Unpacking The Election’s Impact On Markets | Cem Karsan
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Alright, looking back to another episode, four guidance and joining me today is jam car song of ki volatility advisors and kai wealth. We're recording this the morning after the big election that occurred, and there's nobody else rather talk about that. This then with the egypt, this is going to have you on the show and i'm happy to have you here.

Great to be yeah. Great day to talk about these things.

Thanks for happy. Yeah yeah. No doubt about that are right.

So let's get right into IT. Here we are coming off the back of the election. It's looking like a red sweep. Trump has been nominated as one the election. I want to start off by honing on the society and cultural impacts first, and then we can dive into the market side of things because as as many listeners, if you know, you've talked a lot about this populism m area that we're living in and IT feels like now we're really just heading towards that in a pretty significant way with the with the fall on red sweet LED by the charge of trump. So first, I just want to ask you, like when you are high level, take implications from that perspective of what we've seen um in the last twenty four hours.

Yeah so if you look at the elections from the last populist period, right if you start in really nineteen sixty, right and you take IT all the way to nineteen and eighty, you look at that twenty year period we had kenite who was assassinated um you know three three years in those terms. L B J takes over on the sympathy of of kay's assonance interview elected um but that doesn't have a second turn.

The mixing gets selected right does actually in a second term even guess what you're in scandal can kick data office ford takes over, doesn't get reelected corner get elected, doesn't get reelected. And then finally one thousand and eighty they have ragen in the beginning of a new era. I've talked a lot about the sixties, mid sixties to um to eighty two period right which this rimes with there's lots of reasons why IT rives you know again primarily populism and protectionism and without increasing interest strates.

But we've seen other periods like this. That's just the most recent okay um period S A popular more time when people are unhappy, they they do not IT is we've been taught since the one thousand ninety eighties that there is a huge benefit to being an income. That right because since then, guess what almost everyone that has two terms are a very few exception, right? Again, until twenty, twenty, right? We can talk about kind of what happened, you know, twenty, twenty four.

So we can talk about, uh, what happens. But really, that period, until this section, they cannot be more different politically. One is a period of peace and prosperity and expansion and people are broadly happy. There's a building this this quiet but but broadly happy um and now there is A A period of uh people being unhappy uh and and primarily a function of this in inequality that built the previous period. So um IT is a disadvantage to be an incoming um and A A color right now.

Uh you know everybody wants trouble but be careful what you for second, you have trump uh you probably once up with us uh and that's just like we went from trump to bite in now back to trump now is going to be another you know trobe is not the the the cause. He is not uh the solution. He is a symptom of a broader reality.

Uh, we talked about this prior to trumps rise. Um the reality is we're in a populist period. And what has happened is trouble.

Realize this. He's a brilliant marketer and he is able to take the right. If you think about the genius, this is pretty amazing.

The left by definition, like what isn't the left? The left by definition is always popular. M, it's socialism is in this idea that that we need to think about equality, structure of society.

Where's the right by definition is free market economics and is trying to have small government and not do these things. And somehow, right, you trump, has manage to take the right and convince the populist that they are more left than the left. Um and and it's it's brilliant, it's marketing and it's very best.

He is but is able to tell people he's going to give them tap into that emotional population of right and give them what they what they want. The rust, the of his inauguration speaks like the rust in our cities, in middle america. You think of a more populist kind of derec now rhetor, much like trump has been known to do throughout all his houses in history.

Either you're trump supporter or not. This is not political, you know, he's very good at telling people of this is what you want. I'm going to give you this and then he may not give you that right. You may give you something different. And in his last term, by the way, that may be Better like you know what isn't I so the best economic solution always um but but the truth the matter is you know he went you know came in a power last time around uh under a populist a climate and he passed tax cuts largely for for corporations and that was actually very free market like he did a lot of very free market things.

He did uh to increase terrorists s and do some other popular, uh, big, but he largely did a lot of big, actually free market things as well, which is really not wine with that come speech so so it's interesting amazing what he's been able to um uh again, nixon in kind of rims with nixon in a lot of ways that nixon was right and managed to take his party left and give a very populist um count retour c and so he is cover nixon like figure in a lot of ways is in history history rimes, you know mixed, got reelected, but he know he got kicked out of office. Eventually we'll see we will see this time around what what that means. But but inflation actually reached peak, uh you know during or at least I really accelerate on x nixon uh ironically was the one who who fit all the Price, the less free market economic parts of the police.

He he um he did a Price freezes, right h you tight things to inflation uh and eventually um pull this off of gold in order to to deal with the right so there's there's a is a ri ming here. I feel pretty confident that trumps going to be do some things that there are really care intuitive and to what people people think and he's largely willing to go to break things in this environment to achieve his his goals. Better, worse.

So I would this is non a surprise again. He the world was demanding something shupper outside and he stepped into that that fold his he's a vehicle for something much bigger than him, uh which is uh a vehicle for this populist movement in actualizing. Some of those this will resolve itself in the next ten fifteen years.

But there is an a period of uh volunteer ity crisis broadly um that we will be moving through. Um if you talk to people and if you have before, I curse you do with that limp. In the sixties and seventies they felt that the world was being torn apart at the seems. They thought that we could not survive this period.

You know, if you look back, there was a time of great change in an important um every time of growth um the silver landing for those who may not be so happy right now um is that guess one uh if you you the only way we pass laws and change things is through crisis right crisis itself is particularly in democracy and necessity to getting untimely and change um the the the founding for others. AmErica created a system that was made a very hard to pass loss. They did that on purpose because they did not want this system to break because they knew that IT that IT was easy to kind of uh to to change a break system that that otherwise they would corruption to enter the system.

So we haven't had anonymity for four years because we've had the reserve policy IT will come and solve problems without any crisis resolution in congress, south passing and the laws. I'm all on the way, but the federal reserve is a bit a bit of a box now because we have to deal with the equality. And here comes your crisis.

Uh, in the next ten years, we will see if it's in one or two or in three or five. But that crisis will will feel painful, difficult. A trump will be, makes up and at all.

He's not a cause. He he's a vehicle for IT. And my guess is a we will we are a period of of immense change for the world and that good things will come out of this. The long of this H I think in ninety, eighty nine h the bad name movie, uh, uh, the joker says, this town needs an animal, this town needs an, we're onna, get one. Uh, you know, this is going to be a, uh, this is gonna A A painful period, but it's going to lead to great positive change.

Yeah, yeah. It's interesting. You know, you said in there that this wasn't a surprise to you. But you know I when I look at know more traditional media components like pollsters and just the broad based you know traditional media landscape, there was a lot of assumptions that this was going to be a really tight race um and that IT wasn't a given for trump.

So IT feels like, you know what else into your framework can makes perfect sense what this occurred. But when I listen to those traditional media components, they were cold the outside here, whereas IT looks like this new age of meat consumption, which is like bedding Marks. You know, Polly market was pretty much right on the dots here compared to pollsters. So what do you think they're missing? Like what do is this just part of that change and there's just not realizing the societies that is occurring?

I think the problem with data models in general, whether it's pollsters or trading models or anything, is looking at forty years of data. Forty years is forever, right? Who looks at data of past forty years?

If you do, when you trying to make claim like I am over forty years, people like like, okay, yeah sure. But it's different from the last forty years, all right? Guy like IT is is different.

There are big long term cycles. That just means it's different than the long term mystery. The long term history tells you a different story.

People are so focused on what's happened five years, ten years, twenty years. If you're investing who looks like a track working longer than twenty years, nobody IT doesn't. You know, it's IT IT IT IT seems ridiculous to people.

But the world goes through major cycles as a functional generational change and share experience. And and the pencil swings, and that IT swings s the other way. And when IT does, you have dramatic changes.

And how worlds and markets and popular now polls even Operate. And I think that's the core problem. I think everybody is working now with systems now, systems built on, on, on that, that is very recent. So I want to .

talk a bit about how markets are digressing this red sweep that we just had occur. So just the level set here, you know, looking at the U. S. Dollar index is up one point six percent today. Yields are absolutely soaring on the long end.

How are you seeing markets digest, you know, this news? And what do you think is the key driver is, is just the the somewhat of a surprise of a red sweep. And historically, markets have not really liked um they for gridlock, germany y speaking. So what do you think is the main component that markets are trying to digest here? And what are the implications of IT?

You look at the sixties and seventies again as a proxy. You know, people, if you go look to see what what caused the inflation, you typed a goga. What talk caused the inflation in one thousand sixty and seven cost IT? You'll get three things animal sly ly across the board that will be I lighted and it's act research about IT and what are those things they are fiscal spending right?

Global conflicts we are more particular and obey crisis while comparing and oil shortages ah what people don't realized this all three of those things and and no one really talks about. There's no I of researchers connecting than three or all caused by a much beer thing that caused by populism. If you have populism, you get physical expect that was an easier to think right?

The great society program of the sixties of L B J, like that, was a very populist set of policies, right? We talked, you know, that the race kind of issues, everything that came up in the six that was that was about equality and populism and and equal rights. Similar thing that and that feeling of a uh of things are are not working, was was a function of autism.

But protectionism, this is key, is by definition, connected to populism. You can't worry about your people. Populism is about my people, not all of the people of the world, right? We are not thinking about people in china, and we're talking about popular.

The people in china are thinking about us. What are thinking about population, right? IT is about us. And we go from a world of CoOperation, right?

Free market economics is, how do we make more money? We lower labor cost, we expand globalization, we, we creep Better investor technologies, we grow market share. The free market economy is the right.

But equality, just as these things are, are our people and is competitive. And when we throw out boundaries, we threw all all. This is an element thing, right? Territorialism begins.

This is mine. This is yours. We get into global conflict. And so the vietnam war, the growth of the cold war, all those are tied to that popular period from that period, that time.

And the OPEC crisis is, again, people having resources, their resources, that they want to protect and they want to flex their muscles to pete and to get on, to get something out of IT. So we are in a time of global conflict. We are in time of protectionism.

Uh, na ism isolationism make amErica great again as a isolation that's protection is by definition that's the whole thing terrorist immigration policy again, trump is the posture is the vehicle of the site gust right? Um and so you can point to that here and and say, I was nicks in that draw of this. I was L B, J or Kennedy and like, no, no, there there are all just vehicles of a much bigger thing that's happening.

And so um so what's what's happening here? Uh, you know we are we are with a uh an inflationary period because protectionism and popular m we're not we're not being more efficient. We're not getting putting free markets go and were not maximizing to mean now maximizing media outcomes.

How is the average person doing? And that is a very different approach to policy and that, that is very inflationary. We've seen that the world history. And again, if you look at markets and what they were seeing going into this is not just the sweep from the strong is because the downside on these bets was so small relative to the potential website.

The downside is you have the status, which is already structural inflationary, right? Maybe IT pushes IT down the road and makes IT less IT doesn't happen right away, right? And he becomes a little into a slower.

But but if you look to have six season of he's period, yes, you have period which almost like open current. Is that accelerated or or increases of uh activation of being on or or or great society program, but all of those things that are accelerate to a trend in place. And so so the reality is those are very convex opportunities, and it's hard to say exactly who's going to get voted and what's going to happen one.

And you can predict and say you're not surprised by X, Y and z likely to happen, but any number of things can happen that are going to follow this brothers, like guys in the demand, people respond to incentives. Things happened in line with with push and pull out what the the the general pressures are um and and so my point you is, yes, the dollar is strong. Yes uh you know interest strates are are are starting to accelerate on the curve.

You're getting a speaker, so talk about for some time um but but it's not just about trump. Yes, it's about trump accelerating. Think about cover, right? Cover is created a lot of things that people originally pointed to and said, covet was the cause of work for home. You know, IT was the cause of inflation. IT was this of that yet but what I did is just accelerated things that were already know in place and once we got there now it's there's no going back right?

Um these are just accelerating a trends um anyway so so yeah to speak to to what we're seeing um we're seeing an acceleration, something that we've seen that we saw start um a little while ago and and that if you think it's just a short term thing you're miss in the big picture. Uh IT is an accelerant into what is a trend um and yes, there will be pulled back x along the way here. We didn't go from uh three percent in um uh ten years in one hundred sixty um six to and you know twenty percent ten years one thousand nine hundred eighty two in a straight line.

We actually went from three to six to three to ten to five to fifteen to ten to twenty. That's I went, that's what looked like every time I came down. I was like, well, solve invention at least the first time. Rosing Better. Good night. Eventually, the last control along into the curve that that was no longer able to control inflation, like honestly can anyway, but over time is even hard, is like to a these effects, once people started, not to people, but market start to capture on the idea that, okay, this is, this is not over, right? This is a secular problem.

Then what happens then there is a pulling forward to demand because they, you know, people realize they need to build inventories because inflation, structural h one two h any time industries can now, because of the rush to borrow money to buy anything, pint down, what you can accelerate inflation. So this thing is a circular. Once I get started, it's really hard.

It's actually impossible to stop because the underlying things that are causing IT are are uh political are are are much more structural. So um anyway, I don't know, I answer your question directly, but that these are the things that we've been time out for time and to see them accelerate during this is not just a trump reality in a society. Reality shop is an acceleration. I mean.

what I appreciate is that you you're coming the high little themes, which I think is important because you know get caught up in just today's Price action. But the fact is that you're really hit home is that these are these are pretty secular trends that are starting to really begin to accelerate.

Um one question I have for you, it's just i'm curious about your mental model for how to I quantify this the secular inflation increase with the context of of trumps policies that he's proposed. So for examples, something i'm trying to figure out is okay, obviously you know he wants to be the tariff men and bringing of santis terrace. But on the other side of the equation, he's talking about drill, baby drill and just you know trying to get as much as the oil supply as possible, you know being produce.

So those sort of work against each other, you know more oil supply would probably be be a boon in terms of like disapprobation ary impact. Then you got terrible so what's this like what's your high level mental model? How try to quantify these different .

the impacts yeah I really break into two major impacts. What is the secular you know peace which is completely devoid of whatever is happening um in terms of business, right? Or that's why it's secular, right? We're not worried about business cycle little. And then the other one is you know cynically right how what are we what's happening in terms of uh stimulating from a cynical perspective.

What trump is talking about doing is we are running brother of demand push your cock right and a demand push economy when you do the fiscal cause I like we saw in twenty twenty one, you get a signal oh right um you know that that much like monetary both they both will drive your liquidity right at the time of impact. One of them a monetary policy doesn't no way that fade quickly, right? But that structurally that is deflationary right, because you're getting again, loza will have the money moves out of the system.

I've last any of that money is zero right in in the second system sec. Uh the other one has uh has a big impact, sticks around for a little lockers, demand push economy right um but then structurally is inflationary right um when you put boat together ah IT is incidently inflationary steroids, right? And then instead of being deflationary on the back end, IT is uh you know IT remains inflationary on top of that.

So instead of getting if you were a just do monetary policy on full uh full tale and then do a fiscal uh as on full tit, you will have a massive push and then inflationary, the short term relationing impact can be dramatic right um at the long term is already there with the fiscal. The other one is really a push on now you can argue um and I don't think this is wrong. Uh, we've never seen this, to be clear.

But if you do both full till and you're the united states, amErica now, you can do that get spend like crazy yeah and just put more money, which is amazing what we're doing on votel. In zombi, you can do IT in in a turkey. You know, i'm from we see everyone tried to do this, by the way.

This is not, he's kill. This is not the first IT with great success for a shorter. Now if their experiences eighty nine percent inflation, IT took a while, right? And the reason they didn't get weren't lation earlier on, because because they had the protection of really cheap industry globally and in cover deflagrations ary pressures of all that.

But you could argue the united states, with the exorbitant village of the U. S. Dollar, as long as I could maintain IT is orbit relish of the U.

S. Dollar, uh, which you get. That's preening rench ed. And it's not forever, as for sure, but IT pretty entrenched, if I can. Then IT has the ability to do that.

IT has the ability to to really uh tax the rest of the world a export a lot of the inflation that's caused by fiscal policy. And that is an amErica first policy way a and would be a boom in the short term for the united states economy. Now in the shorter you heard me say in the shorter that the year, is that five years? Hard to say.

The problem with that system is that you're taxing the rest of the world you know wrong can grow by taxing the rest of that you know its provinces for some time and and generate great strike you know empower and it's away. But it's actually that that that undermines the whole sister, right? If you are not in some level fair to the rest of the world, at least provide the some level of at the fair or it's ever truly fair.

But that allows some level of benefit to the rest of the world of of of the gains at some point the rest of world is gna can be a big metal finger and and team up against you and that is already signs of that in the works, right? H, china is not very happy. They've expressed IT.

They're teaming up with russia. Russia is teaming up with the wrong global conflict that is likely to continue to grow. The more isolation is, the more we try and say, okay, you know, we we are going to do IT our way, you know, deal with the, you know, I think pretty clear what the incentives are on the other end.

And if you want to continue to have the exorbitant of the U. S. Dollar, you have to be a benevolent dictor, right, at least to some exter.

And if you're not going to be beneath at least some some sembLance es of A A A A ruler that is going to uh to to allow the others to um to benefit as well or and share of the benefits um the future is is pretty ugly uh for the long term. Uh strength the of states important thing in the dollar, the of the dollar is IT is the U. S.

Strong excesses. I never mind the military, never mind the economy. Without the dollar of strength of the dollar. The us.

Is a is just like any other country ultimately I know yeah people love people want to know to hear that, but that's true. You are a you know um in a fight world IT is IT is an immense power. It's unlimited power.

Put again, we just saw the bricks can together weeks ago and that you were listening like there are a lot of people and the countries that showed up there what more than you'd expect to shake putins hand to to shake you know these hand and and they say, okay, yes, we need another way of just ten dollar um and so I think that's a real issue. I think that's part of bit point been telling you for some time now. I can get what goals telling you right now in a world without uh, that could continue to see secular pressure against the U S.

Uh not give the dollar itself, but the the survival of the dollar. Now that doesn't weak dollar, but they actually usually mean strong dollar. Until you know because it's flight flight equality until that right now, I think for ten, twenty, thirty years at least away from that a know these things, employers don't crumble overnight. Um but IT is a dangerous long term president to make me with my opinion, be worrying from the future by I think that's what truths or trump is taking us um and and I think uh IT can be again uh very positive U S. Particularly around to the rest of the world in the shorter everyone.

This substance sponsored by the letter for the past decade, leger has been the global leader in digital asset security trust, are more than twenty percent of the world's cyp to assets celebrating ten years of innovation leaders making digital ownership more secure and accessibility with their latest products, legal stacks and ledger flex.

These violence feature the world's first secure touch Greens, simplifying your digital transactions while ensuring uncompromising security through his ledger secure chip and proprietary OS plus with the ledger security key APP, you can say goodbye to traditional passwords and step up your digital protection. Your entire cyp to experience got a whole lot easier ready to protect your assets, choose the most trusted name in hardware wallets leger, and take control of your digit security today at the door right to the show. Yeah, this idea that you bring fourth of of the absolute privilege of the dollars is so important because, you know if if any other emerging market was run in the deficit that the us.

Was there to be, there be some more strange ous concerns in terms of their bond demand? Obviously, there husbands one, we're seen that today, you know the long bonds selling off prety significantly. But I want to bring forth the context of of the fed.

You ve mentioned a couple times in the show already that there are boxed into a corner. There's there's some big issues that are gonna need to begin to tackle. I definitely want to want to be drill power this morning trying to think about how to navigate this.

But I want to ask you, within this context, you'd mentioned earlier as well this concern of potentially losing the long end and just how much control the fed has there? Is you obviously, we have that phone meeting tomorrow. They are pRobing to cut twenty five.

I don't think that's the major story occurring. I want to talk about the high level here. How do you think they are going to navigate this? Or is, is the primary concern losing the long end of the bomb market? Or what do you think they're really thinking about here, this junction?

I think you you cannot separate politics from what the federal reserve. I think everybody tries to talk about federal reserve independence. That's ridiculous like the fact can be independent IT is doing the bidding of the united states, which this is not this is not a um you know they're not here to serve a other countries and is the central bank of the united states, america.

And if they are doing the but in the united states, there is no way they can do what they work without ordinating or at least understanding what policymakers are going um and they can talk about how well, not a responsibility. We don't talk to them. We're independent, but there is clear coordination going on.

Their husband from the beginning of time since that, that reserved this career. Again, I mentioned nixon before. I think we all know nixon story and his connection to the the reserve. These are coincidences. These are similar times.

He was a republican, and that was looking to do populist policy but at the same time understand behind the scenes he needs to do more um you know still traditional republican supplies that I can still try and baLance that in economy same exact situation. How do you do that? How do you do that? Because, you know, boxing harder, passed policy bubble to do that, kicked out the Better research.

So put another firms in church. That's what trumps going to do, is everybody responds to senate. this. Somebody wants power and control and wants to do what he wants to do means pretty clear, he's not anybody in this way.

He has the ability to kick out the federal reserve president and puts somebody, and he will, he will. Now is he gonna overnight? Now is he going to he's onna, try to do in the political way.

That seems more pounds. And does the reserve have to be does that percept to get past by converser? But I would expect to think that very few people talking about seriously is big moves at the fear early next year.

I think it's going to happen way soon. The people realized he hasn't meant he has an ability we when somebody comes in with all houses, which very assure this point he's pointing to, right? And uh, you know, the first thing is okay, I have a Mandate.

I have the ability of self that right now and everything that he really needs to continue to power and to continue to pull on these levels that have successful for for yeah who knows how much longer without time um he's going to go, paul the handles of power and trying secure those right now that reserve number one most in poor or and powerful lever. He has a beautiful and he wants access to that. If he does not he is not you know he's not pay attention and entrust me he is pay attention.

A powerful job is um he's out a job um i'll tell you that much and somebody else is coming in. We don't know who IT is, but to be somebody very, very willing to work or directly would try to do this biting. And that bidding is to run in very hot.

So you look try and push lower interest strates, try and push growth above more importantly than inflation. That was great, you know, and the short in the curve. But inflation is going to be a problem actually, and that we ve been so so maybe just a giant hit .

around this is IT feels like, you know, for the last four years, treasury, fed up, been implicated working together but not explicitly. Do you feel like we might see some explicit moves or I don't know, maybe the fed starts like monitise debt directly from treasury. You know direct issue is not from the secondary market. Do you see as those is like potential terrorist or is just just too early to tell?

I don't think that matters. They do that or not, right? They can do explicit implicitly. I think there politically, uh, their incentives are to not do IT explicitly. Uh, you know, I IT I think it's amazing how how few people actually call cue money printing and I like you say that people like, no, it's not money bring it's Q E.

It's a it's .

literally the same thing. You just create A A fake in the media so they could like to exchange chance. Um it's literally putting money and yeah doesn't matter if we're going to continue to to put other names on IT, but try to help escape what what they're doing.

But they're one side printing and the other ones spending. and. The more spending we do, uh, we need to print more.

And uh you know or in theory, like you should prit more, uh, you know you might as well if I can affect you. And given the us. Extend th to the U S.

Dollar here and what we're seeing in the continue strike, it's every lunch. What do you think? Why do you think a japan, you know what they did know we're going to do the same thing. That thing doesn't mean we are jack. You know, let something get any further a different story right here in part of the reason japan couldn't is because the U S.

Said, okay, you know we see behind you japan as an high everything else um and so to build we have the pretty you will start or we could buy as much as dead as we can people like talk about default U S you know default people all we just going to buy IT all and make IT go away, not just onna shake CS. That's what japan, that's what we will do. So but that doesn't matter exams, the dollars is not going to crash and and the dollars are not going to crash, uh, you know so we will have higher, higher um you know japan was like two hundred and seven five percent of G D K.

But it's not that because it's just the central bank, just don't. So I can see you um yes so that's what will do and and yes, uh you know we wo we will continue to to do as much of that as as we can and I think I don't think that sense ly wrong as as the united states but again, that will um that is what will drive inflation abroad, right? Our ability to do that totally okay.

cool. So for the last night of the shock you I want to shift years to dig in deep into some market structure dynamics which you allowances talk about so you know, correct me for wrong and just characterising your perspective heading into the election in the rest of the year. But I believe you are looking at imply bottles works like significantly bit up across the entire wall surface.

Looking today where we're the vases is down, you down to sixteen, the move is down significantly despite the huge move in vanion. So maybe summarize what you were expecting into the move and then what we're seeing today. And if that's resounding with that framework? And what does I need you for market structure dynamics for the rest of the year?

The reason we were able to so clearly say at expect after you a very first of start in the summer, we like look like to incredibly slow some of jorge like absolute ulto crush uh very low movement um uh and starting in the fall, you know expect a ten percent. So freak out because there's a lack of all of the skill and and the amount of hedging that would be to happen up there cause something. And that was your chance to buy the dip because of the end the europe I coast OK like me, that was everything we've been very clear the way the world is not over IT doesn't mean that uh, we're not onna get some potential pull backs along the way if if they right.

But but that does mean that that a the structural realities going into the end of the year and the flows that are tied at, at which we have nothing to do with anything we just talked about, like all of this stuff we just talk to about which really think things like h or up you know hundred and ten and we're going to be they're going to rally be strong because something like no very little to do with that and something to do with what's moving and how it's moving and acceleration certain passage and that we may run a faster, hotter economy next year actually like we talked about. But in the short term, the flows that are structural are dramatic. And what are those flaws that lets start from the beginning? Uh, one, december the end of the year is where are the overwhelming majority of all structure product issues， all hedging, all put buying, all skill is in the marketplace.

Uh why doesn't the only here? Because everything gets issued a for the end of year um and and not just that a lot of contracts are two year, three year contracts that were all forward in that that you you don't have two three year contracts for uh september. You don't have for tue or if you do, there is a complex right because people have their annual years tied to to the end of the year, people paying taxes based on the year.

The whole system is structure by the counter. So so all of this um supplied demand and baLance uh skill in the market uh with with the you know the world buys puts to hedged their portfolio or sales calls against our portfolio. All of that structure and all of its forms tends to be over one out ten to be tired.

The other year I thought that you know election just the november um and all the heading uh for that of that uh I has dream IT even higher ground this year. Just a couple important for active people, not as the last two years are combined. We've seen structural product issue.

It's go from five hundred billion dollars globally to a trillion per year. So we've had a double let in two years of structure production. Um the etf business that time to options has gone from twenty five billion two years ago to one hundred and seventy five six in one hundred and fifty billion.

Just get E T S. Time to structure products. All of these are the overwhelm majority. These have one structure which is uh short call or long put or somehow hedged. Uh you know the portal voters right and and again or just selling the field brother right.

What that does at the end of the day is IT creates dealers being short put one call in mass, and we saw not to mentioned, by the way, all that issuance has created not just more volume that needs to be digested warehouse by the by the market, but higher Prices because the more line demand bounce, the higher the pricing of that school goes. So the skill was historically high going into the election um way higher than in the past elections. Uh even before the elections started in August.

We are the crisis, you know that that that great of all pop that you exploded because everyone was shorted, everything else came down in front of IT in that data OK. So all of that positioning means potential energy IT means that deals are short because there's a great it's an easy trade to capture al an edge relative light masses as long as you manage that where w's that risk. And but they need to be quick to buy back their delta, right? Uh and to a to as that they're short puts decay also get rid of that puts so are things that they have against to the insurance, other things they have against.

All of this structurally means the market once that comes off the table, once the ethen is duck because the event happens, they mean things expire. Time is for that you get charm, which is that moving forward, a time delta difference. And you have vana, which is the decrease in wall, uh you know, affects on delta as well.

And then all that flaw, delta comes back. We started seeing that two days before the election. That was the sign that action, people to aware this.

Now, I talked about a lot other people aware of these affects. People are out there, so IT rational doesn't make a sense. This was all very high, preparing for the election. Everybody was already, and two days before the election, weird.

They start crushing IT, right? Because people will see and guess what, the market started, people front running what they knows coming because dealers, how this flow, banks have this flow is like human beings just it's actually banks and mark makers saying who are sophisticate say, okay, this is likely coming. You know, I don't await to the markets hundred point tire or two hundred point tire to try buy these deltas, right?

Amaze will take a little bit of lean. And so IT started happening, and I started kicking things off. And of course, we saw a good two day rally going into this. And again, the world just oh, they're pricing in a strict ory. No, which is very know very different.

I know you contribute some of that， I mean but we've seen this again again at the end of the day um that is a major driver and and we've seen a decent chunk of that ball come out. We've seen a decent chunk of that. The sky is still relatively high.

The submarine inquiry, there's still more to come. Uh we you know the wall itself again, this pushes can lead to a pullback. IT were likely will see some type of pull back because everybody is on the same side of both people and take profits.

People are largely prepared for IT as we talk about is the shock necessary to the world? Um but but again, the trend is still higher and those flowers still there. So that's a major, major of force.

Again, I get I tide you back to these numbers of five hundred billion. Structure prides up to a trillion, you know, twenty five to hurt thousand five. So the out of of of of positioning being a digested isn't enormous, right? You've heard people tell about the G P Morgan hedge equity and pinning.

Then trade is twenty that trade is twenty billion dollars in context, right? We're time about five hundred 等人。 We're talking about massive position.

So so that is is a part, a big part of of of this. Now OK people are braving more ware of these things. IT was historic and I so still massive.

But you did have people preparing, 嗯， on top of that. And again, this is what i'm talked a lot about. I think any constant, I always asked me about this. He's obsessed this idea that that I kind of presented.

He was new to him when we talked about that but I think he so questions IT but but but I think import on is this release aging effect yeah right which um which I cannot emphasize enough. He is also a critical part. IT is not a coincidence that the last two weeks of the year and the first two weeks, the year of full month, I have twelve months, almost temperature.

The year. If you look at one hundred and twenty five years, there are not just five years, ten years, twenty years. The full and history dramatically outperforms.

And the other period in history, right, dramatically, it's like eighty two percent winning rate. The return is something like a one and a half percent for a month, right? Uh, you know, in IT is dramatic. Everybody knows there's all kinds of oh, it's the same of class effects like oh, it's the genuine if that people put name is on the technical and lose but how many people talk about but why tried magic to like you? A .

reason that it's .

not a coincidence and the reason that is, is primarily I get this big up his other the the trial von effects exit feeding into IT as well, right? But the biggest reason is because generally begin, the market is up in any given year, right? Or has the market generally up because the company is money over time inflation, you have naturally structural factors that need money into the system and things top up over time, over time.

And when the market is up, there is what's call a relevant ing effect. What do I mean by that? If there is a fifty million doll U.

S. Market, which is what they are. Stocks are the combined market can U. S. market. And there's about fifty trillion of global equities, which are probably tied to these A U. S.

Equities in some form another and then you have another one hundred uh trillion dollars of things tied to the us. Market with equity or or other things, structure products, two hundred trillion dollars. In essence, what happens to those assets are up twenty percent. What happens? You have you have forty trillion dollars, trillion the tea, more colleran.

If you have persons like cloud a what does that? Me and my stocks is one like what network or you can post those that people do, but wealthy individuals, institutions, banks ah, they take that colleran and they can lend money, gives that the whole system has built up the right, the veal reserve lends money to banks. Banks then can take that and then levers that collateral al, to lend money.

The whole the majority of money period is not actual money. If leverage, it's loans, right? And so the whole system is built on colorable. And so when you have forty trillion dollars of appreciation, you have forty percent percent more as if you have forty percent more money.

And if we were just if there was no average in the system, I wouldn't matter because there's nothing else to buy, but the whole system is built on them. So a colleran goes up. There's more lending against that collateral. There is a more investment over the clutter as a heads from manager. This this hits home, right?

Because of i'm not correlated and if I make um you know and there's embedded leveraging every hetch fun for folio, if my my assets go up twenty percent year because I made twenty percent, guess what? My position next year need to be twenty percent bigger. And so the whole way the whole system works is there is a release aging effect. There is a reinvestment of the new collateral, which is a moment's effector check now that twenty percent didn't just happen, you know, just now, right?

Uh, you know and that reinvestment for some strategies from banks, some things happens on a daily basis, some happens on a monthly basis, some happens on a quarterly basis, right? So importantly, right, it's not like you're getting this twenty forty trillion dollar or start twenty forty train I apologized are not coming in general but some portion of that forty trail, which is look gently the slow or more lagging things equity, which you again has a ton of a bed of leverage, think uh, you know bigger new funds coming on uh from from you know from the appreciation. All of these leverage pieces which have a little little lag that have logger duration tend to happen on genuine force and they happen again because all is a new tax year or is a new launch right?

Is now what portion I have no working idea is that is IT five percent of that money is IT ten percent, right? If everything was monthly, you be like ten percent more than more than that happens to jan one for sure, right? Um and and I get because games tend to happen to know of these allotments, accelerate in a moment of effect that's more short term in create but gone.

There is a significant reinvestment that happens um in the market and that reinvestment gene people forging because they know it's coming and to that that that h that was long in term effects. I talk about again the collapse of time because there's less holidays, there were holidays and less time in the office. There's less relative volume to to absorb the liquidity.

And you get a chase their structural leads on this red leveraging plus the on and charm combine, and particularly a big up here. Yeah, you are fooled again in front of that. yeah.

And people know that if you're underperforming, you Better do with leverage. You you Better trying going ahead of IT. And so becomes yourself for the prophet y on top of but but the point is you whether there's no free lunch, right? This is not like a it's not one hundred percent. And by the way, the the reasons are there to criticism because are there that means there's a fact tale because you if somebody was eighty two percent of the time and everybody knows it's coming in the flows, they're to support IT. And everybody's on one side about the tales going to be really that by the way, those puts that out there, that extra open interest, if that ever actually it's you're not going me down fifteen percent.

You're going to be down three percent, right? And if you look at two late two thousand and eighteen, I think that's an interesting story, right? That these are some some of that happened in eighteen into Christmas and into the end of the year, right? But but to be clear, uh, that year, we didn't have what we have now to twenty percent of year.

The masses structure product, the bigger amount of of open interest that thrives that buyback IT is a bigger year the most. And and these are the primary things that are driving in the every year. Now just like anything, uh, there's a give back once these flows got, it's not like these flows take you higher and then push you higher forever.

right? These laws are the other structural. They they bend longer term realities to an extent, and then there tends to be some typical back. They book second worst one to the year as february.

That's not a why february why is february? Because december and january are so positive by by the way, you look not just at if you look in february, it's not just fab warn of and of and in the middle right here. And there's a reason talk about the january effect is the first two weeks is again that reinvestment doesn't still come in.

First, first, first year is like, okay, we we need to set this minor work oh by so on the first year, but will also maybe average in over a week or ever over two weeks, right? Because we don't want to be all one day. So these flows come in.

They tend to be very positive in the first several weeks once they dissipate. You also have, I want to try for january change of their expression well, and then you have to have a period a week ness in particular up here. That's something to be watchful for so we are circle encounter.

We done this before and twenty two we were very almost called IT to the day in january h about six nine month up uh but you you know you should be prepared for that the wednesday of of uh or the monday before genuine exploration into that friday of genuine exploration should be a period is really take chips off the table on the hedged doesn't mean we're get collapse per say. We will see what happen, but that is what you start to really take those chips off and may be even play short. That was fascinating .

and a really grade mechanical ical explanation of, I think, why you have the views that you do for the next few months. Here, just as we wrap up, my final question is um based on the mechanical impact that you just provided to simply quit, is yeah barish into early you know first month of twenty twenty five sounds like your assumption.

And the second question is, i've just super curious about like this this mechanical on one of the event risk kedgers that we had just seen, like is is that complete now you know, we're seeing a huge fix crush. Is I like a multimillion end devil for those those hedge to come unwound? And and how does that tie into this mechanical impact they just laid .

up for the next couple months? You've seen the unwind of the events, which was some reason portion of we talked about. On top of that, you've seen a decline.

And uh, the the extra premium that was in december twenty, some of the extra prem that was in december twenty years in january, which was really there because the contested election. And again, just the open interest that we've talked about in a structure box. So you have not see to all that come out.

The physician is still very big back there terms of back there december in january. So those long in term effects are still alive in the summer, genuine um between now and the summer. Those are going to be liquid. So you cannot have this bump in the election and then you have this button to summer, january and december. January is still again come down, but they're still very much a lot of but there plus us at the year investment part of talked about all that still there, but there's initial push right for the event fall is what you've see, kay, that um is gone in terms of short term push. Um any remaining a charming va forward like the know the apex is relatively small um and could you know people are used to disport like go with some only exploration you would buy in this part you so you know that part now is is is less h strong and I would say would not I would not feel comfortable um leaning into uh um we're gonna tweet tired now um um I think now could happen ah but I think that's not with the flows are going to be pushing .

at this book yeah ah .

I do think that as we approach thanksgiving um you know in the holidays and then get into december, we will we will see higher Prices um and so I think we are likely to have a consult dating and I Justin how people lose h some of their uh their confidence calls that they've just had h explode higher um are going to have to come in decay for a little bit again um and then and that will make another one uh you know that was just easy to go buy long day calls and sit on a one make money ah you know everybody would do IT and they get every time the cause I tell people like you need to be.

You know they they make a bunch of money everybody like, oh, they are losing money like yeah take your profits reload under a dip like find your ways to die just the fate of the decay there's a reason i'm single long dated calls, right but because because there's a lot of decade a short data stuff there is um you a big on IT that I will say pointy wall has got cheap again and particularly out of the money calls long dated out of highlighted at all a month a half ago what they do for a month I went higher, right? Terms of vegan, they got up like thirteen, fourteen ball. And markets are right.

So you got ta benefits of the benefits of vega expansion before the election. You now got the rally. And you know but but all self is cheap, so a much Better risk adJusting returns to keep playing in this way. Um and um the turn is higher when I feel scary and keep buying the dip um you know a dip um and uh uh that's that's a that's gonna be you know have conviction when IT when IT pulls back but you should have conviction given and flows in your corner until until early .

genre and well said, well, champ, I can't take enough for joining us today and what i'm sure is a very, very busy day for you. So you know really appreciate that working folks go to find out more about .

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