Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Single best idea and the single best idea is for decades,
Speaker 2: we've tried to lift the conversation. You can only do
Speaker 2: that with smart people, and we try to do that
Speaker 2: each and every day an economics, finance, investment and international relations.
Speaker 2: I'll be honest, sometimes I fail, folks. We have somebody
Speaker 2: that just doesn't get it done. And then you have
Speaker 2: magical days like today where we look at esoteric stuff
Speaker 2: in Wall Street, Global Wall Street, and we try to
Speaker 2: say it in English and not in Greek like the
Speaker 2: Greek letters of derivative and option finance. Simon White of
Speaker 2: Imperial College in Cambridge is holding court at Queen Victoria
Speaker 2: Street in London, and he stopped Global Wall Street yesterday
Speaker 2: with his article on Gamma and on the dynamics of
Speaker 2: this moment in the market here from London.
Speaker 3: Simon White, it ultimately comes down to, you know, I
Speaker 3: guess highly efficient markets and people have very niche risks
Speaker 3: that they need to hedge away. But as usual when
Speaker 3: you start with a real end user demand. You know,
Speaker 3: we've seen it in commodities, for instance. The oldest futures
Speaker 3: markets are commodities. They were originally there for end user demand,
Speaker 3: but very quickly speculators started to use them in different ways,
Speaker 3: maybe not for how they were originally intended. And I
Speaker 3: think that's kind of what's happening in markets. But there
Speaker 3: is some very good things you can do here. So,
Speaker 3: for instance, if you take a view and correlation means
Speaker 3: that you can then express it in the market. Right now, though,
Speaker 3: the fact that correlation is so low, that's really telling
Speaker 3: you that the shock risk of the market is high.
Speaker 3: I mean it really correlation cannot actually go much lower
Speaker 3: for the market. It can really only go one way.
Speaker 3: And what happens in a shortcit something exogynous. Things tend
Speaker 3: to move together and you see that correlation move, and
Speaker 3: then I think everything will unravel. Then you'll see that
Speaker 3: the sparsely move, the gamma will move, and the correlation
Speaker 3: will move.
Speaker 2: The correlation is really complex mathematics. It's much more than
Speaker 2: you think. It's big, long algebraic functions of taking two
Speaker 2: things and how tightly are they linked. But if you
Speaker 2: do it across a thing like the standard Porse five hundred,
Speaker 2: you get into some serious complexities as well. The key
Speaker 2: sentence there on correlation is right now, things are very
Speaker 2: tight and when they move, they all move together, and
Speaker 2: that is some of the angst out there within this
Speaker 2: speculation of twenty twenty six. McMillan at idx's living this.
Speaker 2: He's off of the London School of Economics and they're
Speaker 2: hugely prestigious econometrics department. Here is Ben McMillan on the
Speaker 2: moment at hand.
Speaker 1: Always get the question, all right, is this you know,
Speaker 1: the AI bubble. Everybody's looking at the parabolic moves. This
Speaker 1: has echoes of you know, nineteen ninety nine. Now the
Speaker 1: difference is people, you know, people say, well, the revenues
Speaker 1: are real. This time we're seeing it. We're you know,
Speaker 1: and we're seeing AI adoption. It's real. It's no longer
Speaker 1: just you know, people typing into chatchbt saying help this
Speaker 1: email sound better. You're seeing it being adopted, you know,
Speaker 1: across the entire industry, you know, animals and Amazon search bars.
Speaker 1: But I also remind people, listen, this is a market.
Speaker 1: When you start looking at a line and you're calculating
Speaker 1: how many degrees off vertical it is. You had somebody
Speaker 1: on Alpha Simplex last Friday and you asked about kind
Speaker 1: of how do you model pair parabolic moves. And the
Speaker 1: short answer is when you see the parabola, that's the
Speaker 1: signal to step back and take stock.
Speaker 2: Whoa way too math there, That's what you do with
Speaker 2: Ben McMillan of id X. The person at Alpha Simplex
Speaker 2: was the wonderful Catherine Kaminski, she of the Massachusetts Institute
Speaker 2: of Technology. Again, let me translate there. A parabola is
Speaker 2: a squared function, So it's a curve line up of one, two, four, eight, sixteen,
Speaker 2: thirty two sixty four. You get the picture. You go
Speaker 2: up quickly, and certainly that's what we see among others
Speaker 2: in the Summit conductors right now. How do you get
Speaker 2: off a parabolic trend? How do you get the so
Speaker 2: called draw down? Or you pull back? When do you sell?
Speaker 2: If you pull back, when do you step again in
Speaker 2: again within the trend that's parabolic at some of the
Speaker 2: mysteries for our guests and for all of Global Wall
Speaker 2: Street on podcasts, we're on YouTube, we're on Spotify. It's
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