're starting to get that. But 238 00:12:55,080 --> 00:12:58,680 Speaker 1: the credit point is critical because the pace of the 239 00:12:58,840 --> 00:13:02,440 Speaker 1: capex kind of prisoner dilemma that we're still seeing right 240 00:13:02,440 --> 00:13:05,679 Speaker 1: now with like yesterday's earnings releases, the magnitude of that 241 00:13:05,880 --> 00:13:10,240 Speaker 1: supply in the investment grade market is simply going to 242 00:13:10,320 --> 00:13:13,520 Speaker 1: widen spreads. Tech is a big part of that. Now, 243 00:13:13,920 --> 00:13:17,240 Speaker 1: this is the punchline, bringing it back to software, bringing 244 00:13:17,240 --> 00:13:21,600 Speaker 1: it back to bitcoin. As we were all kind of 245 00:13:21,679 --> 00:13:24,960 Speaker 1: watching this potential for you know, the credit markets to 246 00:13:25,000 --> 00:13:28,720 Speaker 1: become a headwind, not in a shock, not in a freeze, 247 00:13:29,040 --> 00:13:31,840 Speaker 1: you know, not in anything close to a systemic dynamic. 248 00:13:31,880 --> 00:13:34,200 Speaker 1: Just too much supply with spreads too tight, you're not 249 00:13:34,240 --> 00:13:36,360 Speaker 1: being compensated for it so like there was kind of 250 00:13:36,360 --> 00:13:39,320 Speaker 1: this general shortened credit because guess what, the whole world 251 00:13:39,400 --> 00:13:44,079 Speaker 1: is watching one in like baby footsteps. Can Oracle get 252 00:13:44,360 --> 00:13:46,720 Speaker 1: their funding done? That was the one day we had 253 00:13:46,720 --> 00:13:48,240 Speaker 1: a sigh of relief. This week, by the way, they 254 00:13:48,240 --> 00:13:50,959 Speaker 1: got twenty five billion of investment grade done plus converts 255 00:13:51,320 --> 00:13:53,640 Speaker 1: with like one hundred and twenty nine billion of demand 256 00:13:54,000 --> 00:13:56,760 Speaker 1: the market. Huge extail. But guess what, open Ai is 257 00:13:56,760 --> 00:13:58,760 Speaker 1: still in the background somewhere. We're like kind of sort 258 00:13:58,760 --> 00:13:59,840 Speaker 1: of in the next two months, they got to come 259 00:13:59,920 --> 00:14:01,720 Speaker 1: up with like anywhere from one hundred to two hundred 260 00:14:01,720 --> 00:14:04,319 Speaker 1: billion bucks. And that is still a major point of skepticism. 261 00:14:04,360 --> 00:14:05,920 Speaker 2: It's not a funny punchline, is it. 262 00:14:06,040 --> 00:14:08,000 Speaker 1: No, it's not. It doesn't make you feel really good. 263 00:14:08,080 --> 00:14:10,880 Speaker 1: But here's the thing. As Anthropic has done their thing, 264 00:14:10,920 --> 00:14:13,640 Speaker 1: and I mean, bang, you guys are in it right 265 00:14:13,679 --> 00:14:17,560 Speaker 1: now with regards to Claude and the implications of vibe coding, 266 00:14:17,640 --> 00:14:21,000 Speaker 1: and you know, a whole reset with regards to certain 267 00:14:21,040 --> 00:14:23,640 Speaker 1: industries and taking out even if it's just the basic 268 00:14:23,760 --> 00:14:27,600 Speaker 1: level of like legal compliance documentation, and we've seen it 269 00:14:27,640 --> 00:14:30,800 Speaker 1: start to hit bottom lines with regards to earnings, mentions 270 00:14:30,800 --> 00:14:32,840 Speaker 1: and things like that that is happening so fast that 271 00:14:32,960 --> 00:14:35,040 Speaker 1: software is going through this ex centric crisis. And here's 272 00:14:35,040 --> 00:14:40,240 Speaker 1: the deal. Those dudes are stuffed on restricted shares. There's 273 00:14:40,280 --> 00:14:46,520 Speaker 1: stuffed on RSUs and the concentric circles of VC boys 274 00:14:46,560 --> 00:14:52,120 Speaker 1: and tech boys in SaaS Bros and Bitcoin Bros. Has 275 00:14:52,160 --> 00:14:54,000 Speaker 1: a lot of overlap of. 276 00:14:54,080 --> 00:14:55,080 Speaker 2: Boys and bross. 277 00:14:55,120 --> 00:14:56,840 Speaker 3: Not a Venn diagram, it's just a circle. 278 00:14:56,960 --> 00:14:59,680 Speaker 1: It's kind of like straight up overlap. And you know, 279 00:14:59,800 --> 00:15:02,960 Speaker 1: in in a sense you can't sell, you're kind of 280 00:15:03,000 --> 00:15:05,560 Speaker 1: being haircut ten percent. It feels like every week right 281 00:15:05,600 --> 00:15:07,640 Speaker 1: now with regards to do I have a job, what 282 00:15:07,680 --> 00:15:11,080 Speaker 1: are the prospects, where is this industry going? And what 283 00:15:11,160 --> 00:15:13,200 Speaker 1: do you have to sell? You know? And I think 284 00:15:13,240 --> 00:15:16,120 Speaker 1: that that's why it is trading tick for tick. You're 285 00:15:16,200 --> 00:15:19,680 Speaker 1: to date with SaaS software and it's quite remarkable. And 286 00:15:19,720 --> 00:15:22,080 Speaker 1: that to me, as I step back to this large conversation, 287 00:15:23,200 --> 00:15:28,160 Speaker 1: it's not really about debasement, right, this is a digital phenomenon. 288 00:15:28,200 --> 00:15:31,240 Speaker 1: This is a liquidity crunch. With regards to this, the 289 00:15:31,280 --> 00:15:35,160 Speaker 1: idiosyncratics of that sector really coming under attack. And by 290 00:15:35,240 --> 00:15:38,440 Speaker 1: the way, now it's also become a backdoor credit story 291 00:15:38,440 --> 00:15:40,960 Speaker 1: where it's not simply the spread widening from the hyperscalers. 292 00:15:41,280 --> 00:15:46,280 Speaker 1: It's people worrying now about private credit. Actually the BDC guys, 293 00:15:46,320 --> 00:15:47,880 Speaker 1: which are you know, sitting on a lot of this 294 00:15:47,920 --> 00:15:50,920 Speaker 1: stuff with you know, really tricky evaluations and not a 295 00:15:50,920 --> 00:15:53,760 Speaker 1: lot of like buffer room and you know, with covenants 296 00:15:53,800 --> 00:15:55,720 Speaker 1: and things like that. So you know, it's become a 297 00:15:55,800 --> 00:15:59,040 Speaker 1: huge macro story. They kind of did the end around 298 00:15:59,160 --> 00:16:01,320 Speaker 1: with regards to where we thought it was going to come. 299 00:16:01,720 --> 00:16:05,120 Speaker 1: But we can handle a couple things at once, you know, 300 00:16:04,960 --> 00:16:06,600 Speaker 1: you know, all of a sudden you get a little 301 00:16:06,640 --> 00:16:08,760 Speaker 1: bit of a surprise with regards to the Fed chair 302 00:16:09,120 --> 00:16:12,040 Speaker 1: dollar stabilizes. You've already had people in all these short 303 00:16:12,080 --> 00:16:14,680 Speaker 1: dollar trades. People start taking money out of you know, 304 00:16:15,080 --> 00:16:19,200 Speaker 1: gold upside, silver upside, They start taking off some em upside. 305 00:16:19,440 --> 00:16:22,480 Speaker 1: And at that point, like last Thursday, I'm looking at grosses. 306 00:16:22,800 --> 00:16:26,480 Speaker 1: I'm looking at our CTA trend net exposures and commodities 307 00:16:26,520 --> 00:16:30,520 Speaker 1: and metals ninety eight percentile. I'm looking at our net 308 00:16:30,880 --> 00:16:34,800 Speaker 1: short dollar exposure zero percentile. Look at our net equities 309 00:16:34,800 --> 00:16:39,520 Speaker 1: exposure ninety seven percentile. I'm saying, these are the qualitative 310 00:16:39,560 --> 00:16:43,000 Speaker 1: things I need to see where profit taking and monetization 311 00:16:43,080 --> 00:16:44,640 Speaker 1: turns into a risk management. 312 00:16:44,240 --> 00:17:01,480 Speaker 2: Exercise, so speaking of selling what you can and not 313 00:17:01,560 --> 00:17:04,240 Speaker 2: necessarily what you want. One of the reasons that yesterday 314 00:17:04,359 --> 00:17:08,199 Speaker 2: February fifth, I guess was so painful is because we 315 00:17:08,320 --> 00:17:11,960 Speaker 2: started to see the places, the few places where people 316 00:17:12,000 --> 00:17:16,640 Speaker 2: were able to hide start to go down. So consumer staples, 317 00:17:16,640 --> 00:17:19,520 Speaker 2: for instance, it wasn't a big drop, but still they'd 318 00:17:19,560 --> 00:17:22,639 Speaker 2: been surging earlier in the year as people sort of 319 00:17:22,680 --> 00:17:26,520 Speaker 2: switched out of software and into consumer goods. But now 320 00:17:27,160 --> 00:17:30,080 Speaker 2: it's not quite clear where they're going to go. So 321 00:17:30,240 --> 00:17:33,480 Speaker 2: correlation seems to be picking up right like in a 322 00:17:33,520 --> 00:17:37,480 Speaker 2: market crash, correlation goes to one. But at the same time, 323 00:17:37,560 --> 00:17:40,280 Speaker 2: I can't figure out what's going on with implied correlation 324 00:17:40,400 --> 00:17:43,240 Speaker 2: because if I look that up, it's still pretty low. 325 00:17:44,080 --> 00:17:47,840 Speaker 1: So this is, you know, absolutely topical, and it's something 326 00:17:47,880 --> 00:17:49,960 Speaker 1: that you know, we continue to get questions over the 327 00:17:50,040 --> 00:17:52,359 Speaker 1: last few years, you know that generic like why is 328 00:17:52,440 --> 00:17:55,600 Speaker 1: all so low? Right? You know? And low VALL or 329 00:17:55,680 --> 00:17:58,399 Speaker 1: high vall is incredibly subjective. It's about the you know, 330 00:17:58,440 --> 00:18:00,600 Speaker 1: the wall service, it's about skew It's about where the 331 00:18:00,640 --> 00:18:03,719 Speaker 1: starting point was, where you've moved from, how quickly you know, 332 00:18:03,760 --> 00:18:08,040 Speaker 1: it's it's art plus science. The part of the problem 333 00:18:08,160 --> 00:18:12,640 Speaker 1: with vall in general certainly being sticky, and I think 334 00:18:12,680 --> 00:18:15,280 Speaker 1: it comes down to where the money has flowed with 335 00:18:15,359 --> 00:18:17,679 Speaker 1: regards to the hedge fund space is that, you know, 336 00:18:17,760 --> 00:18:21,960 Speaker 1: maybe ten fifteen years ago, the long short universe, you know, 337 00:18:22,119 --> 00:18:26,560 Speaker 1: running net exposure was I don't want to say, you know, 338 00:18:26,720 --> 00:18:30,480 Speaker 1: necessarily dollar for dollar like acts or necessarily larger than 339 00:18:30,600 --> 00:18:32,479 Speaker 1: you know, the multi strats at the time, but like 340 00:18:32,600 --> 00:18:35,879 Speaker 1: they ran net and they would lever up positions or 341 00:18:35,920 --> 00:18:38,639 Speaker 1: they would hedge their longs, and they were you know, 342 00:18:38,720 --> 00:18:41,439 Speaker 1: generally speaking, there was buyers volatility with those guys to 343 00:18:41,440 --> 00:18:44,120 Speaker 1: a certain extent. You know, if you look back kind 344 00:18:44,119 --> 00:18:46,000 Speaker 1: of on the sort of let's say five a ten 345 00:18:46,119 --> 00:18:50,280 Speaker 1: years of dollar flows into the hedge fund space. With 346 00:18:50,320 --> 00:18:56,119 Speaker 1: regards to all new flows, multistrats are conservatively eighty cents 347 00:18:56,119 --> 00:18:59,600 Speaker 1: of every dollar in, and then if you actually include 348 00:19:00,040 --> 00:19:04,720 Speaker 1: outflows from other strategies, you're legitimately through one dollar of 349 00:19:05,000 --> 00:19:07,600 Speaker 1: So the point I'm making here and multi strats are 350 00:19:07,760 --> 00:19:14,040 Speaker 1: unbelievable with regards to their low volatility, with regards to 351 00:19:14,080 --> 00:19:17,800 Speaker 1: the consistency of their returns with regards to the the 352 00:19:17,840 --> 00:19:23,160 Speaker 1: disciplined risk management, the tight stops model, the non correlated returns, 353 00:19:23,600 --> 00:19:27,680 Speaker 1: which is the whole story why people keep allocating into them. 354 00:19:28,080 --> 00:19:33,200 Speaker 1: They've proven to be such an absolutely undeniable force, hence 355 00:19:33,240 --> 00:19:35,400 Speaker 1: all this dollar flow. But think about it like this, 356 00:19:35,840 --> 00:19:38,119 Speaker 1: we don't see the core ones anymore. And this is 357 00:19:38,160 --> 00:19:42,200 Speaker 1: like core ones core ones meaning like when things shock, 358 00:19:42,400 --> 00:19:46,760 Speaker 1: everything together or down together, right, And that was kind 359 00:19:46,800 --> 00:19:48,479 Speaker 1: of the old state of the world. But now what 360 00:19:48,560 --> 00:19:50,159 Speaker 1: we tend to see and this is exactly what we 361 00:19:50,240 --> 00:19:53,040 Speaker 1: saw earlier this week when you had you know, of 362 00:19:53,080 --> 00:19:55,520 Speaker 1: course financial market returns are not on a normal distribution, 363 00:19:55,720 --> 00:19:56,840 Speaker 1: but for you know. 364 00:19:58,520 --> 00:20:03,119 Speaker 4: It's like it's like like something get a pharmaceutical, yeah. 365 00:20:03,080 --> 00:20:05,560 Speaker 2: Like you have to include it because otherwise someone annoying, 366 00:20:05,680 --> 00:20:06,760 Speaker 2: don't take this drug. 367 00:20:06,520 --> 00:20:10,080 Speaker 1: If you're this drug. Yeah. So the point here being 368 00:20:10,160 --> 00:20:12,399 Speaker 1: that you know, you would see kind of like a 369 00:20:12,520 --> 00:20:16,760 Speaker 1: risk on, risk off type of core one phenomenon you know, 370 00:20:16,920 --> 00:20:20,639 Speaker 1: in past era. Part of what is happening now in 371 00:20:20,720 --> 00:20:24,320 Speaker 1: my mind, you know, with these you know a little 372 00:20:24,320 --> 00:20:28,240 Speaker 1: bit of fragmented you know, bullet points, you know, triangulating. 373 00:20:28,280 --> 00:20:31,560 Speaker 1: Here is the fact that the dollars and the leverage 374 00:20:31,560 --> 00:20:36,960 Speaker 1: controlled by the market neutral multi strat equity space are 375 00:20:37,080 --> 00:20:40,360 Speaker 1: so overwhelming in the sense that when you get when 376 00:20:40,400 --> 00:20:44,639 Speaker 1: you are forced to de risk or degross, you know, 377 00:20:44,800 --> 00:20:49,600 Speaker 1: the tilts go wrong, that you have the offsetting short 378 00:20:49,680 --> 00:20:53,240 Speaker 1: on the other end. Right, It's not just you stop 379 00:20:53,280 --> 00:20:55,880 Speaker 1: out of your net longs or your crowded lungs, right, 380 00:20:55,960 --> 00:20:59,960 Speaker 1: It's that you're also you know, theoretically an equal dollar 381 00:21:00,040 --> 00:21:02,760 Speaker 1: amount on the short side being covered. And what ends 382 00:21:02,840 --> 00:21:04,760 Speaker 1: up happening on like the two big down days this week, 383 00:21:04,760 --> 00:21:07,199 Speaker 1: it was like two hundred and fifty stocks were up, 384 00:21:07,240 --> 00:21:09,359 Speaker 1: two hundred fifty stocks were down. Yeah, so you're getting 385 00:21:09,359 --> 00:21:13,800 Speaker 1: this like reverse dispersion right, very much the opposite of 386 00:21:13,800 --> 00:21:17,000 Speaker 1: what last year was, which is this crazy concentration of 387 00:21:17,080 --> 00:21:21,080 Speaker 1: like top decile, bottom decile just spread ninety nine percentile 388 00:21:21,200 --> 00:21:23,480 Speaker 1: like a ten year basis, which feeds into why people 389 00:21:23,480 --> 00:21:26,760 Speaker 1: are loaded into momentum. Right, the higher stuff keeps going higher. 390 00:21:26,760 --> 00:21:28,720 Speaker 1: It's human nature. This is like fom in France. This 391 00:21:28,840 --> 00:21:32,439 Speaker 1: is factor alpha, you know, commoditized alpha. So these things 392 00:21:32,520 --> 00:21:34,840 Speaker 1: I think due to this kind of where the dollar 393 00:21:34,840 --> 00:21:37,400 Speaker 1: flows have been, the market neutrality, the fact that there's 394 00:21:37,480 --> 00:21:40,479 Speaker 1: always this offset against it, you're not getting core shocks 395 00:21:40,680 --> 00:21:43,959 Speaker 1: and when you don't get core shocks necessarily, at least initially, 396 00:21:44,200 --> 00:21:46,880 Speaker 1: because VAUL did not really react until just like two 397 00:21:47,000 --> 00:21:49,439 Speaker 1: days ago and yesterday iv all ive all got a 398 00:21:49,440 --> 00:21:52,560 Speaker 1: little tricky too. But you know, point being, you need 399 00:21:52,600 --> 00:21:55,920 Speaker 1: correlation as an input to higher vault to like sustain, 400 00:21:56,320 --> 00:21:58,280 Speaker 1: and you're just not getting that. You still have low 401 00:21:58,320 --> 00:22:00,560 Speaker 1: core now. The trick is to your point, it's crazy. 402 00:22:00,600 --> 00:22:04,760 Speaker 1: It's very interesting. You mentioned the defensives, right, the reversal 403 00:22:04,800 --> 00:22:08,760 Speaker 1: that we saw when people said, look, I'm too much 404 00:22:08,760 --> 00:22:12,000 Speaker 1: exposure and secular growth metacap tac AI, which gives you 405 00:22:12,080 --> 00:22:14,159 Speaker 1: a lot of momentum exposure, a lot of you know, 406 00:22:14,760 --> 00:22:18,040 Speaker 1: you know, unintended kind of exposures that when people said 407 00:22:18,080 --> 00:22:21,240 Speaker 1: I need more economic sensitivity, I'm taking up my cyclicality. Right, 408 00:22:21,280 --> 00:22:23,520 Speaker 1: The three best performing sectors kind of year to date 409 00:22:23,560 --> 00:22:27,080 Speaker 1: for most of the year have been like energy, materials, industrials, right, right, 410 00:22:27,119 --> 00:22:29,320 Speaker 1: stuff that people have kind of been underweted for the 411 00:22:29,320 --> 00:22:32,760 Speaker 1: longest time in the absence of a hot economic cycle, 412 00:22:33,040 --> 00:22:36,240 Speaker 1: you know. But also too, when you started seeing defensives 413 00:22:36,400 --> 00:22:39,120 Speaker 1: joining that rotation, like it was this massive value over 414 00:22:39,119 --> 00:22:40,920 Speaker 1: growth trade and that's the three four or five z 415 00:22:41,000 --> 00:22:43,080 Speaker 1: score types of moves that you're talking about where people 416 00:22:43,119 --> 00:22:46,240 Speaker 1: didn't have that stuff on and your lungs go against 417 00:22:46,280 --> 00:22:48,280 Speaker 1: you and your shorts go against you, and and that 418 00:22:48,480 --> 00:22:51,880 Speaker 1: is also amplifying, you know, these kinds of moves because look, 419 00:22:52,080 --> 00:22:54,840 Speaker 1: it's not just the market neutrals, like they're not Boogeyman here. 420 00:22:54,840 --> 00:22:58,280 Speaker 1: They're unbelievable. They barely lose money ever on a monthly basis. 421 00:22:58,480 --> 00:23:01,640 Speaker 1: They just have very disciplined it stops to get out 422 00:23:01,680 --> 00:23:05,359 Speaker 1: of these lians and tilts hard and fast, unemotionally. But 423 00:23:05,400 --> 00:23:09,280 Speaker 1: guess what it's you know, retail, it's all the story stocks, 424 00:23:09,320 --> 00:23:11,119 Speaker 1: all these themes. That's why I pointed out for the 425 00:23:11,200 --> 00:23:13,760 Speaker 1: last two years of the boom and leverage gtfs like 426 00:23:13,840 --> 00:23:16,360 Speaker 1: eighty two percent of the assets, and leverage gtfs which 427 00:23:16,440 --> 00:23:19,080 Speaker 1: act like synthetic negative gamma. Right, the higher you go, 428 00:23:19,160 --> 00:23:20,119 Speaker 1: the more you have to buy at the end of 429 00:23:20,160 --> 00:23:21,359 Speaker 1: the day, the lower you go, the more you have 430 00:23:21,400 --> 00:23:24,560 Speaker 1: to sell. You know, massive pool of AUM now because 431 00:23:24,600 --> 00:23:28,080 Speaker 1: of like retail, you know, tilted speculative leverage behavior are 432 00:23:28,200 --> 00:23:32,800 Speaker 1: tied into that concentric circle of AI, megacap, tech, semis, 433 00:23:33,320 --> 00:23:38,399 Speaker 1: you know, disruptor or crypto. So we're super overweighted, super 434 00:23:38,440 --> 00:23:41,840 Speaker 1: over index to that stuff, which amplifies when you have 435 00:23:42,520 --> 00:23:45,200 Speaker 1: the tight market neutral stop outs, you know, with all 436 00:23:45,200 --> 00:23:47,680 Speaker 1: that leverage, with all that AUM, you know, to get 437 00:23:47,680 --> 00:23:49,520 Speaker 1: their factors right, because at the end of the day, 438 00:23:49,560 --> 00:23:52,920 Speaker 1: those guys are not trying to make factor bets. There's 439 00:23:52,960 --> 00:23:55,199 Speaker 1: scenarios where you maybe run even the little net if 440 00:23:55,240 --> 00:23:57,840 Speaker 1: there's like a big you know, economic reacceleration trade or 441 00:23:57,840 --> 00:24:00,280 Speaker 1: something like that. But generally speaking, the ideas like we 442 00:24:00,320 --> 00:24:02,680 Speaker 1: don't want beta to the S and P. That's the point. 443 00:24:02,680 --> 00:24:04,639 Speaker 1: That's why people pass. Stop comparing us to S and 444 00:24:04,680 --> 00:24:06,960 Speaker 1: P returns. So all these things are part of this 445 00:24:07,080 --> 00:24:09,560 Speaker 1: like backdrop plus the narrative overshoots. 446 00:24:09,560 --> 00:24:12,520 Speaker 3: To me, that was fantastic and it's very intuitive. 447 00:24:12,560 --> 00:24:15,840 Speaker 4: I mean, there is already good theoretical ideas for thinking 448 00:24:15,920 --> 00:24:19,320 Speaker 4: that the multi streats were huge drivers of all this, 449 00:24:19,600 --> 00:24:21,720 Speaker 4: and then when you add in the fact that the 450 00:24:21,760 --> 00:24:25,080 Speaker 4: staples like the sort of underloved areas or energy materials 451 00:24:25,080 --> 00:24:25,800 Speaker 4: are the winners. 452 00:24:26,000 --> 00:24:29,280 Speaker 3: Very intuitive to your point on software. 453 00:24:29,560 --> 00:24:32,280 Speaker 4: You know, no one really knows obviously, the degree to 454 00:24:32,320 --> 00:24:35,880 Speaker 4: which AI is going to obliterate these business obviate these businesses. 455 00:24:36,080 --> 00:24:37,280 Speaker 3: No one really knows. 456 00:24:37,600 --> 00:24:40,720 Speaker 4: But like from the perspective you mentioned the tight stops 457 00:24:40,760 --> 00:24:44,080 Speaker 4: that each manager has within these firms, can you give 458 00:24:44,160 --> 00:24:47,359 Speaker 4: us like some sense of how much is it? Like, look, 459 00:24:48,160 --> 00:24:50,719 Speaker 4: I just want to keep my job here and this 460 00:24:50,800 --> 00:24:53,200 Speaker 4: is the ugly stuff that's going on, and so I'm 461 00:24:53,240 --> 00:24:55,679 Speaker 4: just gonna sell now and ask questions later, like how 462 00:24:55,760 --> 00:24:58,000 Speaker 4: much does that play into on a week like this? 463 00:24:59,400 --> 00:25:04,520 Speaker 1: Well, we're talking about wide swaths of strategies and active 464 00:25:04,920 --> 00:25:08,800 Speaker 1: you know, systematic versus you know, field directional trading, and 465 00:25:09,160 --> 00:25:11,960 Speaker 1: you know, you know, tight stops are you know typically 466 00:25:12,000 --> 00:25:14,200 Speaker 1: that you know, down two percent, kind of down one 467 00:25:14,200 --> 00:25:16,600 Speaker 1: and a half percent, maybe even in some cases, but 468 00:25:17,480 --> 00:25:20,399 Speaker 1: you know that's why it has managed so microscopically, and 469 00:25:20,440 --> 00:25:23,119 Speaker 1: you're extracting these you know basis points of alpha and 470 00:25:23,119 --> 00:25:25,520 Speaker 1: your lungs and shorts, and then you know, using leverage 471 00:25:25,560 --> 00:25:27,919 Speaker 1: like a you know, a market neutral is probably two 472 00:25:28,040 --> 00:25:30,720 Speaker 1: hundred three hundred percent gross buy and large like long 473 00:25:30,800 --> 00:25:34,119 Speaker 1: short was always kind of like fifty net one fifty 474 00:25:34,200 --> 00:25:36,480 Speaker 1: gross something to that extent. But they're just not as 475 00:25:36,520 --> 00:25:38,919 Speaker 1: big of a player anymore. But you know that's the 476 00:25:38,960 --> 00:25:41,240 Speaker 1: trick here, Like when I start seeing it, I always 477 00:25:41,280 --> 00:25:43,560 Speaker 1: love the systematic stuff because it's so tied in. It 478 00:25:43,640 --> 00:25:45,880 Speaker 1: kind of looks a lot like the options market and 479 00:25:46,600 --> 00:25:50,119 Speaker 1: market structure. Buying large feeds momentum now, right, you're not 480 00:25:50,320 --> 00:25:53,680 Speaker 1: scaling out of positions. The more they trend, you're loading 481 00:25:53,720 --> 00:25:57,440 Speaker 1: into them. So like whether it's target volatility or CTA, 482 00:25:57,600 --> 00:26:02,800 Speaker 1: or you assign an exposure target, you know, a leverage target, 483 00:26:02,960 --> 00:26:08,400 Speaker 1: and if the volatility is five and your vault target 484 00:26:08,480 --> 00:26:10,920 Speaker 1: is ten, you got to lever that two times or twelve, 485 00:26:11,040 --> 00:26:16,399 Speaker 1: you know, like, and that is ironically, the lower vault goes, 486 00:26:16,640 --> 00:26:19,640 Speaker 1: the more you need to add leverage onto that position, 487 00:26:20,840 --> 00:26:23,199 Speaker 1: right to match your target. And that's why that's the 488 00:26:23,280 --> 00:26:27,520 Speaker 1: problem we create crashes because all of modern anybody who's 489 00:26:27,520 --> 00:26:31,200 Speaker 1: like on a var model is actually a momentum trader. Right, 490 00:26:31,640 --> 00:26:34,879 Speaker 1: you have to deleverage when VAUL goes higher, by and large. Now, 491 00:26:34,960 --> 00:26:36,960 Speaker 1: of course, if you have a high conviction bet and 492 00:26:37,040 --> 00:26:38,760 Speaker 1: VALL goes higher, that's actually going to be part of 493 00:26:38,760 --> 00:26:41,920 Speaker 1: your potential return profile. You know, it's great, and God knows, 494 00:26:42,600 --> 00:26:44,600 Speaker 1: people have learned to like you know, sell rich vall 495 00:26:44,720 --> 00:26:47,280 Speaker 1: and by you know, by dips it's become conditioned. These 496 00:26:47,280 --> 00:26:50,200 Speaker 1: time horizons are like hours at this point, but like. 497 00:26:50,320 --> 00:26:52,920 Speaker 2: Some people have made an entire career out of doing 498 00:26:52,960 --> 00:26:53,399 Speaker 2: it once. 499 00:26:53,880 --> 00:26:55,800 Speaker 1: Yeah, for sure. And I mean you gotta have a 500 00:26:55,840 --> 00:26:58,160 Speaker 1: titanium stomach. Like I've been talking to a buddy all 501 00:26:58,160 --> 00:27:01,160 Speaker 1: week at a multi you know, this apps mad Man, 502 00:27:01,240 --> 00:27:03,199 Speaker 1: and there's many others like him. You know, he's been 503 00:27:03,240 --> 00:27:04,880 Speaker 1: shorting Silver the last two weeks. I'm like, how you've 504 00:27:04,880 --> 00:27:07,720 Speaker 1: been sleeping, dude. You know, it's like a little better now. 505 00:27:07,760 --> 00:27:11,000 Speaker 1: But you know there's the Silver moves are unbelievable. Yesterday 506 00:27:11,119 --> 00:27:11,720 Speaker 1: was like sixteen. 507 00:27:11,920 --> 00:27:14,960 Speaker 4: I mean these I've seen two people I've spoken to 508 00:27:15,160 --> 00:27:18,199 Speaker 4: say that the Silver moves specifically may have been the 509 00:27:18,280 --> 00:27:20,280 Speaker 4: crazy one of the craziest moves that they've you know. 510 00:27:20,960 --> 00:27:24,840 Speaker 1: It's crowding plus the trend, plus the optionality plus the 511 00:27:24,920 --> 00:27:28,199 Speaker 1: leverage DTF. You know, the optionality is leverage in and 512 00:27:28,240 --> 00:27:30,840 Speaker 1: of itself, and it's high beta, you know, as is 513 00:27:30,880 --> 00:27:35,080 Speaker 1: to regular you know, big brother Gold. So these moves 514 00:27:35,080 --> 00:27:38,120 Speaker 1: are you know, wild, but we know that in the 515 00:27:38,160 --> 00:27:42,080 Speaker 1: era of the speculative era, you know, people seek the movement. 516 00:27:42,160 --> 00:27:46,080 Speaker 1: That's the opportunity. You are not going to retire four 517 00:27:46,119 --> 00:27:49,119 Speaker 1: percent in cash, you know, that's just the way this 518 00:27:49,200 --> 00:27:52,840 Speaker 1: world works right now, now, you know, do you necessarily 519 00:27:52,880 --> 00:27:55,000 Speaker 1: need to be like shorting vall or things like that. 520 00:27:55,000 --> 00:27:57,720 Speaker 1: That's not the way to do this. But people, yolo, 521 00:27:57,880 --> 00:28:00,280 Speaker 1: it's the financial nihilism that we've spoken about. You know 522 00:28:00,320 --> 00:28:03,359 Speaker 1: many many times you seek out the movement, you want 523 00:28:03,400 --> 00:28:06,359 Speaker 1: the stuff that's moving and generally speaking, and this is 524 00:28:06,359 --> 00:28:08,719 Speaker 1: where it's so interesting, like you try to press moves 525 00:28:08,760 --> 00:28:12,240 Speaker 1: by and large, certainly like the retail cohort, the world 526 00:28:12,320 --> 00:28:15,080 Speaker 1: is not built the vast majority of the time for 527 00:28:15,160 --> 00:28:18,840 Speaker 1: mean reversion anymore. Value is mean reversion, like something is rich, 528 00:28:18,920 --> 00:28:21,080 Speaker 1: something is cheap. It's this counter kind of like a 529 00:28:21,160 --> 00:28:23,800 Speaker 1: gamma type of flow, you know, long gamma type flow. 530 00:28:24,440 --> 00:28:27,760 Speaker 1: We feed moves now because of the risk management dynamics 531 00:28:27,760 --> 00:28:30,399 Speaker 1: and especially too, just like market structure, how much trend 532 00:28:30,400 --> 00:28:33,720 Speaker 1: there is built into the market leverage, DTFS, options, things 533 00:28:33,760 --> 00:28:36,080 Speaker 1: like that, you know, particularly the way that people tend 534 00:28:36,119 --> 00:28:38,360 Speaker 1: to use them, which is tend of to feed into 535 00:28:38,400 --> 00:28:41,920 Speaker 1: prevailing moves. So all of this kind of changes the 536 00:28:41,960 --> 00:28:46,240 Speaker 1: behavior and the expected outcomes where you know, momentum has 537 00:28:46,280 --> 00:28:51,320 Speaker 1: been you know, this remarkable factor for you know, academic 538 00:28:51,400 --> 00:28:54,360 Speaker 1: history studying these things because of like greed and fear 539 00:28:54,440 --> 00:28:56,719 Speaker 1: and things like that, and moves can extend longer than 540 00:28:56,760 --> 00:28:59,080 Speaker 1: you think. Just because a trade is crowded doesn't mean 541 00:28:59,080 --> 00:29:01,800 Speaker 1: it's the wrong trade. But when you start to layer in, 542 00:29:01,960 --> 00:29:06,240 Speaker 1: as they said, the positioning data, the overall leverage data, 543 00:29:06,600 --> 00:29:09,800 Speaker 1: the kind of the conversational quality ative, how many people 544 00:29:09,800 --> 00:29:11,479 Speaker 1: are buying into this? But then you see you know, 545 00:29:11,880 --> 00:29:13,920 Speaker 1: some like divots here and there and like the stories 546 00:29:14,080 --> 00:29:15,920 Speaker 1: that doesn't actually make sense. And actually this thing is 547 00:29:15,920 --> 00:29:17,840 Speaker 1: starting to stall. And now I got people taking money 548 00:29:17,880 --> 00:29:19,800 Speaker 1: out of this thing, and I got trend this loaded 549 00:29:19,840 --> 00:29:21,720 Speaker 1: into it. This is going to unwind hard. And I 550 00:29:21,760 --> 00:29:24,560 Speaker 1: sent that note Thursday, you know, started unwinding hard. Friday 551 00:29:24,640 --> 00:29:27,120 Speaker 1: doors got blown off and guess what it waterfalls. So 552 00:29:27,160 --> 00:29:30,479 Speaker 1: other crowded trades go cospy. Everybody's like, you know, no 553 00:29:30,560 --> 00:29:33,520 Speaker 1: brainer into that Japanese bank longs, right, which are a 554 00:29:33,560 --> 00:29:36,840 Speaker 1: short JGB proxy macro tourism. Like, people start coming out 555 00:29:36,840 --> 00:29:38,920 Speaker 1: of these trades because they're non core, but they were. 556 00:29:38,880 --> 00:29:43,800 Speaker 2: High sharp right, so flows before pros, But now the 557 00:29:43,840 --> 00:29:50,760 Speaker 2: pros are chasing flows and that's hurting the brokess. Okay, 558 00:29:51,040 --> 00:29:54,360 Speaker 2: so you just touched on this, but what stops the bleed. 559 00:29:55,720 --> 00:29:59,520 Speaker 1: I think you're you know, you're getting certainly some relief here. 560 00:29:59,560 --> 00:30:01,840 Speaker 1: I mean, look, people will say, you know, at some 561 00:30:01,960 --> 00:30:05,800 Speaker 1: point on a smaller gross, you don't really have to 562 00:30:05,800 --> 00:30:07,840 Speaker 1: do anymore. You don't have to reach for hedges, which 563 00:30:07,840 --> 00:30:10,560 Speaker 1: get dealer shirt gamma right, because you're you don't you 564 00:30:10,720 --> 00:30:14,040 Speaker 1: have as much exposure anymore. That's the first step. People 565 00:30:14,080 --> 00:30:16,800 Speaker 1: then have to monetize their hedges. So all of these 566 00:30:16,840 --> 00:30:19,520 Speaker 1: reversals happen. You take off your hedges, or you take 567 00:30:19,560 --> 00:30:22,400 Speaker 1: off your directional stuff, whether you're shorting futures against the 568 00:30:22,440 --> 00:30:25,800 Speaker 1: moves or you're buying downside puts, you're buying vixed calls. 569 00:30:26,040 --> 00:30:28,280 Speaker 1: You start to unwind that and guess what, Like now 570 00:30:28,480 --> 00:30:30,160 Speaker 1: the dealer's got to take off their stuff, and you 571 00:30:30,200 --> 00:30:32,360 Speaker 1: got delta a by and then some people say, oh, 572 00:30:32,520 --> 00:30:34,640 Speaker 1: everybody's taking their hedges off around the street, and market's 573 00:30:34,640 --> 00:30:36,560 Speaker 1: starting to rally off these lows. I'm going to buy 574 00:30:36,600 --> 00:30:39,000 Speaker 1: some zero DT calls and you know, then you create 575 00:30:39,040 --> 00:30:42,120 Speaker 1: more delta to buy back to the races, and VALL starts. 576 00:30:42,280 --> 00:30:44,120 Speaker 1: You know, if VALL starts rolling over, and guess what, 577 00:30:44,200 --> 00:30:46,360 Speaker 1: then the systematic the VALL supply people come out of 578 00:30:46,360 --> 00:30:48,160 Speaker 1: the woodwork and they feel comfortable to come back and 579 00:30:48,240 --> 00:30:51,480 Speaker 1: lean into this and that's the facto by the dip. Right, 580 00:30:51,520 --> 00:30:53,480 Speaker 1: So this is the cycle in the world do we 581 00:30:53,480 --> 00:30:55,200 Speaker 1: live and there's too many asks. This is a final 582 00:30:55,240 --> 00:30:59,000 Speaker 1: point that may be tangential here, But with regards to 583 00:30:59,000 --> 00:31:02,719 Speaker 1: how these dynamics end, it's not necessarily about like back 584 00:31:02,760 --> 00:31:04,920 Speaker 1: in the day, it's like Warren Buffett steps in, you know, 585 00:31:04,960 --> 00:31:08,040 Speaker 1: provides some you know, financing line or you know Toma 586 00:31:08,160 --> 00:31:13,800 Speaker 1: Bravo stepping in doing some like deal is calling up Warren. Yeah, 587 00:31:13,920 --> 00:31:19,200 Speaker 1: I don't know if it's more about you know, these 588 00:31:19,240 --> 00:31:21,640 Speaker 1: flows kind of stopping the bleeding. But you know, this 589 00:31:21,800 --> 00:31:24,080 Speaker 1: is the other thing too, like the vall flows are 590 00:31:24,160 --> 00:31:26,040 Speaker 1: so important with regards to the like the hedge on 591 00:31:26,080 --> 00:31:28,240 Speaker 1: lines and creating the turn in the market, the inflection, 592 00:31:28,480 --> 00:31:30,479 Speaker 1: especially with the conditioning by the dip cell. The ball 593 00:31:30,560 --> 00:31:35,520 Speaker 1: rip that like fixed income has been trash for five 594 00:31:35,600 --> 00:31:39,120 Speaker 1: years since the tightening cycle since you know, poor inflation 595 00:31:39,200 --> 00:31:43,040 Speaker 1: is still running too hot. Right, so people said, look, 596 00:31:43,240 --> 00:31:44,720 Speaker 1: this thing doesn't work for me. It's not helping my 597 00:31:44,760 --> 00:31:48,040 Speaker 1: portfolio with my sixty forty is awful, right, but I 598 00:31:48,040 --> 00:31:50,480 Speaker 1: can't just be long equities, but I need some yield. 599 00:31:50,560 --> 00:31:53,240 Speaker 1: I'm I'm boomer, I'm old. I need some you know, 600 00:31:53,400 --> 00:31:56,080 Speaker 1: some enhancement. But I want equities upside. And we've talked 601 00:31:56,080 --> 00:31:57,960 Speaker 1: about this so many times, and it's true, you know, 602 00:31:58,040 --> 00:32:01,160 Speaker 1: because the assets keep growing, all the yield enhancement vehicles, 603 00:32:01,160 --> 00:32:05,080 Speaker 1: all these income vehicles, they're selling equity optionality. So your 604 00:32:05,080 --> 00:32:08,040 Speaker 1: long underlying equities, you cap that upside to a certain extent, 605 00:32:08,080 --> 00:32:11,080 Speaker 1: but you're generating yield by selling options. That's the new 606 00:32:11,120 --> 00:32:14,720 Speaker 1: fixed income. And those flows matter because those flows that 607 00:32:14,800 --> 00:32:16,280 Speaker 1: when the kind of the coast is clear, they just 608 00:32:16,320 --> 00:32:18,520 Speaker 1: come in and it's just vegas supply and it just 609 00:32:18,520 --> 00:32:19,680 Speaker 1: smashes it all back down. 610 00:32:20,240 --> 00:32:23,360 Speaker 2: Thank you so much for coming on at short notice. 611 00:32:23,440 --> 00:32:26,120 Speaker 2: It's seven in the morning, seven in the morning. Thank 612 00:32:26,160 --> 00:32:30,000 Speaker 2: you very much. Yeah, yeah, your day's over right. 613 00:32:31,640 --> 00:32:35,720 Speaker 4: Lots More is produced by Dashel, Bennett, Kerman, Rodriguez and Kelbrooks. 614 00:32:35,920 --> 00:32:38,960 Speaker 2: Please rate, review, and subscribe to Odd, Lots and lots 615 00:32:38,960 --> 00:32:41,160 Speaker 2: More on your favorite podcast platforms, and. 616 00:32:41,120 --> 00:32:44,040 Speaker 4: For even more beyond lots More, go to Bloomberg dot com, 617 00:32:44,080 --> 00:32:46,640 Speaker 4: slash odd Logs and chat with fellow listeners in our 618 00:32:46,680 --> 00:32:49,720 Speaker 4: discord Discord dot gg slash odlines, and. 619 00:32:49,680 --> 00:32:52,520 Speaker 2: Don't forget that, Bloomberg subscribers can listen to all of 620 00:32:52,560 --> 00:32:55,840 Speaker 2: our podcasts absolutely at free. 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