WEBVTT - Lots More With Charlie McElligott on This Week's SaaSpocalypse 0:00:02.720 --> 0:00:07.200 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.000 --> 0:00:09.880 I think there's a chance you might have to re 0:00:09.880 --> 0:00:12.920 record an intro, or at least the intro might be 0:00:12.960 --> 0:00:15.080 out of date by the time the episode comes out. 0:00:15.400 --> 0:00:16.000 That's how you know. 0:00:16.280 --> 0:00:18.360 That's how you know it's bad. That and when people 0:00:18.400 --> 0:00:22.040 start waving around standard deviations standard V. And also when 0:00:22.079 --> 0:00:25.120 people start saying it's a healthy correction in the market, 0:00:25.200 --> 0:00:26.360 although I haven't seen. 0:00:26.160 --> 0:00:27.840 That much, it's pretty gnarly. 0:00:28.400 --> 0:00:31.240 Also when we don't just say the date that we're recording, 0:00:31.280 --> 0:00:33.920 what we say the minute we're recording. This At seven 0:00:34.040 --> 0:00:38.080 oh four am on February sixth, twenty twenty six, all 0:00:38.159 --> 0:00:43.000 the signs are back, Joe, I. 0:00:42.960 --> 0:00:47.080 Want a T shirt that says ruthless utility maximizer black gold. 0:00:47.400 --> 0:00:50.320 Let's talk about losers, Hooker. I've decided I'm going to 0:00:50.320 --> 0:00:53.280 base my entire personality going forward on campaigning for a 0:00:53.320 --> 0:00:55.200 strategic pork reserve in the US. 0:00:55.320 --> 0:00:56.279 Skull's unlimited. 0:00:56.640 --> 0:00:57.560 What's the ticker for that? 0:00:57.760 --> 0:00:57.920 No. 0:00:58.000 --> 0:01:01.280 I think that like in a couple years, the AI 0:01:01.480 --> 0:01:03.319 will do a really good job of making the odd 0:01:03.400 --> 0:01:04.200 launch podcast. 0:01:04.280 --> 0:01:06.479 How do I get more popular and successful? 0:01:06.800 --> 0:01:09.479 One day that person will have the Mandate of Heaven. 0:01:09.720 --> 0:01:10.920 We do have the. 0:01:13.080 --> 0:01:15.240 Welcome to lots More, where we catch up with friends 0:01:15.280 --> 0:01:17.160 about what's going on right now. 0:01:17.319 --> 0:01:20.840 Because even when Oddlots is over, there's always lots More 0:01:21.480 --> 0:01:21.840 and we. 0:01:21.880 --> 0:01:29.680 Really do have a perfect guest. But it is weird, 0:01:29.800 --> 0:01:31.920 isn't it, because it's you know, it's a little different. 0:01:32.120 --> 0:01:33.080 It's been very strong. 0:01:33.200 --> 0:01:36.560 It's a surreal it's a surreal type of market environment, 0:01:36.640 --> 0:01:37.840 especially over the last week. 0:01:37.760 --> 0:01:40.920 Right so if you've been living under a rock, markets 0:01:41.080 --> 0:01:43.479 have been tanking. There have been a bunch of different 0:01:43.480 --> 0:01:45.959 things going on. But first of all, gold and silver 0:01:46.080 --> 0:01:49.400 and the metals complex started plunging, and then you had 0:01:49.760 --> 0:01:54.960 like basically a slaughter in software socks. What else there 0:01:55.000 --> 0:01:55.240 is one? 0:01:55.360 --> 0:01:56.840 Oh, crypto Crypto. 0:01:57.280 --> 0:01:59.720 Crypto is a big one. So bitcoin has like down 0:01:59.800 --> 0:02:05.040 to sixty six thousand something like that. Yeah, six oh wow, 0:02:05.520 --> 0:02:09.360 And that's the thing. I can't keep up anymore. And 0:02:09.600 --> 0:02:13.520 also there's concern about private credit because private credit has 0:02:13.840 --> 0:02:17.120 so much exposure to software and they basically lent all 0:02:17.160 --> 0:02:19.640 the money at the top of the valuation cycle, which 0:02:19.720 --> 0:02:22.880 I wrote about in the newsletter yesterday. But anyway, there's 0:02:22.919 --> 0:02:24.960 a lot to talk about in markets who do we 0:02:25.040 --> 0:02:26.919 call when markets are moving? 0:02:27.000 --> 0:02:29.200 That's right, So Charlie, you guys are amazing. 0:02:29.520 --> 0:02:32.120 So this is Charlie mcgallighan. Of course, he is the 0:02:32.320 --> 0:02:36.079 cross asset macro strategist over at Nomora. I'm gonna start 0:02:36.120 --> 0:02:39.720 with the simple question. Maybe it's not an easy question, 0:02:39.840 --> 0:02:42.560 but what was the proximate catalyst for all of this? 0:02:42.680 --> 0:02:45.720 Because you have a bunch of different things going on, including, 0:02:45.760 --> 0:02:49.280 by the way, the nomination of worsh at the FED. 0:02:49.639 --> 0:02:54.639 So absolutely part of the feedback loop. But these things 0:02:54.680 --> 0:02:58.240 are never singular input, you know, in a world of 0:02:58.400 --> 0:03:03.320 thousands of macro factoriariable in this case, and you know, 0:03:03.440 --> 0:03:06.520 I'm an ambulance chaser. That's kind of what my gig is. 0:03:06.560 --> 0:03:10.239 A grave robber, a carpetbagger, you know, all those things. 0:03:10.560 --> 0:03:13.720 I try to reverse engineer car accidents. Yeah, And kind 0:03:13.720 --> 0:03:17.400 of the qualitative starting point of that is to locate 0:03:19.600 --> 0:03:27.839 consensus positions that tend to then crowd in positioning when 0:03:28.800 --> 0:03:34.600 trend trades develop. That's usually accompanied or requirement or requirement 0:03:34.639 --> 0:03:40.160 being low volatility to accumulate those kind of smooth trends. 0:03:40.240 --> 0:03:43.400 So point being, I think there were a number of 0:03:44.480 --> 0:03:50.080 market narratives that got a little lazy. You know, for instance, 0:03:51.320 --> 0:03:55.000 Q four of last year, as we recall, I think 0:03:55.400 --> 0:03:57.640 there was you know, somewhere three to four months ago, 0:03:57.680 --> 0:03:59.760 there was still a fair bit of concern with regards 0:03:59.760 --> 0:04:03.120 to this idea of like labor cracking, you know, and 0:04:03.680 --> 0:04:07.320 there was still a lot of feedback with regards to 0:04:08.120 --> 0:04:11.960 Liberation Day and the policy volatility dynamics. You know, before 0:04:12.000 --> 0:04:14.800 things really got hot with policy volatility most recently. But 0:04:15.560 --> 0:04:18.520 and that was leading to some you know, some skepticism. 0:04:18.600 --> 0:04:21.479 And as it relates to kind of the equities world, 0:04:22.680 --> 0:04:24.920 what did you do? You just stuck in the stuff 0:04:24.960 --> 0:04:27.640 that kept working, And that was that same dynamic we 0:04:27.680 --> 0:04:29.640 spoke about a number of times last year, you know, 0:04:29.720 --> 0:04:33.599 that crowding into secular growth, megacap tech AI. They just 0:04:33.720 --> 0:04:37.520 keep growing earnings, profitability, all of those metrics, and they 0:04:37.520 --> 0:04:39.960 took up this massive part of the market. That's part 0:04:40.000 --> 0:04:42.360 of this positioning that set. You know, at some point 0:04:42.400 --> 0:04:46.760 Q four run hot starts happening. You start seeing data 0:04:46.800 --> 0:04:51.599 upside surprising again. Right, he starts openly and more recently 0:04:51.880 --> 0:04:58.760 transitioning into January talking openly advocating his week dollar policy. Right, 0:04:59.000 --> 0:05:01.440 you know, so you start having these things where people 0:05:01.440 --> 0:05:05.200 were really accumulating around effectively a lot of short dollar trades. 0:05:05.720 --> 0:05:07.880 And when I'm sitting there and I'm seeing like, how 0:05:07.880 --> 0:05:10.640 do these narratives go wrong? How does this crowding go wrong? 0:05:10.680 --> 0:05:14.840 And I'm seeing you know, gold and silver being attributed 0:05:14.920 --> 0:05:19.160 to this debasement narrative or this de dollarization narrative. There's 0:05:19.200 --> 0:05:22.880 credibility in those arguments, but I'm also a skeptic with 0:05:22.920 --> 0:05:26.960 regards to the flows and the actual like singular catalyst 0:05:27.000 --> 0:05:30.279 of those. But I start seeing those positionings really overshoot. 0:05:30.320 --> 0:05:33.599 We're not talking like linear projections like bending off the 0:05:33.680 --> 0:05:36.800 curve type of you know, price performance of late I 0:05:36.839 --> 0:05:41.520 see em equities crowding. I see cyclical equities because everybody 0:05:41.560 --> 0:05:45.320 owned secular growth and nobody had enough economic sensitivity. So 0:05:45.360 --> 0:05:47.680 I start seeing these kind of positioning overshoots. You know, 0:05:47.760 --> 0:05:50.479 that's all the work that we do internally. And it 0:05:50.640 --> 0:05:54.440 just said, if the dollar starts agitating and it stops 0:05:54.480 --> 0:05:57.720 going lower and you start losing these short term trend windows, 0:05:58.839 --> 0:06:01.440 and then you get maybe a little bit of wow, 0:06:01.440 --> 0:06:05.600 we didn't get the max dubbish hasset trade, right, Oh, 0:06:05.640 --> 0:06:08.479 we start seeing upside surprise data when everybody's short dollar 0:06:08.520 --> 0:06:10.760 and thinking rest of world growth and actually US is 0:06:10.800 --> 0:06:14.760 maybe leading to the upside again and reaccelerating dollars starts performing, 0:06:15.880 --> 0:06:18.760 people start monetizing, and you start taking money out of 0:06:18.800 --> 0:06:21.160 these trades, and that turns into a bigger de risking. 0:06:21.720 --> 0:06:24.720 Obviously, we want to get into, like got to get 0:06:24.920 --> 0:06:27.480 into everything, including like the software sell off and its 0:06:27.480 --> 0:06:30.440 connection to silver, et cetera. You know, it occurs to 0:06:30.480 --> 0:06:32.120 me speaking of the software. 0:06:31.760 --> 0:06:34.400 Thing, and I'm glad you brought up a liberation day. 0:06:34.680 --> 0:06:36.880 One of the memes of twenty twenty. 0:06:36.560 --> 0:06:40.839 Five was just this idea that, well, look, we don't 0:06:40.839 --> 0:06:42.839 really know what tariffs are going to do. We're not 0:06:42.880 --> 0:06:45.039 really sure what effect they're going to have on the economy, 0:06:45.200 --> 0:06:47.279 but one thing we could be pretty sure of is 0:06:47.279 --> 0:06:49.520 that it's totally gonna affect the sort of physical goods 0:06:49.560 --> 0:06:52.880 economy and not the digital economy. And so tariffs in 0:06:52.920 --> 0:06:56.800 away sort of seemed to embolden the software maybe crypto 0:06:56.960 --> 0:06:59.760 digital trade because it's like this stuff is borderless, it 0:06:59.800 --> 0:07:01.839 does and it's not going to get held up in customs, 0:07:02.040 --> 0:07:05.280 so let's lean into this. And then so it's interesting 0:07:05.320 --> 0:07:07.239 to hear. You know, then you get this bigger reversal. 0:07:07.360 --> 0:07:09.800 Can we measure it when you talk about like how 0:07:10.080 --> 0:07:13.840 leverage and how consensus these trades were, whether we're talking 0:07:13.880 --> 0:07:17.800 about software or whatever, can we measure how crowded those 0:07:17.840 --> 0:07:19.360 trades were, how levered these trades were. 0:07:19.360 --> 0:07:22.600 Absolutely, I mean, I'll look across you know, we we 0:07:22.600 --> 0:07:26.400 we have internal money that we were on within QIS 0:07:26.520 --> 0:07:30.480 businesses where there's billions of dollars behind, you know, very sophisticated, 0:07:30.560 --> 0:07:34.480 not like naive toy models from trend to risk parity, 0:07:34.920 --> 0:07:39.400 you know, vaull control target volatility. So I look at 0:07:39.520 --> 0:07:42.840 where those gross exposures are, and like period point blank 0:07:43.400 --> 0:07:46.360 grosses were too big. Right if you look at a 0:07:46.400 --> 0:07:50.640 snapshot of a model risk parity portfolio, four assets long 0:07:50.680 --> 0:07:59.000 only using leverage to allocate your volatility right, long only, inequities, bonds, credit, commodities, 0:07:59.720 --> 0:08:02.600 different waitings based on different economic scenarios, like a very 0:08:02.680 --> 0:08:07.080 kind of generic versu parity. We're seeing on a let's 0:08:07.080 --> 0:08:09.320 say a five year look back ninety nine spot seven 0:08:09.320 --> 0:08:13.440 percentile gross exposure. It just so happens, right, you know. 0:08:14.080 --> 0:08:17.640 Goldman Sachs Prime brokerage data with regards to equity hedge 0:08:17.640 --> 0:08:22.360 fund grosses as of last Friday one hundred percentile on 0:08:22.440 --> 0:08:25.080 a five year look back. So like these are these 0:08:25.080 --> 0:08:29.240 are synonymous. Now, Now, gross exposure is not purely a 0:08:29.280 --> 0:08:34.559 function of trailing realized volatility. Right, Different strategies deployed, different leverage, 0:08:35.120 --> 0:08:39.040 different strategies, you know, will try to amplify a market 0:08:39.120 --> 0:08:42.480 neutral versus a net lean or a directional lean. But 0:08:43.000 --> 0:08:45.840 by and large, the grosses were too damn big. It's 0:08:45.880 --> 0:08:47.720 like the guy that used to run for air. And 0:08:47.800 --> 0:08:51.360 when you see grosses being that big, and you see 0:08:52.240 --> 0:08:55.640 prices bending off the curve, and you see the thesis 0:08:55.760 --> 0:08:58.559 behind it, and this is where I'm pumped to tie in. 0:08:58.640 --> 0:09:02.640 Like the bitcoin read right, if debasement was actually what 0:09:02.720 --> 0:09:07.400 people are saying it was, right, this idea that in dedollarization, 0:09:07.640 --> 0:09:12.000 you know, moving away from fiat you know, US policy volatility, 0:09:12.320 --> 0:09:15.880 US fiscal deficit, which, by the way, okay, like same 0:09:15.920 --> 0:09:18.640 with Europe, same with Japan. Now you know with their 0:09:18.679 --> 0:09:21.599 little trust moment, you know, Europe is taking the austerity 0:09:21.600 --> 0:09:25.200 break off. That's a global phenomenon with fiat currency. So like, okay, 0:09:25.240 --> 0:09:27.240 I can get with that to a certain extent. But 0:09:27.320 --> 0:09:29.520 like why didn't bitcoin participate if that's what people kind 0:09:29.559 --> 0:09:31.800 of claim, as you know, bitcoin's a shape shifter, as 0:09:31.880 --> 0:09:36.240 is gold. But you know, my story, in my skepticism 0:09:36.280 --> 0:09:39.880 with regards to that debasement or that dedollarization, was the 0:09:39.880 --> 0:09:43.080 way that bitcoin absolutely did not participate when it was 0:09:43.120 --> 0:09:45.120 gold and silver. And look, you know, I sit in 0:09:45.120 --> 0:09:49.360 an options business. I see just outrageous call skews and 0:09:49.920 --> 0:09:53.080 demand for upside and people, you know, keep putting on, 0:09:53.360 --> 0:09:56.000 keep reloading into these, you know, the call spreads and 0:09:56.080 --> 0:09:59.320 upside trades and SLV and GLD. The options volumes are massive. 0:09:59.320 --> 0:10:03.079 It became a s aculative macro tourist retail type of 0:10:03.080 --> 0:10:06.199 a trade on top of all this, but Bitcoin kept 0:10:06.240 --> 0:10:09.480 going lower and I started seeing one, if people are grabbing, 0:10:09.600 --> 0:10:12.560 people clearly have this preference for real assets, you know, 0:10:12.600 --> 0:10:16.439 physical assets. Right now, in this world of debasement, of FIAT, 0:10:16.920 --> 0:10:23.040 of fiscal deficits, spend, perpetual issuance, all those things, Bitcoin 0:10:23.120 --> 0:10:26.200 is trading like software. It's trading like SaaS, which is 0:10:26.200 --> 0:10:30.360 going through an existential crisis right now for really justified reasons, 0:10:30.480 --> 0:10:34.200 especially with regards to valuation. Right And the funny thing is, 0:10:34.240 --> 0:10:37.800 when we were talking about you know how AI was 0:10:37.840 --> 0:10:40.280 actually going to I was making the point kind of 0:10:40.640 --> 0:10:43.600 Q four start of Q four last year, there's two 0:10:43.679 --> 0:10:48.280 major tailwinds for equities that become potential headwinds in twenty 0:10:48.320 --> 0:10:52.880 twenty six. They're very well socialized, but they still ring true. Ironically, 0:10:52.920 --> 0:10:55.120 we kind of got a backdoor on one. Was that 0:10:55.200 --> 0:10:58.520 the CAPEC spending with regard to AI, you know, was 0:10:58.520 --> 0:11:02.120 burning your cash when you're moving through the cash so fast, right, 0:11:02.160 --> 0:11:05.600 and the cash that made these companies so preferred, so 0:11:05.920 --> 0:11:08.600 you know, screening is quality and profitability and all these 0:11:08.640 --> 0:11:10.800 great things. They're liquid, they're big, you can move in 0:11:10.840 --> 0:11:13.200 and out of them. They only go higher, you know. 0:11:13.240 --> 0:11:14.760 And they did a bunch of buybacks. 0:11:14.880 --> 0:11:17.240 Well that's the trick, right, So like you aggregate kind 0:11:17.280 --> 0:11:19.360 of like the mag seven or like you know, maybe 0:11:19.360 --> 0:11:23.040 the twelve biggest kind of like AI contingent types of players. 0:11:23.280 --> 0:11:25.680 You're talking like twenty to thirty percent of the overall 0:11:25.760 --> 0:11:27.600 S and P five hundred buy back. So that's a 0:11:27.679 --> 0:11:30.760 huge point for me because I've made this before. Buybacks 0:11:30.840 --> 0:11:33.360 are like seven to eight x the largest source of 0:11:33.400 --> 0:11:35.880 demand for equities over the past fifteen years. Wow, And 0:11:35.920 --> 0:11:38.960 it's a val suppressor yep, right, I mean you are 0:11:39.040 --> 0:11:41.920 a bigger if you're a passive bin under the market 0:11:41.960 --> 0:11:45.320 on a view up order, or more importantly, when there 0:11:45.400 --> 0:11:47.240 is a draw down, that's when they get most active. 0:11:47.480 --> 0:11:49.439 So it's like long gamut. It's like synthetical long gam in 0:11:49.440 --> 0:11:51.560 the market. So one you're burning through your cash and 0:11:51.559 --> 0:11:55.000 you're no longer doing that. Two you're burning through your 0:11:55.000 --> 0:11:57.080 cash and you're no longer buying back stock. Is this 0:11:57.160 --> 0:12:00.079 vall shock absorber and passive bin into the market fromkin 0:12:00.160 --> 0:12:01.640 of sort of a quarter to a third of the 0:12:01.679 --> 0:12:05.240 overall S and p's buyback that you're then too having 0:12:05.280 --> 0:12:07.640 to take on this new debt, you take on new loans. 0:12:07.880 --> 0:12:09.559 You know, to a certain extent, you're trying to lever 0:12:09.640 --> 0:12:12.199 the bow sheet. But you know, more importantly, what does 0:12:12.200 --> 0:12:15.040 that mean for credit? Credit has been this perpetual kind 0:12:15.080 --> 0:12:19.400 of vauld bleed. Yeah, because spreads are so tight credit. 0:12:19.200 --> 0:12:21.720 People have been issuing to fund buybacks as well. 0:12:21.760 --> 0:12:24.240 Yeah, one hundred percent. I mean, ironically that's probably a 0:12:24.240 --> 0:12:27.079 separate podcast. But remember we used to kick and scream 0:12:27.120 --> 0:12:29.920 like ah kiuie, this is crazy, like this malinvestment, Like 0:12:29.960 --> 0:12:32.640 they're bringing debt for buybacks and they're not doing you know, 0:12:33.280 --> 0:12:35.160 R and D, and they're not spending capex, they're not 0:12:35.160 --> 0:12:37.720 building plans. Well, here you go. You know, Drug said 0:12:37.800 --> 0:12:40.760 something like this, you know, many years ago in an interview. 0:12:40.760 --> 0:12:43.320 He's like, actually, when you start to see you know, 0:12:43.800 --> 0:12:47.520 the cash turn into capex spend, there's usually kind of 0:12:47.559 --> 0:12:50.520 a point of agitation. It's not always in the right direction. 0:12:50.600 --> 0:12:52.880 For equities, let's say, right, and in this case, I 0:12:52.920 --> 0:12:55.040 think we're starting obviously we're starting to get that. But 0:12:55.080 --> 0:12:58.680 the credit point is critical because the pace of the 0:12:58.840 --> 0:13:02.440 capex kind of prisoner dilemma that we're still seeing right 0:13:02.440 --> 0:13:05.679 now with like yesterday's earnings releases, the magnitude of that 0:13:05.880 --> 0:13:10.240 supply in the investment grade market is simply going to 0:13:10.320 --> 0:13:13.520 widen spreads. Tech is a big part of that. Now, 0:13:13.920 --> 0:13:17.240 this is the punchline, bringing it back to software, bringing 0:13:17.240 --> 0:13:21.600 it back to bitcoin. As we were all kind of 0:13:21.679 --> 0:13:24.960 watching this potential for you know, the credit markets to 0:13:25.000 --> 0:13:28.720 become a headwind, not in a shock, not in a freeze, 0:13:29.040 --> 0:13:31.840 you know, not in anything close to a systemic dynamic. 0:13:31.880 --> 0:13:34.200 Just too much supply with spreads too tight, you're not 0:13:34.240 --> 0:13:36.360 being compensated for it so like there was kind of 0:13:36.360 --> 0:13:39.320 this general shortened credit because guess what, the whole world 0:13:39.400 --> 0:13:44.079 is watching one in like baby footsteps. Can Oracle get 0:13:44.360 --> 0:13:46.720 their funding done? That was the one day we had 0:13:46.720 --> 0:13:48.240 a sigh of relief. This week, by the way, they 0:13:48.240 --> 0:13:50.959 got twenty five billion of investment grade done plus converts 0:13:51.320 --> 0:13:53.640 with like one hundred and twenty nine billion of demand 0:13:54.000 --> 0:13:56.760 the market. Huge extail. But guess what, open Ai is 0:13:56.760 --> 0:13:58.760 still in the background somewhere. We're like kind of sort 0:13:58.760 --> 0:13:59.840 of in the next two months, they got to come 0:13:59.920 --> 0:14:01.720 up with like anywhere from one hundred to two hundred 0:14:01.720 --> 0:14:04.319 billion bucks. And that is still a major point of skepticism. 0:14:04.360 --> 0:14:05.920 It's not a funny punchline, is it. 0:14:06.040 --> 0:14:08.000 No, it's not. It doesn't make you feel really good. 0:14:08.080 --> 0:14:10.880 But here's the thing. As Anthropic has done their thing, 0:14:10.920 --> 0:14:13.640 and I mean, bang, you guys are in it right 0:14:13.679 --> 0:14:17.560 now with regards to Claude and the implications of vibe coding, 0:14:17.640 --> 0:14:21.000 and you know, a whole reset with regards to certain 0:14:21.040 --> 0:14:23.640 industries and taking out even if it's just the basic 0:14:23.760 --> 0:14:27.600 level of like legal compliance documentation, and we've seen it 0:14:27.640 --> 0:14:30.800 start to hit bottom lines with regards to earnings, mentions 0:14:30.800 --> 0:14:32.840 and things like that that is happening so fast that 0:14:32.960 --> 0:14:35.040 software is going through this ex centric crisis. And here's 0:14:35.040 --> 0:14:40.240 the deal. Those dudes are stuffed on restricted shares. There's 0:14:40.280 --> 0:14:46.520 stuffed on RSUs and the concentric circles of VC boys 0:14:46.560 --> 0:14:52.120 and tech boys in SaaS Bros and Bitcoin Bros. Has 0:14:52.160 --> 0:14:54.000 a lot of overlap of. 0:14:54.080 --> 0:14:55.080 Boys and bross. 0:14:55.120 --> 0:14:56.840 Not a Venn diagram, it's just a circle. 0:14:56.960 --> 0:14:59.680 It's kind of like straight up overlap. And you know, 0:14:59.800 --> 0:15:02.960 in in a sense you can't sell, you're kind of 0:15:03.000 --> 0:15:05.560 being haircut ten percent. It feels like every week right 0:15:05.600 --> 0:15:07.640 now with regards to do I have a job, what 0:15:07.680 --> 0:15:11.080 are the prospects, where is this industry going? And what 0:15:11.160 --> 0:15:13.200 do you have to sell? You know? And I think 0:15:13.240 --> 0:15:16.120 that that's why it is trading tick for tick. You're 0:15:16.200 --> 0:15:19.680 to date with SaaS software and it's quite remarkable. And 0:15:19.720 --> 0:15:22.080 that to me, as I step back to this large conversation, 0:15:23.200 --> 0:15:28.160 it's not really about debasement, right, this is a digital phenomenon. 0:15:28.200 --> 0:15:31.240 This is a liquidity crunch. With regards to this, the 0:15:31.280 --> 0:15:35.160 idiosyncratics of that sector really coming under attack. And by 0:15:35.240 --> 0:15:38.440 the way, now it's also become a backdoor credit story 0:15:38.440 --> 0:15:40.960 where it's not simply the spread widening from the hyperscalers. 0:15:41.280 --> 0:15:46.280 It's people worrying now about private credit. Actually the BDC guys, 0:15:46.320 --> 0:15:47.880 which are you know, sitting on a lot of this 0:15:47.920 --> 0:15:50.920 stuff with you know, really tricky evaluations and not a 0:15:50.920 --> 0:15:53.760 lot of like buffer room and you know, with covenants 0:15:53.800 --> 0:15:55.720 and things like that. So you know, it's become a 0:15:55.800 --> 0:15:59.040 huge macro story. They kind of did the end around 0:15:59.160 --> 0:16:01.320 with regards to where we thought it was going to come. 0:16:01.720 --> 0:16:05.120 But we can handle a couple things at once, you know, 0:16:04.960 --> 0:16:06.600 you know, all of a sudden you get a little 0:16:06.640 --> 0:16:08.760 bit of a surprise with regards to the Fed chair 0:16:09.120 --> 0:16:12.040 dollar stabilizes. You've already had people in all these short 0:16:12.080 --> 0:16:14.680 dollar trades. People start taking money out of you know, 0:16:15.080 --> 0:16:19.200 gold upside, silver upside, They start taking off some em upside. 0:16:19.440 --> 0:16:22.480 And at that point, like last Thursday, I'm looking at grosses. 0:16:22.800 --> 0:16:26.480 I'm looking at our CTA trend net exposures and commodities 0:16:26.520 --> 0:16:30.520 and metals ninety eight percentile. I'm looking at our net 0:16:30.880 --> 0:16:34.800 short dollar exposure zero percentile. Look at our net equities 0:16:34.800 --> 0:16:39.520 exposure ninety seven percentile. I'm saying, these are the qualitative 0:16:39.560 --> 0:16:43.000 things I need to see where profit taking and monetization 0:16:43.080 --> 0:16:44.640 turns into a risk management. 0:16:44.240 --> 0:17:01.480 Exercise, so speaking of selling what you can and not 0:17:01.560 --> 0:17:04.240 necessarily what you want. One of the reasons that yesterday 0:17:04.359 --> 0:17:08.199 February fifth, I guess was so painful is because we 0:17:08.320 --> 0:17:11.960 started to see the places, the few places where people 0:17:12.000 --> 0:17:16.640 were able to hide start to go down. So consumer staples, 0:17:16.640 --> 0:17:19.520 for instance, it wasn't a big drop, but still they'd 0:17:19.560 --> 0:17:22.639 been surging earlier in the year as people sort of 0:17:22.680 --> 0:17:26.520 switched out of software and into consumer goods. But now 0:17:27.160 --> 0:17:30.080 it's not quite clear where they're going to go. So 0:17:30.240 --> 0:17:33.480 correlation seems to be picking up right like in a 0:17:33.520 --> 0:17:37.480 market crash, correlation goes to one. But at the same time, 0:17:37.560 --> 0:17:40.280 I can't figure out what's going on with implied correlation 0:17:40.400 --> 0:17:43.240 because if I look that up, it's still pretty low. 0:17:44.080 --> 0:17:47.840 So this is, you know, absolutely topical, and it's something 0:17:47.880 --> 0:17:49.960 that you know, we continue to get questions over the 0:17:50.040 --> 0:17:52.359 last few years, you know that generic like why is 0:17:52.440 --> 0:17:55.600 all so low? Right? You know? And low VALL or 0:17:55.680 --> 0:17:58.399 high vall is incredibly subjective. It's about the you know, 0:17:58.440 --> 0:18:00.600 the wall service, it's about skew It's about where the 0:18:00.640 --> 0:18:03.719 starting point was, where you've moved from, how quickly you know, 0:18:03.760 --> 0:18:08.040 it's it's art plus science. The part of the problem 0:18:08.160 --> 0:18:12.640 with vall in general certainly being sticky, and I think 0:18:12.680 --> 0:18:15.280 it comes down to where the money has flowed with 0:18:15.359 --> 0:18:17.679 regards to the hedge fund space is that, you know, 0:18:17.760 --> 0:18:21.960 maybe ten fifteen years ago, the long short universe, you know, 0:18:22.119 --> 0:18:26.560 running net exposure was I don't want to say, you know, 0:18:26.720 --> 0:18:30.480 necessarily dollar for dollar like acts or necessarily larger than 0:18:30.600 --> 0:18:32.479 you know, the multi strats at the time, but like 0:18:32.600 --> 0:18:35.879 they ran net and they would lever up positions or 0:18:35.920 --> 0:18:38.639 they would hedge their longs, and they were you know, 0:18:38.720 --> 0:18:41.439 generally speaking, there was buyers volatility with those guys to 0:18:41.440 --> 0:18:44.120 a certain extent. You know, if you look back kind 0:18:44.119 --> 0:18:46.000 of on the sort of let's say five a ten 0:18:46.119 --> 0:18:50.280 years of dollar flows into the hedge fund space. With 0:18:50.320 --> 0:18:56.119 regards to all new flows, multistrats are conservatively eighty cents 0:18:56.119 --> 0:18:59.600 of every dollar in, and then if you actually include 0:19:00.040 --> 0:19:04.720 outflows from other strategies, you're legitimately through one dollar of 0:19:05.000 --> 0:19:07.600 So the point I'm making here and multi strats are 0:19:07.760 --> 0:19:14.040 unbelievable with regards to their low volatility, with regards to 0:19:14.080 --> 0:19:17.800 the consistency of their returns with regards to the the 0:19:17.840 --> 0:19:23.160 disciplined risk management, the tight stops model, the non correlated returns, 0:19:23.600 --> 0:19:27.680 which is the whole story why people keep allocating into them. 0:19:28.080 --> 0:19:33.200 They've proven to be such an absolutely undeniable force, hence 0:19:33.240 --> 0:19:35.400 all this dollar flow. But think about it like this, 0:19:35.840 --> 0:19:38.119 we don't see the core ones anymore. And this is 0:19:38.160 --> 0:19:42.200 like core ones core ones meaning like when things shock, 0:19:42.400 --> 0:19:46.760 everything together or down together, right, And that was kind 0:19:46.800 --> 0:19:48.479 of the old state of the world. But now what 0:19:48.560 --> 0:19:50.159 we tend to see and this is exactly what we 0:19:50.240 --> 0:19:53.040 saw earlier this week when you had you know, of 0:19:53.080 --> 0:19:55.520 course financial market returns are not on a normal distribution, 0:19:55.720 --> 0:19:56.840 but for you know. 0:19:58.520 --> 0:20:03.119 It's like it's like like something get a pharmaceutical, yeah. 0:20:03.080 --> 0:20:05.560 Like you have to include it because otherwise someone annoying, 0:20:05.680 --> 0:20:06.760 don't take this drug. 0:20:06.520 --> 0:20:10.080 If you're this drug. Yeah. So the point here being 0:20:10.160 --> 0:20:12.399 that you know, you would see kind of like a 0:20:12.520 --> 0:20:16.760 risk on, risk off type of core one phenomenon you know, 0:20:16.920 --> 0:20:20.639 in past era. Part of what is happening now in 0:20:20.720 --> 0:20:24.320 my mind, you know, with these you know a little 0:20:24.320 --> 0:20:28.240 bit of fragmented you know, bullet points, you know, triangulating. 0:20:28.280 --> 0:20:31.560 Here is the fact that the dollars and the leverage 0:20:31.560 --> 0:20:36.960 controlled by the market neutral multi strat equity space are 0:20:37.080 --> 0:20:40.360 so overwhelming in the sense that when you get when 0:20:40.400 --> 0:20:44.639 you are forced to de risk or degross, you know, 0:20:44.800 --> 0:20:49.600 the tilts go wrong, that you have the offsetting short 0:20:49.680 --> 0:20:53.240 on the other end. Right, It's not just you stop 0:20:53.280 --> 0:20:55.880 out of your net longs or your crowded lungs, right, 0:20:55.960 --> 0:20:59.960 It's that you're also you know, theoretically an equal dollar 0:21:00.040 --> 0:21:02.760 amount on the short side being covered. And what ends 0:21:02.840 --> 0:21:04.760 up happening on like the two big down days this week, 0:21:04.760 --> 0:21:07.199 it was like two hundred and fifty stocks were up, 0:21:07.240 --> 0:21:09.359 two hundred fifty stocks were down. Yeah, so you're getting 0:21:09.359 --> 0:21:13.800 this like reverse dispersion right, very much the opposite of 0:21:13.800 --> 0:21:17.000 what last year was, which is this crazy concentration of 0:21:17.080 --> 0:21:21.080 like top decile, bottom decile just spread ninety nine percentile 0:21:21.200 --> 0:21:23.480 like a ten year basis, which feeds into why people 0:21:23.480 --> 0:21:26.760 are loaded into momentum. Right, the higher stuff keeps going higher. 0:21:26.760 --> 0:21:28.720 It's human nature. This is like fom in France. This 0:21:28.840 --> 0:21:32.439 is factor alpha, you know, commoditized alpha. So these things 0:21:32.520 --> 0:21:34.840 I think due to this kind of where the dollar 0:21:34.840 --> 0:21:37.400 flows have been, the market neutrality, the fact that there's 0:21:37.480 --> 0:21:40.479 always this offset against it, you're not getting core shocks 0:21:40.680 --> 0:21:43.959 and when you don't get core shocks necessarily, at least initially, 0:21:44.200 --> 0:21:46.880 because VAUL did not really react until just like two 0:21:47.000 --> 0:21:49.439 days ago and yesterday iv all ive all got a 0:21:49.440 --> 0:21:52.560 little tricky too. But you know, point being, you need 0:21:52.600 --> 0:21:55.920 correlation as an input to higher vault to like sustain, 0:21:56.320 --> 0:21:58.280 and you're just not getting that. You still have low 0:21:58.320 --> 0:22:00.560