Odd Lots - Lots More With Charlie McElligott on This Week's SaaSpocalypse

Episode Date: February 6, 2026

This week has been a pretty wild one in markets. Some of the most popular trades of recent years — like going long software, crypto, or gold — suddenly collapsed. Of course, there are plenty of things you can point to as the proximate cause of the selloff. AI is now an existential threat to SaaS. Bitcoin has seen some unflattering headlines. The nomination of Kevin Warsh as the next Federal Reserve chair stalled the debasement trade. But the way the market functions has also changed enormously, arguably leading to faster and more violent moves. On this episode, we catch up with Charlie McElligott, cross-asset macro strategist at Nomura, who explains just how much market mechanics have shifted, and talks about the flows and positioning he's seeing right now.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Bloomberg Audio Studios. Podcasts Radio News. I think there is a chance you might have to re-record an intro, or at least the intro might be out of date by the time the episode comes out. That's how you know. That's how you know it's bad. That and when people start waving around standard deviations. And also when people start saying it's a lot. healthy correction in the market, although I haven't seen that much of that. Yeah, it's pretty gnarly. Also, when we don't just say the date that we're recording, but we say the minute, we're recording this at 704 a.m.

on February 6th, 2026. All the signs are back. Joe, I want a T-shirt that says ruthless utility maximizer. Black gold. Let's talk about losers. Who cares? I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the U.S. Skulls Unlimited. Ooh, what's the ticker for that? No, I think that like, in a couple of years, the AI will do a really good job of making the Odd Lots podcast.

How do I get more popular and successful? One day that person will have the mandate of heaven. We do have the perfect guest. Welcome to Lots More, where we catch up with friends about what's going on right now. Because even when Odd Lots is over, there's always lots more. And we really do have... perfect guest. But it is weird, isn't it? Because it's, you know, it's a little different. It's been a lot. It's a surreal. It's a surreal type of market environment, especially over the last week.

Right. So if you've been living under a rock, markets have been tanking. There have been a bunch of different things going on. But first of all, gold and silver and the metals complex started plunging. And then you had like basically a slaughter in software stocks. What else? There's one. Oh. And crypto? Crypto. Crypto is a big one. So Bitcoin is like down to 66,000, something like that. I think it hit 60,000. Oh, wow. And that's the thing. I can't keep up anymore. And also there's concern about private credit because private credit has so much exposure to software. And they basically lent all the money at the top of the valuation cycle, which I wrote about in the newsletter yesterday. But anyway, there's a lot to talk about in markets. Who do we call when Mark? Markets are moving. That's right.

So, Charlie. You guys are amazing. So this is Charlie McGilligate. Of course, he is the cross-asset macro strategist over at Nomura. I'm going to start with the simple question. Maybe it's not an easy question. But what was the proximate catalyst for all of this? Because you have a bunch of different things going on, including, by the way, the nomination of Warsh at the Fed.

So absolutely part of the feedback loop. But these things are never singular. input, you know, in a world of thousands of macro factor variables. In this case, and you know I'm an ambulance chaser, that's kind of what my gig is, a grave robber, a carpet bagger, you know, all those things. I try to reverse engineer car accidents. Yeah. And kind of the qualitative starting point of that is to locate consensus positions that tend to then crowd in positioning. When trend trades develop, that's usually accompanied or requirement being low volatility

to accumulate those kind of smooth trends. So point being, I think there were a number of market narratives that got a little lazy. You know, for instance, Q4 of last year, as we recall, I think, there was, you know, somewhere three to four months ago, there was still a fair bit of concern with regards to this idea of like labor cracking, you know, and there was still a lot of feedback with regards to liberation day and the policy volatility dynamics. You know, before things really got hot with policy volatility most recently, but, and that was leading to some, you know, some skepticism. And as it relates to kind of the equities world, what did you do? You just stuck in

the stuff that kept working. And that was that same dynamic. We spoke about a number of times last year, you know, that crowding into secular growth, mega cap tech, AI, they just keep growing earnings, profitability, all of those metrics. And they took up this massive part of the market. That's part of this positioning that said, you know, at some point Q4, run hot starts happening. You start seeing data upside surprising again, right? He starts openly and more recently, transitioning into January, talking and openly advocating his weak dollar policy. Europe is playing along. Trump, Trump, right?

So you start having these things where people were really accumulating around effectively a lot of short dollar trades. And when I'm sitting there and I'm seeing like, how do these narratives go wrong? How does this crowding go wrong? And I'm seeing, you know, gold and silver being attributed to this debasement narrative or this de-dollarization narrative. There's credibility in those arguments. but I'm also a skeptic with regards to the flows and the actual, like, singular catalyst of those,

but I start seeing those positioning's really overshoot. We're not talking like linear projections, like bending off the curve type of, you know, price performance of late. I see EM equities crowding. I see cyclical equities because everybody owns secular growth and nobody had enough economic sensitivity. So I start seeing these kind of positioning overshoot. You know that's all the work that we do internally.

And it just said, if the dollar starts agitating and it stops going lower and you start losing these short-term trend windows, and then you get maybe a little bit of, wow, we didn't get the max doveish asset trade, right? Oh, we start seeing upside surprise data when everybody's short dollar and thinking rest of world growth. And actually, US is maybe leading to the upside again and re-accelerating, dollar starts performing. People start monetizing. And you start taking money out of these trades and that turns into a bigger de-risking. Obviously, we want to get into like got to get into everything, including like the software sell-off and its connection to silver, et cetera. You know, it occurs to me, speaking of the software thing, and I'm glad you brought up

Liberation Day. One of the memes of 2025 was just this idea that, well, look, we don't really know what tariffs are going to do. We're not really sure what effect they're going to have on the economy. But one thing we could be pretty sure of is that it's only going to affect the sort of physical goods economy and not the digital economy. And so tariffs in a way sort of seem to embolden the software, maybe crypto digital trade because it's like this stuff is borderless. It's not going to get held up in customs. So let's lean into this.

And so it's interesting to hear, you know, then you get this big reversal. Can we measure it when you talk about like how leverage and how consensus these trades were, whether we're talking about software or whatever? whatever, can we measure how crowded those trades were, how levered these trades were? Absolutely. I mean, I'll look across, you know, we have internal money that we run within QIS businesses where there's billions of dollars behind, you know, very sophisticated, not like naive toy models, from trend to risk parity, you know, vault control, target volatility. So I look at where those gross exposures are.

And like period point blank, grosses were too big. Right. If you look at a snapshot of a model risk parity portfolio, four assets long only using leverage to allocate your volatility, right? Long only in equities, bonds, credit, commodities, different weightings based on different economic scenarios, like very kind of generic risk parity. We're seeing on a, let's say, a five-year look back, 99 spot seven percentile gross exposure. It just so happens, right? You know, Goldman Sachs, and brokerage data with regards to equity hedge fund grosses as of last Friday, 100 percentile on a five-year look back. All in. These are synonymous. Now, gross exposure is not purely a function of trailing, realized volatility, right? Different strategies deploy different leverage.

Different strategies, you know, will try to amplify a market neutral versus a net lien or a directional lien. But by and large, the gross. were too damn big. It's like the guy that used to run from air. And when you see grosses being that big and you see prices bending off the curve and you see the thesis behind it, and this is where I'm pumped to tie in like the Bitcoin read, right? Yeah. If debasement was actually what people are saying it was, right, this idea that in de-dollarization, you know, moving away from Fiat, you know, U.S. policy volatility, U.S. fiscal deficit, which by the way, okay,

Like, same with Europe, same with Japan now. You know, with their little trust moment, you know, Europe has taken the austerity break off. That's a global phenomenon with fiat currency. So like, okay, I can get with that to a certain extent. But like, why didn't Bitcoin participate? If that's what people kind of claim is, you know, Bitcoin's a shapeshifter, as is gold. But, you know, my story and my skepticism with regards to that debasement or that de-dollarization

was the way that Bitcoin absolutely did not participate when it was gold and silver. And look, you know, I sit in an options business. I see just outrageous call skews and demand for upside and people, you know, keep putting on, and keep reloading into these, you know, the call spreads and upside trades in SLV and GLD. The options volumes are massive. It became a speculative, macro tourist retail type of a trade on top of all this. But Bitcoin kept going lower. And I started seeing, one, if people are grabbing, people clearly have this preference for real assets,

you know, physical assets right now. now in this world of debasement, of fiat, of fiscal deficit spend, perpetual issuance, all of those things. Bitcoin is trading like software. It's trading like SaaS, which is going through an existential crisis right now for really justified reasons, especially with regards to valuation, right? And the funny thing is when we were talking about, you know, how AI was actually going to, I was making the point kind of Q4, start of Q4 last year, there's two major tailwinds for equities that become potential headwinds in 2026. They're very well socialized, but they still ring true. Ironically, we kind of got a backdoor on it. One was that the

KAPX spending with regard to AI, you know, was burning your cash. And you're moving through the cash so fast, right? And the cash that made these companies so preferred. So, you know, screening is quality and profitability and all these great things. They're liquid. They're big. You can move in and out of them. They only go higher. And they did a bunch of buybacks. Well, that's the trick, right? So, like, you aggregate kind of like the Mag 7 or, like, maybe the 12 biggest kind of like AI contingent types of players. You're talking like 20 to 30 percent of the overall SP 500 buyback.

So that's a huge point for me because I've made this before. Buybacks are like 7 to 8x, the largest source of demand for equities over the past 15 years. Wow. And it's a vols suppressor. Yep. Right? I mean, you are a passive bid. You're a passive bid under the market on a view-up order, or more importantly, when there is a drawdown, that's when they get most active.

So it's like long gamma. It's like synthetic long-gamma the market. So one, you're burning through your cash and you're no longer doing that. Two, you're burning through your cash and you're no longer buying back stock because this vol shock absorber and passive bit under the market from kind of sort of a quarter to a third of the overall S&Ps buyback that you're then, too, having to take on this new debt, you take on new loans. to a certain extent you're trying to lever the balance sheet. But, you know, more importantly, what does that mean for credit? Credit has been this perpetual kind of valled bleed. Yeah. Because spreads are so tight. Credit just doesn't move. And people have been issuing to fund buybacks as well. Yeah, 100%. I mean, ironically, that's probably a separate podcast. But remember,

we used to kick and scream like, oh, QE, this is crazy. Like this malinvestment, like they're bringing debt for buybacks and they're not doing, you know, R&D and they're not spending capax. They're not building plans. Well, here you go. You know, drugs. said something like this, you know, many years ago in an interview, he's like, actually, when you start to see, you know, the cash turn into CAPEX spend, there's usually kind of a point of agitation. And it's not always in the right direction for equities, let's say, right? And in this case, I think we're starting, obviously you're starting to get that, but the credit point is critical. Because the pace of the CAPEX kind of prisoner dilemma that we're still seeing right now

like yesterday's earnings releases, the magnitude of that supply in the investment grade market is simply going to widen spreads. Tech is a big part of that. Now, this is the punchline, bringing it back to software, bringing it back to Bitcoin. As we were all kind of watching this potential for, you know, the credit markets to become a headwind, not in a shock, not in a freeze, you know, not anything close to a systemic dynamic, just too much. supply with spreads too tight. You're not being compensated for it. So like there was kind of this general shorten credit because guess what? The whole world is watching one in like baby footsteps can Oracle get their funding done. That was the one day we had a sigh of relief this week, by the way.

They got 25 billion of investment grade done plus converts with like 129 billion of demand. The market huge exhale. But guess what? Open AI is still in the background somewhere. We're like kind of sort of in the next two months they got to come up with like anywhere from 100 to 200 billion bucks. And that is still a major point of skepticism. It's not a funny punchline, is it? No, it's not, it doesn't make you feel really good. But here's the thing. As Anthropic has done their thing, I mean, bang, you guys are in it right now with regards

to Claude and the implications of vibe coding and, you know, a whole reset with regards to certain industries and taking out even if it's just the basic level of like legal compliance documentation and we've seen it start to hit bottom lines with regards to earnings mentions and things like that, that is happening so fast. that software is going through this eccentric crisis. And here's the deal. Those dudes are stuffed on restricted shares. They're stuffed on RSUs.

And the concentric circles of VC boys and tech boys and SaaS bros and Bitcoin bros has a lot of overlap. It's all the bees. Boys and bros. It's not a Venn diagram. It's just a circle. It's kind of like straight up overlap. And, you know, in this sense, you can't sell. you're kind of being haircut, 10%

it feels like every week right now with regards to do I have a job, what are the prospects, where is this industry going? And what do you have to sell? And I think that that's why it is trading tick for tick year to date with SaaS software.

And it's quite remarkable. And that to me, as I step back to this large conversation, it's not really about debasement. Right? This is a digital phenomenon. This is a liquidity crunch with regards to the idiosyncratic of that sector really coming under attack.

And by the way, now it's also become a backdoor credit story where it's not simply the spread widening from the hyperscalers. It's people worrying now about private credit, private equity, the BDC guys, which are, you know, sitting on a lot of this stuff with, you know, really tricky evaluations and not a lot of like buffer room on, you know, with growth's covenants and things like that. So, you know, it's become a huge macro story. They kind of did the end around with regards to where we thought it was going to come. But we can handle a couple things at once.

You know, all of a sudden, you get a little bit of a surprise with regards to the Fed chair, dollar stabilizes. You already had people in all these short dollar trades. People start taking money out of, you know, gold upside, silver upside. They start taking off some EM upside. And at that point, like last Thursday, I'm looking at grosses. I'm looking at our CTA trend net exposures and commodities and metals, 98 percentile. I'm looking at our net short dollar.

exposure to zero percentile. Look at our net equities exposure, 97th percentile. I'm saying these are the qualitative things I need to see where profit taking and monetization turns into a risk management exercise. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real,

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7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts. So speaking of selling what you can and not necessarily what you want, one of the reasons that yesterday, February 5th, I guess, was so painful is because we started to see the places, the few places where people were able to hide start to go down. So consumer staples, for instance, it wasn't a big drop.

But still, they'd been surging earlier in the year as people sort of switched out of software and into consumer goods. But now it's not quite clear where they're going to go. So correlation seems to be picking up, right? Like, in a market crash, correlation goes to one. But at the same time, I can't figure out what's going on with implied correlation. Because if I look that up, it's still pretty low. So this is, you know, absolutely topical. and it's something that, you know, we continue to get questions over the last few years, you know, that generic, like, why is VAL so low, right? You know, and low VAL or high VAL is incredibly subjective. It's about the, you know, the VAL service. It's about skew. It's about where the starting point was, where you've moved from, how quickly all, you know, it's art plus science. The part of the problem with VAL in general, certainly being sticky, and I think it comes down to where the money has flowed with regards to the hedge fund space,

is that maybe 10, 15 years ago, the long short universe, you know, running net exposure was, I don't want to say, you know, necessarily dollar for dollar, like axed or necessarily larger than, you know, the multistrats at the time. But like, they ran net and they would lever up positions or they would hedge their longs. And they were, you know, generally speaking, there was buyers volatility with those guys to a certain extent. And if you look back kind of on the sort of, let's say, five at 10 years of dollar flows into the hedge fund space with regards to all new flows, multistrats are conservatively 80 cents of every dollar in. And then if you actually include outflows from other strategies, you're legitimately through one dollar of a. So the point I'm making here, and multi-strats are unbelievable with regards to their low volatility,

with regards to the consistency of their returns, with regards to the discipline, risk management, the tight stops model, the non-correlated returns, which is the whole story why people keep allocating into them, they've proven to be such an absolutely undeniable force, hence all this dollar flow. But think about it like this. We don't see the core ones anymore. And this is like... Core ones. Core ones meaning like when things shock, everything trades up together or down together, right?

And that was kind of the old state of the world. But now what we tend to see, and this is exactly we saw earlier this week when you had, you know, of course financial market returns are not on a normal distribution. But for, you know... I hate people that point that out. It's like something in a pharmaceutical ad. And I was like, hesteris. Yeah. Like you have to include...

it because otherwise someone annoying. Don't take this drug if you're allergic to this drug. Yeah. So the point here being that, you know, you would see kind of like a risk on, a risk off type of core one phenomenon, you know, in past era. Part of what is happening now in my mind, you know, with these, you know, little bit of fragmented, you know, bullet points, you know, triangulating here is the fact that the dollars and the leverage controlled by the market neutral.

multi-stratt equity space are so overwhelming in the sense that when you get, when you are forced to de-risk or de-gross, you know, the tilts go wrong, that you have the offsetting short on the other end, right? It's not just you stop out of your net longs or your crowded longs, right? It's that you're also, you know, theoretically an equal dollar amount on the short side being covered. And what ends up happening on like the two big downs? down days this week. It was like 250 stocks were up, 250 stocks were down. So you're getting this like

reverse dispersion. Yeah. Right. Very much the opposite of what last year was, which is this crazy concentration of like top decile, bottom decile, just spread 99th percentile, like a 10 year basis, which feeds into why people are loaded into momentum, right? The higher stuff keeps going higher. It's human nature. This is like Fama in French. This is factor alpha, you know, commoditize alpha. So these things, I think, due to this kind of where the dollar flows have been, the market neutrality, the fact that there's always this offset against it, you're not getting core shocks. And when you don't get core shocks necessarily, at least initially, because Vol did not really react until just like two days ago. And yesterday, Volva got a little tricky too. But, you know,

point being, you need correlation as an input to higher Vol to like sustain. And you're just not getting that. You still have low core. Now the trick is, to your point, Tracy, is very, is very very interesting. You mentioned the defensives, right? The reversal that we saw when people said, look, I'm too much exposure in secular growth, mega cap tech, AI, which gives you a lot of momentum exposure, a lot of, you know, unintended kind of exposures that when people said, I need more economic sensitivity, I'm taking up my cyclicality, right? The three best performing sectors kind of year to date for most of the year have been like energy, materials, industrials. Right. Right. Stuff that people have kind of been underweighted for the longest time.

in the absence of a hot economic cycle, you know. But also, too, when you started seeing defenses joining that rotation, like, it was this massive value overgrowth trade. And that's the three, four, five Z score types of moves that you're talking about where people didn't have that stuff on and your longs go against you and your shorts go against you. And that is also amplifying, you know, these kind of moves. Because look, it's not just the market neutrals. Like, they're not boogeyman here.

They're unbelievable. They barely lose money ever on a monthly basis. they just have very disciplined tight stops to get out of these liens and tilts hard and fast, unemotionally. And but guess what? It's, you know, retail. It's all the story stocks, it's all these themes. That's why I pointed out for the last two years of the boom and leveraged ETFs, like 82% of the assets in leveraged ETFs,

which act like synthetic negative gamma, right? The higher you go, the more you have to buy at the end of the day, the lower you go, the more you have to sell, you know, massive pool of AUM now because of like retail, you know, tilted speculative leverage behavior are tied into that concentric circle of AI mega cap tech semis you know disruptor crypto so we're super overweighted super over index to that stuff which amplifies when you have the tight market neutral stopouts you know with all that leverage with all that a UM you know to get their factors right because at the end of the day those guys are not trying to make factor bets there's scenarios where you maybe run even the little net if there's like a big

you know, economic re-acceleration trade or something like that. But generally speaking, the idea is like, we don't want beta to the S&P. That's the point. That's why people pay us. Stop comparing us to S&P returns. So all these things are part of this like backdrop plus the narrative overshoots to me. That was fantastic. And it's very intuitive. I mean, there's already good theoretical ideas for thinking that the multistrads were huge drivers of all this. And then when you add in the fact that the staples, like the sort of underloved areas or energy materials or the winners, very intuitive to your point. On software, you know, no one really knows, obviously, the degree

to which AI is going to obliterate these business, obvious these businesses, no one really knows. But like from the perspective, you mentioned the tight stops that each manager has within these firms. Can you give us like some sense of how much is it? Like, look, I just want to keep my job here. And this is the ugly stuff that's going on. And so I'm just going to sell now and ask questions later. Like, how much does that play into on a week like this? Well, we're talking about wide swaths of strategies and active, you know, systematic versus, you know, feel directional trading. And, you know, you know, tight stops are, you know, typically that, you know, down 2% kind of down 1.5% maybe even in some cases. But, you know, that's why it is managed so microscopically and you're extracting these, you know, basis points of alpha in your longs and shorts.

and then, you know, using leverage. Like, you know, a market neutral is probably 200, 300% gross, by and large. Like, long short was always kind of like 50 net 150 gross, something to that extent. But they're just not as big of a player anymore. But, you know, that's the trick here. Like when I start seeing, I always love the systematic stuff because it's so tied in. It looks a lot like the options market. And market structure, by and large, feeds momentum now, right?

You're not scaling out of positions the more they trend. you're loading into them. So like whether it's target volatility or CTA or you assign an exposure target, you know, a leverage target. And if the volatility is five and your vol target is 10, you got to lever that two times or 12, you know, like, and that is ironically, the lower vol goes, the more you need to add leverage onto that position, right, to match your target. And that's why that's the problem.

We create crashes because all of modern. Anybody who's like on a var model is actually a momentum trader, right? You have to de-leverage when vol goes higher by and large. Now, of course, if you have a high conviction bet and vol goes higher, that's actually going to be part of your potential return profile. You know, that's great. And God knows people have learned to like, you know, sell rich vol and buy, you know, by dips.

It's become conditioned. These time horizons are like hours at this point. But like... Some people have made an entire curve. out of doing it once. Yeah, for sure. And I mean, you got to have a titanium stomach. Like, I've been talking to a buddy all week at a multi, you know, this absolute madman.

And there's many others like him. You know, he's been shorting silver the last two weeks. I'm like, how you've been sleeping, dude? You know, he's like a little better now. But, you know, there's... The silver moves are unbelievable. Yesterday was like 16. I mean, these...

I've seen two people I've spoken to say that the silver move specifically may have been one of the craziest moves that they've seen their entire career. It's crowding. plus the trend, plus the optionality, plus the leverage DTF, you know, the optionality is leverage in and of itself. And it's high beta, you know, as is to regular, you know, big brother gold. So these moves are, you know, wild, but we know that in the era of the speculative era, you know, people seek the movement. That's the opportunity. You are not going to retire 4% in cash.

You know, that's just the way this world works right now. Now, you know, do you necessarily need to be like shorting vall or things like that? That's not the way to do this. But people yolo, it's the financial nihilism that we've spoken about many, many times. You seek out the movement. You want the stuff that's moving. And generally speaking, and this is where it's so interesting, like you try to press moves by and large, certainly like the retail cohort.

The world is not built the vast majority of the time for mean reversion anymore. Value is mean reversion. Like something is rich, something is cheap. It's this counter kind of like a gamma type of flow, you know, long gamma type flow. We feed moves now because of the risk management dynamics and especially too, just like market structure, how much trend there is built into the market, leverage DTFs, options, things like that, you know, particularly the way that people tend to use them, which is tend to feed into prevailing moves. So all of this kind of changes the behavior and the expected outcomes where, you know, momentum has been, you know, this remarkable factor. for, you know, academic history studying these things because of like greed and fear and things like that. And moves can extend longer than you think just because a trade is crowded doesn't mean it's the wrong trade.

But when you start to layer in, as I said, the positioning data, the overall leverage data, the kind of the conversational quality of how many people are buying into this. But then you see, you know, some like divots here and there and like the stories. That doesn't actually make sense. And actually, this thing is starting to stall. Now I got people taking money out of this thing. and I got trend this loaded into it, this is going to unwind hard. And I sent that note Thursday, you know, started unwinding hard. Friday, doors got blown off.

And guess what? It waterfall. So other crowded trades go, Kospi. Everybody was like, you know, no-brainer into that. Japanese bank longs, right, which are a short JGB proxy, macro tourism. Like, people start coming out of these trades because they're non-core, but they were high-sharp. Right. So flows before pros, but now the pros are chasing flows, and that's hurting the bros.

That's good. That's incredible. Thanks. Okay. So you just touched on this. But what stops the bleed? I think you're, you know, you're getting certainly some relief here. I mean, look, people will say, you know, at some point on a smaller gross, you don't really have to do anymore. You don't have to reach for hedges, which get dealer's short gamma, right? Because you're, you don't, you know, have as much exposure anymore. That's the first step. People then have to monetize their hedges. So we all of these are. You take off your hedges or you take off your directional stuff, whether you're shorting futures against the moves or you're buying downside puts. You're buying VIX calls. You start to unwind that and guess what? Like now the dealer's got to take off their stuff and you got Delta to buy. And then some people say, oh, everybody's taking their hedges off around the street and market's starting to rally off these lows. I'm going to buy some zero DTE calls and, you know, then we create more delta to buy. We're back to the races. And VAL starts, you know, VAL starts rolling over and guess what? Then the systematic, the VAL supply people come out of the woodwork and they feel comfortable to come back in, lean into this. And that's de facto by the dip, right? So this is the cycle in the world that we live in. There's too many assets. This is a final point that may be tangential here. But with regards to how these dynamics end, it's not necessarily about like back in the day is like Warren Buffett steps in, you know, provides some, you know, financing line or, you know, Toma Bravo stepping in doing some like deal.

Satoshi Nakamoto is calling up Warren Buffett. Yeah, I don't know if that's the case. it sucks. Offering 10% of a... It's more about, you know, these flows kind of stopping the bleeding, but, you know, this is the other thing, too. Like, the VAL flows are so important with regards to the, like, the hedge unwinds and creating the turn in the market, the inflection, especially with the conditioning by the dips, sell the VAL rip, that, like, fixed income has been trash for five years since the tightening cycle, since, you know, poor inflation is still running too hot, right? So people said, look, this thing doesn't work for me. It's not helping my portfolio.

my 6040 is awful, right? But I can't just be long equities, but I need some yield. I'm a boomer. I'm old. I need some, you know, some enhancement, but I want equities upside. And we've talked about this so many times. And it's true, you know, because the assets keep growing. All these yield enhancement vehicles, all these income vehicles, they're selling equity optionality. So your long underlying equities, you cap that upside to a certain extent, but you're generating yield by selling options. That's the new fixed income. And those flows matter because those flows that when the kind of the coast is clear, they just come in and it's just vagus supply. And it just smashes all back down.

Thank you so much for coming on at short notice. It's seven in the morning. Seven in the morning. Thank you very much. Midday. Yeah. Your day's over, right? Lots more is produced by Dashel Bennett, Kermann Rodriguez, and Kail Brooks.

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