WEBVTT - Single Best Idea with Tom Keene: Simon White & Ben McMillan

0:00:02.520 --> 0:00:07.040
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:14.120 --> 0:00:18.160
<v Speaker 2>Single best idea and the single best idea is for decades,

0:00:18.880 --> 0:00:22.560
<v Speaker 2>we've tried to lift the conversation. You can only do

0:00:22.680 --> 0:00:25.080
<v Speaker 2>that with smart people, and we try to do that

0:00:25.120 --> 0:00:31.360
<v Speaker 2>each and every day an economics, finance, investment and international relations.

0:00:31.440 --> 0:00:34.559
<v Speaker 2>I'll be honest, sometimes I fail, folks. We have somebody

0:00:34.600 --> 0:00:37.519
<v Speaker 2>that just doesn't get it done. And then you have

0:00:37.560 --> 0:00:42.600
<v Speaker 2>magical days like today where we look at esoteric stuff

0:00:43.440 --> 0:00:47.159
<v Speaker 2>in Wall Street, Global Wall Street, and we try to

0:00:47.200 --> 0:00:50.040
<v Speaker 2>say it in English and not in Greek like the

0:00:50.080 --> 0:00:54.880
<v Speaker 2>Greek letters of derivative and option finance. Simon White of

0:00:54.960 --> 0:00:59.080
<v Speaker 2>Imperial College in Cambridge is holding court at Queen Victoria

0:00:59.160 --> 0:01:02.480
<v Speaker 2>Street in London, and he stopped Global Wall Street yesterday

0:01:03.240 --> 0:01:06.679
<v Speaker 2>with his article on Gamma and on the dynamics of

0:01:06.720 --> 0:01:09.360
<v Speaker 2>this moment in the market here from London.

0:01:09.760 --> 0:01:12.800
<v Speaker 3>Simon White, it ultimately comes down to, you know, I

0:01:12.840 --> 0:01:15.760
<v Speaker 3>guess highly efficient markets and people have very niche risks

0:01:16.560 --> 0:01:19.800
<v Speaker 3>that they need to hedge away. But as usual when

0:01:19.880 --> 0:01:22.039
<v Speaker 3>you start with a real end user demand. You know,

0:01:22.160 --> 0:01:25.040
<v Speaker 3>we've seen it in commodities, for instance. The oldest futures

0:01:25.080 --> 0:01:28.800
<v Speaker 3>markets are commodities. They were originally there for end user demand,

0:01:28.800 --> 0:01:32.759
<v Speaker 3>but very quickly speculators started to use them in different ways,

0:01:32.760 --> 0:01:35.640
<v Speaker 3>maybe not for how they were originally intended. And I

0:01:35.680 --> 0:01:39.000
<v Speaker 3>think that's kind of what's happening in markets. But there

0:01:39.040 --> 0:01:41.000
<v Speaker 3>is some very good things you can do here. So,

0:01:41.040 --> 0:01:43.800
<v Speaker 3>for instance, if you take a view and correlation means

0:01:43.800 --> 0:01:47.000
<v Speaker 3>that you can then express it in the market. Right now, though,

0:01:47.040 --> 0:01:50.240
<v Speaker 3>the fact that correlation is so low, that's really telling

0:01:50.280 --> 0:01:52.800
<v Speaker 3>you that the shock risk of the market is high.

0:01:52.840 --> 0:01:55.800
<v Speaker 3>I mean it really correlation cannot actually go much lower

0:01:56.200 --> 0:01:58.559
<v Speaker 3>for the market. It can really only go one way.

0:01:59.000 --> 0:02:03.120
<v Speaker 3>And what happens in a shortcit something exogynous. Things tend

0:02:03.120 --> 0:02:05.200
<v Speaker 3>to move together and you see that correlation move, and

0:02:05.240 --> 0:02:07.880
<v Speaker 3>then I think everything will unravel. Then you'll see that

0:02:07.920 --> 0:02:10.280
<v Speaker 3>the sparsely move, the gamma will move, and the correlation

0:02:10.360 --> 0:02:10.760
<v Speaker 3>will move.

0:02:11.000 --> 0:02:15.120
<v Speaker 2>The correlation is really complex mathematics. It's much more than

0:02:15.120 --> 0:02:19.119
<v Speaker 2>you think. It's big, long algebraic functions of taking two

0:02:19.200 --> 0:02:22.520
<v Speaker 2>things and how tightly are they linked. But if you

0:02:22.560 --> 0:02:25.280
<v Speaker 2>do it across a thing like the standard Porse five hundred,

0:02:25.320 --> 0:02:30.080
<v Speaker 2>you get into some serious complexities as well. The key

0:02:30.160 --> 0:02:35.000
<v Speaker 2>sentence there on correlation is right now, things are very

0:02:35.040 --> 0:02:40.040
<v Speaker 2>tight and when they move, they all move together, and

0:02:40.080 --> 0:02:42.880
<v Speaker 2>that is some of the angst out there within this

0:02:43.040 --> 0:02:49.520
<v Speaker 2>speculation of twenty twenty six. McMillan at idx's living this.

0:02:49.760 --> 0:02:53.079
<v Speaker 2>He's off of the London School of Economics and they're

0:02:53.200 --> 0:02:58.520
<v Speaker 2>hugely prestigious econometrics department. Here is Ben McMillan on the

0:02:58.560 --> 0:02:59.360
<v Speaker 2>moment at hand.

0:03:00.000 --> 0:03:02.080
<v Speaker 1>Always get the question, all right, is this you know,

0:03:02.120 --> 0:03:04.640
<v Speaker 1>the AI bubble. Everybody's looking at the parabolic moves. This

0:03:04.760 --> 0:03:07.160
<v Speaker 1>has echoes of you know, nineteen ninety nine. Now the

0:03:07.160 --> 0:03:09.400
<v Speaker 1>difference is people, you know, people say, well, the revenues

0:03:09.440 --> 0:03:11.480
<v Speaker 1>are real. This time we're seeing it. We're you know,

0:03:11.520 --> 0:03:14.080
<v Speaker 1>and we're seeing AI adoption. It's real. It's no longer

0:03:14.240 --> 0:03:17.120
<v Speaker 1>just you know, people typing into chatchbt saying help this

0:03:17.160 --> 0:03:19.800
<v Speaker 1>email sound better. You're seeing it being adopted, you know,

0:03:19.880 --> 0:03:22.959
<v Speaker 1>across the entire industry, you know, animals and Amazon search bars.

0:03:23.480 --> 0:03:26.280
<v Speaker 1>But I also remind people, listen, this is a market.

0:03:26.360 --> 0:03:28.680
<v Speaker 1>When you start looking at a line and you're calculating

0:03:28.680 --> 0:03:30.880
<v Speaker 1>how many degrees off vertical it is. You had somebody

0:03:30.880 --> 0:03:33.040
<v Speaker 1>on Alpha Simplex last Friday and you asked about kind

0:03:33.040 --> 0:03:35.800
<v Speaker 1>of how do you model pair parabolic moves. And the

0:03:35.800 --> 0:03:38.440
<v Speaker 1>short answer is when you see the parabola, that's the

0:03:38.480 --> 0:03:41.640
<v Speaker 1>signal to step back and take stock.

0:03:42.040 --> 0:03:44.520
<v Speaker 2>Whoa way too math there, That's what you do with

0:03:44.560 --> 0:03:48.160
<v Speaker 2>Ben McMillan of id X. The person at Alpha Simplex

0:03:48.320 --> 0:03:52.560
<v Speaker 2>was the wonderful Catherine Kaminski, she of the Massachusetts Institute

0:03:52.560 --> 0:03:57.240
<v Speaker 2>of Technology. Again, let me translate there. A parabola is

0:03:57.280 --> 0:04:06.280
<v Speaker 2>a squared function, So it's a curve line up of one, two, four, eight, sixteen,

0:04:06.600 --> 0:04:09.920
<v Speaker 2>thirty two sixty four. You get the picture. You go

0:04:10.120 --> 0:04:13.360
<v Speaker 2>up quickly, and certainly that's what we see among others

0:04:13.360 --> 0:04:16.800
<v Speaker 2>in the Summit conductors right now. How do you get

0:04:16.839 --> 0:04:20.040
<v Speaker 2>off a parabolic trend? How do you get the so

0:04:20.160 --> 0:04:24.120
<v Speaker 2>called draw down? Or you pull back? When do you sell?

0:04:24.680 --> 0:04:27.840
<v Speaker 2>If you pull back, when do you step again in

0:04:27.920 --> 0:04:31.440
<v Speaker 2>again within the trend that's parabolic at some of the

0:04:31.520 --> 0:04:34.840
<v Speaker 2>mysteries for our guests and for all of Global Wall

0:04:34.839 --> 0:04:40.080
<v Speaker 2>Street on podcasts, we're on YouTube, we're on Spotify. It's

0:04:40.120 --> 0:04:48.960
<v Speaker 2>single best idea