The Compound and Friends - Hedging Tail Risk

Episode Date: February 18, 2022

On episode 34 of The Compound & Friends, Michael Batnick, Carleton English, Kris Sidial, and Downtown Josh Brown discuss: earnings season, market liquidity, inflation risk declining, regulating short-sellers, and much more! This episode is brought to you by Masterworks. Visit https://masterworks.art/compound to skip the 10,000 person waitlist. See disclaimer at mw-art.co/x. Check out the latest in financial blogger fashion at: https://www.idontshop.com Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

It's always funny, like, my neighbor, who, like, every once in a while, like, he figured out what I do. So he'll talk to me about Oxygen. I'm like, do you listen to The Compound? And I'm like, oh, my God. Like, that's, like. I'm going on. Oh, yeah. All right.

He's going to love this episode. Yeah, like, just, like, it's when it's, like, people that are, like, totally outside of your work realm. That's what blows you away, right? Yeah. Okay. Wait, where do you, your neighbor where? Where do you live? Astoria.

Okay. Awesome. Michael lived in Astoria before moving to long island okay so yeah you guys have the good restaurants i love astoria how long have you been there five years but yeah five years okay i wish i could have afforded to buy in 2017 when i moved to the neighborhood because i cannot afford to buy in that neighborhood. So does everyone now. Yeah. Who knew? Who knew?

While the rest of the city was having like huge drops in, you know, like real estate prices, Astoria booked a record condo sale, like $1.6 million for a two-bedroom condo in, I mean, it's a new building. Who is buying in Astoria now? It's young people, right? Yeah, young families. Like, you know, so if you're kind of like early 30s and you want your first piece or you have like a kid where you're like, okay, we'll stay here until the kid has to go to school,

you're probably buying in Astoria. That's what Mike did. And then I think he did Brooklyn for a few years and then ended up in the big house. The kids get bigger and their toys get bigger. The door gets bigger. Everything starts to close in eventually. Alright, let's get everybody's sound checked.

We'll get Chris sound checked. Anybody reporting after the bell today? Nobody cares about you. Shannon Shikosho bought this for us. Oh, nice. I like it. Oh, that's where it came from. Yeah.

That's not necessary. I feel like I'm very close to Josh. Yeah, get the f*** out of here. I can't. My mic's right here. All right, listen.

I was talking Carlton this. So I went to an ENT this morning. That's where I was because I'm snoring so I'm snoring at this point to the point of divorce.

So we were in. So awful. We were in Savannah and Charleston and like she was just like hitting me with pillows. And I woke up the next day. I'm like, you know what? I don't believe you that it's as bad as you say. So does she record you? Dude, it's like an animal.

Can I do this into the mic? Do I want this out there? Yeah. Oh. You're wild. You're an animal. You're an animal. Wait, this is my greatest hits, but there's one that's worse.

It's like a wild animal. You sound like a wildebeest. It's so like deep. It's deep. It's sonorous. You can't It's deep It's sonorous Yeah You can't sleep through that No

No but you could get nasal strips though She must be so mad Nasal strips Just remove your nose You think I didn't try that yet? Listen I might need surgery But

The good news is It's not not fixable Right? So he's like How much are you drinking? I'm like Well that night I had wine at dinner But I wasn't like

I wasn't like pounding tequila, although I have done that too. But it's every night like that. So it's not about that. He's like, no, here's what it's about. I looked at you. You have a narrow passageway that you breathe through. Okay. And then you have a drink and then your tongue is lazy.

Oh, yeah, yeah. And then your tongue lays on the palate and vibrates as air tries to pass to and fro. So I'm like, all right, fix it. He's like, well, it doesn't work that way. We have to do sleep study. We have to do, he's like a whole thing. I've always wanted to do a sleep study because I hear like you just get to go

to like this really peaceful place. No, it's at home. They send you home with equipment. Okay. It goes on your fingertip. It's a watch like a wristband and then that connects to something that you sticker that you put right at the base of your throat.

I remember years ago it was like, I didn't do it but it's like you get to go to a place You get to go to Tom Brady's cryo chamber. You get to go to Michael Jackson's sarcophagus. No, so they sent me home with this equipment which I'll probably lose or break. But then they get a reading from that of how often are you moving? What position are you sleeping in?

How, I guess, hard it is for air to pass through. Yeah. And then from there, they say what you have to do. So I don't know why I'm telling this story. What? I'm telling this story. What? I'm not sure. But the important part,

the hard part is admitting you have a problem. Which I now fully admit. Now that you have the evidence, so you can't... Yeah. I mean, that's one of the worst things I've ever heard. It should be like a sound effect for this show, though. Yes. Put my mic on! You want to hit one?

Do one Alright How we doing on time? Ready to go? Getting close? Do you have any sleeping problems that you want to get off your chest before we start? No man, thank god I'm good in that department I sleep so good

You know, that's a good point Are you being told that you're good in that department? That's actually a good point. Not to get personal, but it's so – No, no, that's actually a good point. I would say from past experience – Your mom tells you that it's fine? From past experience, I have not had any complaints there.

So I would imagine that I'm solid. How old are you, 22? Oh, man. I wish I was there. How old are you? 29. All right. So give it a few years.

A few more pandemics and a few more years. We'll see if you're still good in that department. I think 29 is like the sweet spot of life. 29 is great. I wish I was 29. I feel old. No. I'm not going to lie. Do you? Compared to who? Yeah, I don't know. Compared to some of the other people, I feel like damn. In this room, you're a child,

sir. Compared to 29-year-olds, I feel old. I hurt my back sneezing. Like hurt my back. Fell down to the ground. Do you have a hernia or something? You had like a real thing. Yeah, I was paralyzed. I sneezed and like my entire body locked up and I slowly fell to the ground and I couldn't move.

Are people hitting you with E-Trade baby stuff all week because of the Super Bowl? No. No? I don't check my mentions. Just Tony Stick. Did you see any of those jokes? No, I didn't. So it was my joke originally.

I said, you want to feel old now? You want to feel old? This is what the E-Trade baby looks like now. And I put a picture of Batnick. And then the E-Trade baby came out of retirement this weekend. I actually missed that commercial. Was it the actual baby? Like grown up?

The baby's in the woods fishing, like hiding out. And they I guess Morgan Stanley people land in a helicopter and they're like, we need you back. And he's like, I'm not coming back. And they're like, you don't understand. People are investing based on memes. He's like, all right, I'm in. And he gets on the helicopter.

Not bad. No, it was not bad. It was so weird seeing E-Trade by Morgan Stanley, though, because you think about what E-Trade was in the late 90s. It was like the anti-Morgan Stanley. I could have told you it would end that way. Really? Because anything that starts out as where the anti-blank eventually loses.

The Fed's going to buy Robinhood. Dude, do you know? Hasn't it already, effectively? You know who bought Wealthfront? No. UBS. Could you think of a bigger antithesis to what wealthfront said they were doing all the silicon valley dudes that like were customers of of wealthfront are now customers of ubs it's pretty hilarious no not what they

signed up for right so all of these like um startups where they're gonna like disrupt and we're gonna take over wall street no you going to get bought and harvested for organs. Disrupt until we have our exit. And then written off, like eventually, because none of this is worth anything. So I found that one ironic. So yeah, I guess Morgan Stanley buying E-Trade was not totally a shock.

I wouldn't have guessed that it would have been them. What do you mean none of this is worth anything? They were bought by $1.4 billion. I know, but dude, do you know what E-Trade was worth at its peak? Yeah, yeah. Not what? Was it $40 billion? It probably got bought at 20% of its prior value.

Of its peak value. Yeah. Yeah. So that's a recurring theme. All right, are we getting going? Coming in with three claps. Do it. Guys, don't get nervous.

This is John. John is the director. Very professional. The Compound and Friends, episode 34. Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any

investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Masterworks Dunk Duncan, I bet you didn't know, because I didn't know, that the total wealth held in the art is estimated to be $1.7 trillion and Deloitte projects it to grow by $900 billion by 2026. Are you taking the over or the under? I'll take the over. You'll take the over. Okay. All right. Well, Masterworks, they're buying a lot of art.

The company's already over $1 billion at evaluation. I am making a small contribution. I've got a few paintings, not to brag. If you are interested in learning about how you can invest in a Basquiat, I've got – what do I have? I have – who's that? Do I have a Picasso? Yeah, you have a Picasso. You have a Christine Binns.

I do. I do. Last night, I was watching Midnight in Paris. You ever see that movie? Yeah, great movie. Great movie. The guy in Billions plays Pablo Picasso. Right.

Great movie. All right, anyway, where do people go, Duncan, to learn more? They go to masterworks.art.com. masterworks.art.com to learn more. And please see the disclaimer at masterworks.io slash disclaimer. Shannon got this for us. Is that from her? Yeah.

I love her. All right. So first of all, we have two guests of the show today that are new guests of the show. And I'm really excited about this because they're both incredibly smart and sleep beautifully from all accounts. So first things first, I want to welcome to the show Carlton English. Carlton, welcome. So great to have you. Thank you. See how I multitask. All right. I'm going to introduce you as a Wall Street reporter for Barron's. That's your title? Yep. Okay. That's me. And you have been at New York Post, not page six,

but like covering finance for New York Post. Covering finance for New York Post, but it was fun the few times I did get to write for page six. Some overlap. Yes. Every once in a while they start buying bottles and acting out, and then you have to migrate over. And they also have big divorces.

That's right. That's right. That's true too. And Chris Sidial? Yeah. All right. Chris Sidial. Chris Sidial is here. And Chris is the co-CIO of the Ambrose Group. And Chris, welcome to the show.

Are you nervous? Are you excited? No, I'm excited to be here. You pumped up? Yeah. Okay. And I just learned today that you're from Long Island also. Yeah.

Yeah, correct. Long Island boy. We're neighbors. Yeah. Not much. All right. How do you like being on Long Island? I tell this to my partners all the time. I cannot boy. We're neighbors. Yeah. Pretty much. All right. How do you like being on Long Island? I tell this to my partners all the time.

I cannot see myself living anywhere else. Seriously. Are you working mostly remote or are you coming into the city or what are you doing? Yeah. No, no. So we have an office in Melville. Okay, sure. The corporate center in Melville.

That's easy. Yeah. Do you go to Blackstone for steak? Yeah, that's funny. That's my ship right there. I took a few clients there for sure. Yeah. Yeah.

Great spot to take clients. Absolutely. Because they do sushi there too. Yeah. So you never there for sure. Yeah, great spot to take clients. Absolutely. Because they do sushi there too. Yeah. So you never know what people are going to be in the mood for. So, all right, guys, we're in the middle of an earnings season, and this is where I want to start. So a lot of companies are beating earnings,

but by a much slimmer margin than in the post-pandemic period. I'm just going to go to this from Savita from B of A. Quote, a solid but slimmer 5% beat 358 S&P 500 companies as of last week, which was 83% of all the earnings have reported. It's a 5% beat. And I think 60% of companies beat both on both sales and earnings per share. That's above the historical average of 39%. But again, it's slowing.

And to me, the thing that stands out the most is how many high profile blowups there have been as a result of like Facebook meta obviously comes to mind, but it's probably 50 others that we could all think of. And then the other thing that I've noticed is that companies beating earnings, the stock goes down anyway. Maybe it goes down less than what otherwise would have happened. I'm not an analyst, but I was reading through Shopify's quarter,

looking at the numbers and I'm like, I'm waiting for it. Why was the stock down 18% after earnings and another 11% today? Oh, my God. It was 900 two days ago. It's now 655. It's unbelievable the air that's just coming out of these names. Yeah, it's amazing.

I mean, a little bit of, it's not even bad news. It's just not great euphoric news. Yeah. You know, we know that there's going to be a slowdown in some of these tech names. One, because of what the Fed's doing. And two, we're moving to the post-pandemic economy. But if investors aren't hearing that we're going to have this massive growth that we had, which was not real growth. I mean, it was kind of – we knew it was euphoric growth.

They retreat. It's insanity. I haven't seen it before like this. There's like no valuation support for these companies. And so if they're supposed to earn 50 cents and they earn 49 cents, the stock is worth half of what it was. Revenue was up 41% year over year, 57% for the year. But, but they said revenue growth for 2022 will be lower than the current 57%. So obviously they were already priced for the, for the growth and not the valuations

on the way down, but they're still high. They're still like really high, even after getting cut in half twice. Chris, you're a vol trader. This should be, to some extent, a really good environment for your strategy or for people that are looking to put your strategy on. What do you think about what's going on right now? Absolutely. I think from a positioning standpoint,

you're seeing a lot of opportunity, right? So what you're seeing actually take place under the hood is a lot of aggressive movement, right? And that's never a good thing when people are moving very aggressively, whether it's bullish or bearish, right? That quick liquidity pulling, it's showing you that people are not too sure as to what's really going to happen, right? So that's what we were talking about before we got on, right? It's like you're seeing stocks rally 20, 30% up, right? And then drop 20, 30% down and over the course of 24 hours, right? So that sense of unsurety

and kind of also what you're talking about before with some of the positioning that's driven from the option standpoint, that's causing this dynamic where you're having this influx of large moves, right? It's moving very rapidly both ways. And I think, you know, as a vol trader, it leads to a really interesting market

where we're kind of embracing this in a sense, as opposed to saying, oh, no, you know, we kind of don't want it. Now, this is plays right into your hands. The repricings are happening in 10 minutes that ordinarily I feel like would have been like at least a week. Like people would sell stocks off on earnings. Yes. But it's very rare that they would take a third of a company's market cap off overnight. Or two thirds. Or two thirds in some cases. And this is not taking place over weeks. It's like taking place the next day. Is that like new based on what you've seen? Yeah. So one of the reasons why we kind of came out and started this fund is because of the dynamic of

the dealer gamma hedging, right? So we have to address the elephant in the room. And the fact is, is that three times the amount of short-dated options are being traded in this environment prior to two years ago. Who's doing that? So it's just, it's a flux of institutional, right? I think I sent over that chart of, you know, the large institutions. We got all your charts. We're going to throw that stuff up in a minute.

Then you also have the fact that there's a large influx from retail, right? And the fact that everybody's so center-focused on short short dated options specifically leads to the, you know, quote, unquote, dealer gamma hedging, right? So what you're seeing short dated weekly options you're talking about, and also monthlies. Okay, right. So what does that mean? What is dealer gamma hedging mean? Yeah, absolutely. So I'll explain. So I was about to explain it, but I'm gonna give you I'm gonna give you a crack at it. Yeah. So let's say if an individual comes out, right, and buys a call option, what ends up happening is the dealer is now short the call option. And in order to hedge to be delta neutral, right, so post dot frank, you're not allowed

to inventory a certain amount of risk, right? So you have to carry this sort of delta neutral type of book. You need to come in and buy stock, right? So now if the stock continues to go up from the fact that the dealer has now bought stock, then that means that they now need to reprice and buy more stock. Right. So as the deltas increase, they're synthetically driving the price higher. And then you have people that are seeing this and they're coming in chasing. Right. And you have a dynamic as to what took place during January of last year with GameStop and AMC. And what people fail to understand is it works to the downside as well.

Right. So when you have a bunch of people- Is that what we're seeing now? That process in reverse? Yes. You're seeing two-way action both ways, right? In a very thin market, right? So the liquidity is thin to begin with. And then you have the factor as to this is transpiring. And what makes the whole bubble kind of so much worse is the fact that the majority of these option makers, sorry, these option participants are driven by four main market makers. Right. So it's almost like there's only four real hands that are controlling the majority of listed options in the U.S. equities. What should there be? What are there used to be?

Well, I think, you know, over the course of the years, it's sort of been kind of monopolized by these four main groups. Who are they? I'll come out, right? Citadel. The military. Hollywood. Right. Illuminati.

Tell us the truth, damn it. Yeah. So right. And the interesting part about it is that when things go risk off, everybody acts in the capacity to pull liquidity. Right. So the job of a market maker is, okay, when things are risk off, you come in and you provide liquidity, right?

But what you're seeing now is, no, when things go risk off, they're actually jumping off screens and pulling liquidity. So they're not really market makers in the traditional sense. They're market makers when it's good to be a market maker. So when they step out, who steps in? That's the problem.

Batnick. That's the problem. That's when Batnick steps in. But let me give you guys a quick example real fast, right? So people could actually understand steps in? That's the problem. That's the problem. That's what Batnick steps in. But let me give you guys a quick example real fast, right? So people could actually understand from a banking standpoint, how impactful this is. Because prior to Dodd-Frank, if you were a trader on the desk at a large institution and you were long Apple, you were able to say, you know, if the stock's down 10, 15%, it's okay. I'll take down more. Right?

And that's what led to these. For the house. Exactly. Exactly. Right? I'll take down more. It's fine. But now, post-Dodd-Frank, because of, you know, all the regulatory actions that transpired,

you can no longer do that. So what will happen is the risk manager will tap the trader on the shoulder and say, hey, you need to make sure that you're hedged by the end of the night. And what that causes is the fact that the quote unquote market maker has to go out into the listed market now and say, shit, I have to pull liquidity. Right. So I have to make sure I'm hedged. So what am I doing?

I'm grabbing globs of liquidity. But before I could have just said, give me more Apple. I can't do that. I have to sell Apple. Right. And it's leading to these large reflexes. This is how you get a stock. Like, let me use PayPal as an example.

Oh, my God. What a shit show. So PayPal six months ago is a $300 billion market cap. And then it gets cut in half, falls to 180. And then they report earnings. And the earnings are a disappointment. It goes from 180. What is it, $100?

$105. It's unbelievable. It was $210 in June. So it gets cut in half? It's unbelievable. It was 210 in June. So it gets cut in half a second time after already having gotten cut in half. And there's – I think it's – I don't even think it's had an up week since the year – since six months ago. Like I think every week it's lower. And people look at that and it's like, wait a minute. Did Wall Street really think that this company was worth 60 percent more than it's worth today, 70 percent more?

Maybe. But do they really think it's worth 70 percent less right now? I don't know. I just – all I see is just mechanical selling. It doesn't appear that anyone is expressing an actual opinion on the stock. Correct. And I think my view is that this market is so focused. Well, so positional based, right? Everything is positional based as opposed to prior markets where people look at value

and think about value, right? And that's why I think the most important dynamic in this market is sidestepping the exogenous events, right? When you catch people off sides, like a March of 2020, right? February 2020, when everybody was short a ton of variance and volatility across the board. And it was like the straw that broke the camel's back with this, you know, COVID headline. Then it's like people are deleveraging all in the same manner at the same time. Yeah. Everyone all at once. Yeah. Okay. Wait, hold on. Before we move off, I have a

question. What about the 25 million retail accounts that came in? They're not providing any liquidity. I know they're like small in size, but there's a lot of them. Right. But when you think about the job of a liquidity provider, right, and you think about how retail trades, they don't trade in that manner as sophisticated, right? They're all liquidity. They don't trade counter cyclically. Exactly. They trade in the direction of the market.

Exactly. Yeah. So they're adding fuel to the fire on any day the Dow is down 500. It's likely that retail accounts in the aggregate are net sellers, right? But not index buyers. Not index buyers. We're talking about like, like people trading their own money. Correct. They're either on margin or whatever, but they're probably not stepping in and saying, let me provide liquidity to the market. Yeah. And that would make sense too, right? Because index buyers you you think, are not traditionally retail, right? Retail are more so focused on single stock where they're just like, oh, you know, I think-

Josh, what's this Bank of America chart we're looking at? Let me see. So this is back to earnings. Just making the point that fourth quarter is still tracking weaker than- Here it is up on the big screen. So this is earnings per share revisions in post-COVID quarters. The level at 100 represents where we started. You can see that revisions have been happening on the way up every quarter.

This quarter is in red. And there is barely any uptick in revisions for future earnings. And that maybe, listen, maybe the whole Wall Street will be wrong on, you know, this whole consensus will be wrong. But that does not bode well for next quarter or the quarter after the fact that so few companies are giving analysts reason to raise their expectation. One bright spot for earnings, though, Carlton, and I know you cover this, has been the banks. So you did Morgan Stanley, you did Goldman Sachs. What's your takeaway from what the banks are saying? Because they seem to be

positioned well for the current environment. Yeah, I think, you know, looking mostly at the big banks, definitely well positioned for a rising rate environment, more so when you're looking at, you know, Bank of America and Wells Fargo, they're the pure money center banks. It's going to be interesting when you look at more the investment banking types like your Goldman Sachs and Morgan Stanley. The volatility that we've seen in recent weeks probably will help trading desks. And that was a big fear going into this year is, OK, we're going to see a tamp down in volatility compared to what we saw in 2020, understandably. What's going to happen with trading? The other thing, pipelines- This feels worse than 2020.

It kind of does because for 2020, March 2020, we knew why. And it happened like fast. It was over. It happened so fast. It was over. It's like, okay, yeah, the economy's shutting down. This makes sense. But right now we're like, we're trying to price in, what is it going to be? Four rate hikes, seven rate hikes. It's a 50 basis point hike in the midst of it? You got geopolitical stuff going on. Will there be war? Exactly. And especially trying to map out what is going on between Russia and Ukraine in the US. I don't think we have a good understanding of the dynamics and the history at play there. So even trying to parse through the market reaction to that, what it means for trading, what it means for banks is kind of tough. But going back to the

U.S. banks, if you're looking purely at a rate hiking environment, continued economic recovery, loan growth returning, overall, things are pretty good. You are going to see higher costs. All the banks said that. I mean, for months, we're hearing, you know, record bonuses, record bonuses. I mean, what's killing me is like entry-level analysts coming in at like 100,000. I mean, I've been in the workforce about 15 years. I could not imagine. How many resumes have you sent out this week to Bank of America? I am not saying that here.

I love my job. We're going to edit that out, right, John? John, can we throw up this green chart? So talking about like people not feeling uneasy. So this chart is from Calibus. And what it's showing is the percentage of bears plus neutral. So I guess this is AI sentiment. And what's notable about this current spike is that it's happening outside of a 10% drop in the S&P 500.

And I think there's two real simple reasons for this. One is inflation. People are scared, understandably so. They don't like prices keep going up. Number two is that all the stocks that they're owning, aside from the indexes, are blowing up. And so you're seeing like this really weird dynamic where people are like freaked the F out,

even though the indexes are looking like pretty okay. Well, if Apple and Microsoft were acting more like most stocks, this would be a very different environment. You agree with that? Yeah. Yeah. I agree with that. Yeah.

I think like people have these single stock blowups that are extraordinary and they affect their sentiment regardless of what the S&P has done. Where is the S&P from a year to date? I don't know. It's 8% off its highs-ish. Is it 8%? I don't know. I mean, it's not that bad. It's not as bad as it feels like right now. But the stocks that everyone's

trading are like cut at half and worse. So let's talk about liquidity. Chris, Josh and I were actually talking about this exact chart two weeks ago on What Are Your Thoughts? And what we're looking at is from the FT, the size of a trade in E-mini S&P 500 futures, that can be completed at the live quoted bid or offer price. And the liquidity right now, just based on this chart alone, looks really bad. Can you explain? I'm not really sure what we're looking at. I understand it says worst liquidity. That's not good. But what am I looking at? Yeah. So, I mean, it's pretty much literally what it kind of says, right? But explain it, it's the, yeah, it's the depth of the order book, right? So let's say, you know, you have your, your offer side and your bid side,

right? And what this is telling you is generally historically, if you were looking to go through the order book, right, the top level of the order book, you'd be able to get filled on bigger lots. Whereas what's happening now is, you know, now you may only be able to get filled. I'm just making this number up right on two lots. And then that difference in you getting filled in the two lots to the next level is actually pretty wide. Right. So if you have a stock that let's say, you know, the offer is 100. Right. There's only one lot there at 100. And then the next one is that like, let's say 105.

Right. So that's pretty wide of a difference. So what are the implications of that, though? It's gaps. Right. Exactly. Right. So when you think about people a difference. So what are the implications of that, though? It's gaps. Right. Exactly. Right. It's creating gaps. So when you think about liquidity, right, and it plays exactly into what we're seeing in this environment is that it cuts both ways. It's because we've seen these really fast rallies that skip up, right, specifically like overnight rallies and things of that sort, because the depth of the order book has been kind of thin, specifically on the single stock side, because people have been more so uneasy to say, well, we're not too sure, right? So you don't have that same amount of flow. And a lot of things that we track on our end from a liquidity

standpoint have been reflecting this as well. Obviously, a couple of those things are proprietary, but we're looking at this and we're saying, liquidity is definitely not what people are making it out to be because it's almost like a false sense of security. Who's missing? Where should that liquidity be coming from in a normal – because we still have stimulus going on. I know it's less than it was, but it's still zero-rate policy until March. And there still seems to be plenty of liquidity when you look at like how much money people have in their bank accounts,

how much cash on corporate balance sheets. So where is this liquidity supposed to be coming from? So I don't think people are necessarily as bearish as what the general consensus is. And I'll explain, right? So over the last two weeks, you've seen a lot of fund inflow into some of the larger equity ETFs.

Right. And you've seen a large outflow out of the money markets, followed by, you know, kind of the way how we track the ATSs, which are the dark pools. A lot of buying in the dark pools necessarily, specifically over the last week and a half. So the way we're looking at it is, although sentiment may feel like this from a positioning standpoint, it feels like people are kind of going in and saying, OK, we want to buy the dip. But that same type of aggressive, OK, everybody's flocking in to buy the dip. I don't think we're seeing that. Right. So I think we're seeing people kind of nibble, if that makes sense. Right.

So from a trading perspective, it's like, all right, we're going to take a shot here. We're going to take a shot there. Specifically, you know, I don't think I can say that, you know, large institutions have stepped away from their equity exposure. We're going from massively low rates to now very low rates. Does that really impact the TINA effect? And I would argue that it doesn't, right? Because what institution is going to switch their mandate to say that, okay, we no longer want equity exposure?

Okay, so then what's your actual inflation hedge? Because it's actually inflation hedge, right? Because it's actually equities, right? So from a structural standpoint, I still think that bid remains in equities. And the longer that the market digests this news, it's going to be more of a bullish case, right? So you think this is like healthy, what we're seeing? We're getting rid of the excess and indices aren't crashing? Honestly, yeah, I do. I do. Now, I don't want to say- So like the most egregiously overvalued stocks are losing all their market cap, but the overall market is hanging in there. And you think

that that's I mean, I obviously would agree. But yeah. And, you know, I think what's surprising to us is how resilient the market has been. And look, we're all guys. Right. So we want to see the big vol moves. Right. And the way how we kind of looked at the market, we thought if you would have some of the unwinding and some of the large tech in a time where the majority of the market is exposed to large tech, that it would be more implications on the overall index. We thought, you know, realistically, the overall index would come down more. If you just look at 500 charts of US large cap stocks, you would say, holy shit, the S&P has to be off 40% or more. Yeah, right. Holy shit.

The S&P has to be off 40% or more. Right. Yeah. I mean, it feels that way. And if you even watch an hour of TV, Fox Business or CNBC, the impression that you get if you didn't see the ticker is that, like, we're in a crash. Yeah. Because every story is, and so and so just, like, NVIDIA had one of the best quarters in the history of companies having quarters. I think the stock went down to 8% today. Yeah.

I have no idea why other than the phenomenon that you were describing, positioning. Yeah. You know, when I was a prop trader, I was under a senior guy and he had this really good saying. And it brings me back to this because every day we're seeing negative headlines come out, right? Even to a point, all the geopolitical tensions, right? With war and everything. And it used to go like this. You would say, if you were short a stock waiting on negative news and the negative news hits

and the stock does not go down, you get out immediately because there's only one direction for it to go. And this market feels like that where it's absorbing and digesting. But the other way. Right. It's going to go up. Right. Right.

Because, you know, if you're waiting for some sort of negative news to come out on a name, right, let's just say, oh, you know, some SEC investigation or whatnot hits, stock doesn't go down, you know, everybody's getting squeezed out. So it feels like the market is sort of digesting this. And to us, at least, that's more of a bullish case as as long as this kind of plays in the sideway action. right, and you're not having that exogenous type of event that leads to everybody deleveraging, that's more of a healthier look at the market overall. But if somebody wanted to argue that we're in a bear market, like I wouldn't argue with them.

Even though the indices are like 8%, 10%, 12% off their all-time highs, I'm looking at Target, for example. Like, and there's just every stock seems to be getting blown up. Yeah, Yeah. You know, and from the vol side, right. If you're trading dispersion, you know, you're, you're doing very well, right. Dispersion in tech has been working extremely well because of the fact that this is taking place, but from the overall health of the market and, you know, we're generally the guys that are saying like, Hey, this market is not too healthy, even though it's up because you have those

fast deleveraging. But the fact that the market has been able to hang around with all those names down, it's giving us more of a view to say, well, this is probably not really a bad thing. But there are a couple of other things coming down the road. Is there any sense of how long this sort of shakeout in the markets would last? Is this like a process that is just about getting through this quarter? Or is it playing out throughout the year, do you think? Well, that's another thing because I feel like if we see a very fast move down, then it's going to be met with that sort of panic. But the longer –

Yeah, I wanted to ask what you're asking, which is like how could things go wrong? So far, we're saying it's orderly, mostly because the 10 largest stocks in America haven't blown up yet. Like Berkshire Hathaway is near highs. The banks are pretty good. They're not that big anymore, but they're big enough. Apple and Microsoft seem fine. Alphabet and Amazon are okay. But I'm looking at these things right now.

They don't look very good. What is keeping the market up? So the S&P is 10% off its highs, not even. What is keeping – It's Apple and Microsoft. Here's Microsoft. It looks like shit. Yeah yeah but like pull the chart back no do it now no apple's still hanging up there but man yeah like how does this how does this uh phenomenon that you're describing go really wrong not that you think it will but like what would that look like yeah again you

know i think for us we're focused more so on the exogenous events, the shock events that gets positioning offsides. Right. If you give the market a chance to digest these sorts of things, I don't think that it's going to really catch anybody offsides. Right. So in our opinion, the inflationary narrative, right, the rate hike narrative, the market's digesting all those things. And you're seeing from an intraday level when you see negative headlines come out on that, the moves are lesser and lesser. Right. So from our standpoint, there's two big factors where we think people should be looking at. One, the rate of change of the balance sheet reduction and how that impacts inter-deal lending and really the ability for the PBs to extend credit to their larger clients. Right. So like an example.

Prime brokers. Yeah, exactly. Right. The Archegos. Right. The Bill Wangs and the Archegos. Prior markets, what you're able to see is, OK, you know, they're down on one or two names. They're able to come to the PB and be like, hey, guys, can you put it on the arm?

You know, we're good clients, yada, yada. You know, going forward, because of that balance sheet reduction, you'll no longer see that, right? So some of the PBs will have to let their larger clients fall to the side, which can be very problematic. There are a lot more Archegos. Archegos. So there are a lot more of those situations out there. Guys, it's Archeg there a lot more Archegos? Archegos. Are there a lot more of those situations out there? Guys, it's Archegos. It's Archegos.

I speak Latin. Are there a lot more Bill Wangs out there doing crazy shit, or is that more of a one-off? No, absolutely. I mean, you have to think about it like this. We were in a market— All right, start naming them. Who are they? You're going to get me sued out of it.

Charlie Munger? I'll be right back. I have to put on some hedging trades. That's good. That's good. No, no, but we've been in a market that has just been going straight up, right? And it's almost like the gambler effect. When you're at a roulette table, you're drunk at a casino and you're winning.

Kelty. Like Mike. When you're winning, what are you doing? You're putting more bets to play, right? You're putting more bets to play. You're using more margin. Because you're hot. Right, exactly. And we've seen putting more bets to play, right? You're putting more bets to play. You're using more margin. Right, because you're hot. Right, exactly. And we've seen that

for the last decade, right? So now you're definitely going to have a lot of those guys that were, you know, trading at two times margin, whatever, when the market's pulling back. And some of that, you are seeing some of that deleveraging right now, right? And I think the secondary component outside of- Something tells me Carlton's going to have a lot of stories to write. Yes, I'm just looking for me over here. The longer this continues, the less likely you are to take a vacation. Right. I think the other thing is the chance of a policy mistake, right? Because the Fed is acting very aggressively,

you know, four-rate hikes, six-rate hikes, whatever. There is a chance of that. It's almost like a boxer in the corner that's just starting to swing when they're unsure about it. Is that even though considered an exogenous shock anymore, given how- How can it be? It's not, it's nothing. The call is coming from inside the house.

What can they do to shock the markets? That's what I'm saying. We don't know. That would be a tail risk. 100 basis points. What if they take away its negative? Say we're going the other way. That would be a tail risk event.

What's this chart? These ETFs have options. What's going on here? Who put this in the doc? Oh, that was definitely- Yeah, yeah. That was the chart from OptiBur. Right. That's just expressing the fact that- Average daily notional amount traded for options on top 25 US listed ETFs. So these are the biggest ETFs. How many options are being bought and sold based on their price? Right. And if you look at the notional, right? I mean, it's very clear that that has tripled since 2020.

So when you think about going back to what we're saying, dealer gamma hedging and the implications of it, it's only gotten stronger over the course of the years. So, but doesn't the awareness, everybody knows what's going on. Doesn't like this change the dynamic of markets? I mean, clearly it is. Yeah, absolutely. But look, if guys are kind of pinned to a strike or, you know, have to deleverage, it doesn't matter who knows about it. It's just going to happen. And that's why you've seen over the last year all these OPEXs, right, the option expiration weeks, have been so volatile.

Because everybody knows it, but it still doesn't change the fact that dealers need to get their book in line. You could see the train coming, but it's still going to come. I know you're not giving advice to anybody, but what advice would you give to, like to just an average investor who's like, stocks are moving so fast. What do I do? How do I protect myself? Should I protect myself? Yeah, this is me talking our book a little bit, right, as a vol guy. He's about to sell you the hedge of a lifetime.

Grab a pen. Yeah, you know, this is this is really what we tell, you know, the clients is, look, you're in a market that is very reflexive. And there's no doubt about it that U.S. equities naturally have this upward drift. We've seen it over the last two decades. Right. But that doesn't mean that you need to be irresponsible with your way. Right. You should think about using that type of, you know, exposure in equities and then also having some sort of protectionary hedge to the downside. So you have an asymmetric payoff so that, look, if markets drop 20 percent, you have some sort of hedge. Right. We're not. And people get confused because when they think of all guys, they think, oh, you guys are perma bears. You want the market to go down. That's like furthest from the truth, because naturally we're quants and we understand that this shit's going up. Right.

But we're just trying to explain you can do this in a responsible way, right? We're not soccer players. I'm a terrible value guy, right? I'll just be straightforward with you. But I understand the mathematics enough to understand that, hey, if you pair that with something that acts as a protectionary hedge, you have a very complete portfolio. Do you position this as hedge or insurance? Because – and a lot of people use those terms interchangeably. And a lot of people use those terms interchangeably, but the way that funds like you – I understand what you're doing is unique, but like just the concept of tail risk hedging, to me, it always felt more like insurance. In other words, you put a portion of the portfolio into that and you say to yourself, this is probably going to bleed.

Maybe yours bleeds less than somebody else's. be going to bleed. Maybe yours bleeds less than somebody else's, but just in general, if you're always buying puts and the market is not always crashing, like you have to kind of almost think of that as like, Hey, my house doesn't burn down every week, but I still want to have insurance on it for the one in a million shot that it could. Now a stock market crash is not one in a million. It's much more frequent than that. But I've always thought of that kind of thing as insurance. Am I thinking about it wrong conceptually? So this is the beautiful picture here. You guys are obviously money managers, right?

So let's say you allocate a part to a guy who's running a long-only equity fund, right? And let's say you're checking his book, right? And you realize, wait a sec, every Wednesday at 1 o'clock, this guy buys Apple. No matter what. Every Wednesday, like for the course of a year, you let it play out. You guys are going to say, give me my money back because you're an idiot, right? I can do that. I can code an algorithm to do that. I can get somebody to do that. There is no alpha in doing that. Real risk business is exactly like that. It's so niche that nobody is providing pure alpha in doing so. And I think what we're trying to say is, look, the same way how we have, you know, ran desks as traders, right, on the prop side. You can structure a book where you don't have to bleed on out, you know, X amount every single year and you can still get that exposure.

The same way how a guy is able to generate alpha by understanding the dynamics as I should be buying Apple here, I should be selling Apple here. That's really the value add that comes into it. And we're so against that like solutions based tail risk where it's like, OK, every Wednesday we're buying an SPX put and rolling it and rolling it and rolling it and rolling it. Right. The dogmatic approach that doesn't generate alpha that doesn't work specifically in this market. Right. So that's something there are ETFs now that can do that for you. Exactly. And you either have a strong opinion about whether or not that will work or you don't. Exactly.

Do people try to use tail risk hedging in a tactical way? Meaning in a year like 2020, probably they say to themselves, all right, I don't think the market's going to crash 30% again anytime soon, given what the Fed is doing. Then in a market like this, we just talked about earnings revisions starting to go flat. We talked about like the Fed now getting very, very aggressive or at least talking like they're going to. Maybe tactically, this is when you put on that tail risk strategy. Like, do you talk to people that are thinking that way? For sure.

There's a lot of the sophisticated clients that move in that fashion, right? They'll up their allocation. So they don't always want you, but like this might be the moment that they really want you. For sure. There's times, and you're getting that feel,

you're getting that sentiment that people are looking at volatility as an asset class to say, okay, you know, in 2020, correlations broke down, bonds didn't work, gold didn't work, obviously crypto didn't work, right? Equities were down,

everything was down except for fall, right? So I should be thinking about using fall as some sort of protectionary hedge to the overall book. What's the number of U.S. 40-act funds that use options? I was surprised by this. This is mutual funds, closed-end funds, and ETFs that have options as part of how they invest. I had no idea it was this prevalent or rising this rapidly. What's the story? Are you surprised by this?

A little bit, but I've actually heard that a lot of these 40-act funds are also using options as kind of like an income-producing vehicle, too, at a time when it is tough to find yield in parts of the market. So seeing that this- I don't know if their shareholders know that. I doubt- If I didn't know that. Yeah, I doubt their shareholders know it because I doubt- If I didn't know that. Yeah, I doubt their shareholders know it because I only recently became aware of that too.

So it doesn't surprise me a ton to see it. But when you look at the 20-year history, I did not expect it to be that steep. Well, one of the most popular strategies, at least in terms of flows- These buy-write, hot again. Like these covered call strategies. These covered call ETFs, like QILD, for example. It's the NASDAQ 100 covered call strategies, these covered call ETFs, like QYLD, for example,

it's the NASDAQ 100 covered call. This thing's got $6.5 billion in it. So what are they doing? They buy the NASDAQ, they sell front month calls? They're basically, they're giving income to investors, which investors are willing to pay for as opposed to just producing the income on their own by selling a portion of their portfolio every month. So if you look at this versus the NDX, or you look at like a covered call SPY versus just the SPY, there's like a pretty meat material gap, but people are willing to pay for convenience. And I kind of get it. They're like, listen, I understand this might not be an optimal strategy, but it's easy. It's giving me money every single month,

even if it's my own principle. So I think it's a genius product. I think from a product standpoint, I get that. From a trader standpoint. It must make you sick. Right. Exactly. Because I'm just like, that's not how alpha is generated. That's not how money is made.

The systematic vol selling is literally what. Look at this chart. This is the total assets under management for QIL day. Yeah. You should have started one of those instead. What are you doing? If I could. Why are you going to make it so complicated? If I could invest in the AUM of this chart, I would. Like this is only going up. People love this. People love this. Especially if we have a negative year for the NASDAQ, which hasn't

happened in a while. But I think that's a byproduct of the fact of where rates are, right? Because rates have been pinned to the ground and everybody's like, okay, you know, we need some sort of yield. And, you know, as I was telling you guys before, I was part of the exotic derivatives trading desk at BMO. And that was a big reason why structured products are ballooning in the U.S. They overtook the. What's an exotic derivative by the definition of like what you were trading? Yes. So, OK, so it'll be like a. CDS or.

No, it'd be like a worst of auto callable that's tied to like three names. Right. So it's I'll kind of break it down, make it very easy for you guys. It'll be like it'll be a basket of Tesla, Amazon and Facebook. Right. And it will be struck at a 75 percent barrier. So pretty much what this means is like you're short of put. So it means as long as as none of these three names names drop 25%, you're going to collect the 12%

coupon. It's like a structured product for retail, but way more sophisticated. Exactly. Right. So with the RAs- It's a three-team parlay. Yeah. That's a good way to look at it. Yeah. Three-team parlay. Okay. You wrote about inflation risk declining. So I want to read what you wrote and then just like get your take on it. You're saying the inflationary narrative and rate hike is no longer the true hazard. The market is slowly digesting the narrative and adapting to it. I somewhat agree with that.

The bond market definitely is. Rate of balance sheet reduction impacting inter-dealer lending and margin extension of larger clients is more relevant along with one-sided. All right, so you feel like if we can get through this period, however long it lasts, there's like a lot of potential benefit to everyone being on the wrong side again. Yeah, I think this market is completely different from the market that we've seen in the 70s and the 80s because there is a structural bid that exists from the growth of passive investing,

from the fact that so many institutions, large institutions have mandates because of the TINA effect. Target date funds. Exactly, right? Target date funds, all those sorts of things. 401k, automatic deposits from robo advice. Exactly.

It's big numbers when you add them all together. There is a structural bid. And then when you talk about the options exposure and the reflexivity from the dealer gamma hedging, there's a structural bid that is keeping this market propped as opposed to the market in the 70s and the 80s. So what I'm saying is that as long as we are able to avoid those exogenous type of quote-unquote tail risk events

that come out of nowhere, right, like a bombing or something like that. Pete Davidson getting his own show. Those sorts of dynamics where people are offside because what ends up happening is like everybody is running the same type of risk metric where it's like, okay, volatility increases, market goes down X amount, we're deleveraging. That's their like auto liquidation system

with a lot of these large institutions. As long as you can avoid that, structurally, the ball keeps going. And everybody's dancing to the tune because of the structural bid that remains. But we can't avoid that forever. There will be, unfortunately, an exogenous event at some point. Exactly. You sound like you're ready for Real Vision. Thank you.

This is unsustainable. What are these two charts? Global equity fund flows? Do we want to throw this one up? What are we looking at here? Yeah, I think that's kind of – This is that counterbalance to everybody deleveraging. This is the money that you're saying coming in regardless.

Right. So I think over the last two weeks, we've definitely been seeing this narrative, right? So you're seeing a lot of fund inflow and then the next chart is fund outflow out of the money markets. And then from what we've been seeing, a lot of buying in the ATSs, which is the dark. It doesn't Chris, there doesn't appear to be any trend here. This really appears like in any given week, this can go all the way in either direction. Right. Like if you were to try to draw a trend line, there's nothing there. For sure. That's why I think that, you know, you can't you have to take some of these things with a grain of salt and understand the environment as to how you're applying them.

Right. And understanding, OK, there is some sort of outflow in the money markets. Right. And there is a large inflow into, you know, some of the equity funds. And then, you know, there's big buying in through the ATSs and the dark pools. It's like painting a picture for you. But you can't you can't anticipate exogenous events. Right. Looks like how do you like position for those spikes? Exactly. That's that's the beautiful thing. Right. How do you position for those spikes?

Exactly. That's the beautiful thing, right? And this is the alpha generator and the value add is our ability to go out and say the same way how a value investor would look at a stock and be like, this is extremely cheap for the environment that we're in and what could potentially happen. We look at the probability assumption and say the same thing from a fall dynamic. So you don't need to predict. You just need to look at the market dynamics. It pays to take risk now.

Exactly. Based on the pricing that we're able to get. Right. And when you're trading tails, right, it's so important to focus on where you're able to get filled in the price. What does that look like, though? Like how many different positions would you say you're laying down when you see those sorts of things? Or is that not the right way to look at it? Yeah. I mean, you know, we have a ton of different line items, right? It could be across single name vol, it could be across, you know, some VIX variants, the VIX ETPs, right? Using these very type of complex structures to replicate that payoff profile. Because there's two things that our investors really care about. One is, look, when shit hits the fan, are we getting paid out in a big way, right? So are

we inventorying? Are we positioning for a very big payday when it occurs? And the second thing is, are you mitigating the bleed that comes with it, right? So are you not burning away the capital as we go down? And if you're balancing those two things effectively, right, we're doing our job. And something that we like to tell the clients is like, look, when everything's going to shit, we're not moving at that point, right?

We're doing our job when the market is grinding higher and you guys are making money on the rest of your things. Right. That's when we have to make sure, OK, we balancing the book. Are we putting on exposure where we should be? Right. That's the hard work when things are going crazy. It kind of eases up at that point. Your life is easier because things are directionally going. And yeah, right. So so you feel as though the consensus on inflation is now severe enough where that's no longer the big risk is what you're saying?

I personally believe equity markets are digesting it. I think from a credit standpoint, you may have a little bit bigger of a factor. And I know I'm very well aware of how attached the credit market is to the equity market during real moments of market stress. But I'm also understanding as to where rates are and the structural bid that exists. I think personally that if we can get past this, which I think we will in a prolonged time, I think people will look back on this.

We have the equivalent of six rate hikes at the short end already. And spreads are not blowing out. The credit spreads are not. And when you look at like the banks that reported, I know they're not like reserving heavily for that at this point, but their balance sheets are amazing still, right? Oh, incredibly. And I mean, also, you have to factor in the reserves that they already put in place, you know, as a result of Cecil and as a result of, you know, the pandemic. So, I mean, they don't have to reserve more at this point.

They probably took too much already. Yeah. They can't drop much more down to the bottom line than they already have either. But they probably don't feel this crunch that all of a sudden they have to get ready for. Non-financial companies loaded up on debt in 2020, 2021. They just feasted because rates were so low. So they're well capitalized. If rates do rise, they don't necessarily need to borrow anyway. Exactly.

I mean, so from a banking perspective, I mean, they're well positioned. There might be some choppiness, you know, just as there always is when you're dealing with economic issues and, you know, the market kind of freaks out and overreacts. But the stability and the capital of the banks is very strong now. Oh, I want to ask you this. So stability and the capital of the banks is very strong now. Oh, I want to ask you this. So, uh, Weisenthal yesterday did a chart showing the two-year yield versus Marcus and all these like high yield savings, high yield, LOL, these savings accounts. And they didn't, it didn't keep up. So the two-year yield is now giving you more than Marcus. And on the other side, Robinhood is, and I'm sure all the other companies are raising their margin

requirements or raising their margin rates because rates are going up. So margin rates are going up. Savings account rates are not going up. It has been a terrible time to be a saver for, I don't know, last 10, 12 – Most of our adult lives. Yeah, most of our adult lives. Basically, once we started making money that we could save, it became a terrible time to be a saver. It became a terrible time to be a saver.

But I think that has been an interesting challenge when you look at some of these online banks because the promise of them was, hey, there's no branches. We don't have all these costs, so we will always be able to pay you 1%, 2%. I mean, I remember I tweeted this a while ago. I was watching an episode of Welcome Back, Cotter, where they put their school fund savings in the bank because they got 6% in like the 70s or like that just blew my mind. But anyway, going back, like, unfortunately, for a lot of reasons, the online savings accounts have not been able to maintain that promise of paying, you know, deposit rates of 2%. I think when Marcus came out in order to attract deposits, like every new high yield savingsield savings does, they're willing to lose money. Yep.

Right? So they will subsidize rates. If rates were at half a percent, they'll be at 60 or 70 basis points, whatever it is. And now that they've got deposits, it's reversed because nobody is really leaving anyway. That's the stickiest money. You're not leaving a savings account for an additional 20 basis points. So it sucks for the consumer. If somebody does, that's probably a bad customer account. Oh, totally. Somebody is jumping for an extra 20 basis points. So it sucks for the consumer. If somebody does, that's probably a bad customer account.

Oh, totally. Somebody's jumping for an extra 20 basis points elsewhere. You're thrilled to lose them. Goldman was not going to make money off that person. Yeah. Right. I want to get into this last thing on inflation. We better hope it's coming down or we better hope it's at least priced in by the market.

This is average PE by inflation levels. They're not great. Now I understand that rates are low, which is probably maybe more supportive than prior periods of high inflation, but, uh, in a six to 8% inflation regime historically, which is kind of where we are now, PE ratio of 11, six next chart. We have definitely had multiple compression on that trailing 12 month P.E. Beautiful. Started started 21 at 23 and now it's 20. But this is a long way from what did I say? 11. Yeah, 11.6. This is a long way from the historical average when inflation has been this high. So like I think that inflation might have peaked, but. So let's just say that we're not going to see 7% prints anymore.

And we only see, I'm using air quotes, 6%, and then 5%. Like that's still fucking high. Right. So like it could decelerate and still suck. Yeah. And I mean, it's also, again, it's something we have not seen at inflationary levels that we have not seen since at least before the last financial crisis. Before I was born, literally.

Yeah, before I was born also. I'm like, oh, yeah, 40 years. I'm under 40. I was around for that. I was born in 77. I could tell you it was murder. Those early 80s inflation rates. You couldn't get pacifiers.

It was terrible. You should have seen what we were paying for strollers. Carlton, what's going on with Janice? Oh, my God. Well, Nelson Peltz wants to fix it, basically. So Janice Henderson, you remember, Peltz wants – Wait, let's back up. Yeah.

You cover activists for Barron's. Yes. You do a piece on activists every week? Yep. Okay. There's a lot of activity right now. There is. Okay.

And a few things have made the case for that. So 2020, you did not see a lot of activist activity because any activist would look like a total asshole. You know, even I kind of was like, all right, not this year. Yeah. Like not this year. Like if we had stuff in the works, we're not going to like push forward too hard. Like if we already have a foot in the door, we'll kind of nudge a little bit. So 2020, you didn't see much. 2021, you also sold valuations stretched so much. So you wouldn't see an activist wanting to go in with stocks. Yeah, they're fine. Everybody's making money. Exactly. And well,

we really think you can improve margins. If you're like a Robinhood investor, you're like, I don't care. Like I've made, you know, 10, 20 percent on this. But now, you know, we're starting to see I mean, what we were just talking about, we're starting to see more volatility. We're starting to see more normalized markets. So we are seeing a lot of these activist campaigns that were either halted, put on pause, whatever, emerging. In the case of Janus, you know, we saw Nelson Peltz go into rival Invesco and Janus at the same time. I don't even know this. Do you know, I didn't even know this was publicly traded until I read your article. Janus is a public asset. What's the market cap? Sorry, we'll edit in you answering later.

But it's not big. No, it is not big. Why is Nelson Peltz interested in turning around asset managers? It's $5.5 billion. Yeah. So when you look at asset managers, one, Peltz has experience here. He was in like Mason ages ago. And basically, it's an issue of consolidation.

You've got like BlackRock. I mean, OK, I'm flubbing on like the market cap of Janus at, what did you say? Five and a half. All right. What is BlackRock now? And how much is BlackRock? I mean, so how is Janus going to compete with- It can't.

Yeah. So you do need some sort of consolidation in the industry. Everyone thought that he'd be trying to marry Janus and Invesco together. Feeling that, you've got to stem one client outflows because clients are saying, you know, I'm paying you whatever fee. I'm not getting the returns. I could go into an iShares account and still make money. So they've got to boost their margins.

They got to stem the client outflows. But I guess how does Nelson Peltz, how did he turn around in Invesco? Because I'm trying to picture what a corporation can do to fix the returns of the funds. It seems like it would be like you would just be guessing. You know what I mean by that? Like if you have a guy that's doing active management for you at the flagship fund, you could fire him and bring in someone new, but you don't know if that person's going to work out. Yeah, for sure. I think it's a cost question, right? You know, it's not so much, I mean, one, yes, you do want to improve performance, but it's also how many managers do you have? How outdated is your technology? You know, like where can we streamline? How many

funds are we administering that nobody's investing in? Exactly. Yeah. Okay. So he fixed Invesco, like it was successful. Yeah. He was pretty good with Invesco. He was on the board for a little more than a year. Returns improved. And also he agrees with what the board strategy is now. You know, like he felt aligned. Janus has trailed a little bit and they are looking for a new CEO. So you just know that Nelson Feltz wants a seat at the table for that decision. You know how they could fix Janus? How? Bill Gross? No. Tell her a strategy.

There you go. I'm just saying. Are you filling out your resume? I might have to. I'm just saying. All right. What are the other big activist campaigns that you're writing about right now? Well, so we had quite a few. So we had Seychem, which is going after U.S. foods.

This is an interesting one just because when you think about what, you know, the consumer space has been doing for the last two years as everyone was talking up. So now to have an activist in that sort of space, pretty interesting. What's U.S. foods? Food suppliers. Supply supermarkets. Yeah.

So then you also have Dollar Tree. That one always seems to attract activist attention. There's a lot of talk where it is no longer Dollar Tree. It's becoming $1.20, $1.25 tree. What about Peloton? Peloton, that – so this is a really interesting one because Peloton is still tightly controlled. And even though they had the CEO change – He owns a lot of the company.

He basically controls the company and he stays on as executive chairman. So you have an activist that's going in saying, hey, we want you to sell your company. Well, you have the guy that's saying, no, I don't want to do that. No, thanks. I think what you get with this one, though, is a lot more headline stress for the company. You know, it's not necessarily that I think he'll be running a board situation, you know, a proxy fighter or anything like that. I don't know that the activists would be able to force the sale of the company. But you think about the Peloton headlines we've had, you know, just are they halting production of bikes? Did they overproduce the insiders selling?

How about TV shows using the product to kill popular characters? Yes. Multiple shows. By the way, they gave up that entire pop, that like Amazon rumor pop. It was up like 30% on the day. They gave it all back. Completely gave it up. I mean, I would think Apple would be the more natural acquirer just because all of the Apple hardware is so in tune with what Peloton does.

But there was a really interesting article. So you were just talking about the TV show. So you had the Sex and the City reboot where I don't think I'm spoiling anything. Mr. Big died after riding on the Peloton. The show is unwatchable. Are you watching it? I mean, can we talk about this here? No, it was terrible.

It was terrible. I can't let it go how bad it is. Yeah, it was just everything that was interesting about the characters. No, no, actually not. But I'm interested to hear what you guys have to say. Did you watch the original? No. You were too young for that shit.

Yeah, I was too young. It was like in its heyday in like 99, 2000. You weren't watching that. But it was iconic, right? It was important it was important in many ways but this i don't know what this is it was i'm not saying that the characters in the original were geniuses but they had a worldliness to them i mean they were new yorkers they knew their way around and i mean now you see these characters just like running around

not knowing how to interact in a world of like it's like fucking woke grandmothers oh my god it was like trying so hard to ingratiate themselves with like every community under the sun all in like 22 minutes well i guess 30 minutes but i i yeah duncan duncan throw the show up i want to watch it right now yeah duncan just queue up three episodes we're not busy tonight i'll pass uh all right so i forgot where we were oh just, just real quick, I just want to say. One of the things when that happened, the Sex and the City thing, Big Dies, I think it was Simeon Stiegel, Wall Street analyst, he said the problem with

Peloton is it's losing its own narrative. Yeah. And that was the thing. I can't believe they used it in Boba Fett. That was crazy that they were on Peloton in that last scene. What do you mean by losing its narrative? It just, you know, whether or not there was an agreement beforehand, hey, we want to use your bike, or I don't know whether those details came through.

But when a television show is driving the story of your company, you should be the one telling the story of your company. It's rarely a good thing. Yeah. So, and the fact that it happened twice, I mean, I don't want to give another spoiler for- What was the other show it was on? Billions.

Oh, that's right. Yeah. Really? No, I know. And the fact that they're not selling any more bikes, that's not great either. Not great either. I mean, I think they kind of tapped the market for it. How many people can have one in their house?

If you didn't buy one yet why are you going to or why wouldn't you buy a used one exactly yeah for sure you're a peloton guy no not at all ride a real bike like a man like me i really really dislike the whole peloton group i you know what when they hurt i'm sorry they just wait why do you hate about peloton no because look when when covid hit you had guys thinking that they were American Olympic cyclists. All the Bloomberg trading chat. Why didn't you talk about them? It's right here.

Every trading chat that I was in, like, Bloomberg was just lighting up with, Peloton, Peloton, are you on it this time? Are you on it this time? And it's like, dude, you're sitting there eating like five pizzas in Chinese, and then you're talking about, oh, yeah. 20-minute session. You know, I never got the social aspect of riding like meet me at no no yeah working out i don't want to talk to anyone i don't want anyone

look like that's the time like i don't even always listen to music when i work out because that's just my like i ride my peloton on mute literally can we just can we tell the truth though how much of this was about guys my age falling in love with the Peloton instructors. Oh, I mean. Because that's all my group chats are, you know, oh, Josie's on. Like, there's a lot of that shit going on. No, it sounds, whenever I hear guys talking about it, it's always like, I've got a date with, and I can't remember the name. But I mean, it does have that feel of like, oh, well, I'm seeing so-and-so tonight. Yeah, there's like a little bit, there's like, I've been trapped in my house with my wife,

who I love. But, you know, Cassandra is running a hip-hop spin class. And she's encouraging you and telling you you're doing great. Yeah, this chick is in my ear telling me how great I am. And what's the subscription? $8. How much does it cost? I think – is it still $40?

It used to be $40. I feel like that's an easy thing to pay for when you can't spend money anywhere else. Yeah. And maybe now that dynamic changes. I don't know. Maybe it changes a little bit. So you never did a Peloton? No.

No. What did you do? Climb trees? What did you do physically during the pandemic? I run a little bit. Okay. Walk around. Okay.

Skateboard occasionally. Skateboard during the pandemic. Okay. All right. I wanted to ask you guys about block trades. This is big in the news this week and we'll get through this and we'll go into favorites. You look like you have a hot day tonight by the way. Yeah, really?

You do? I appreciate that. Looking good, man. Yeah, go for a stroll if you don't. Block trades take place when a company or a large shareholder wants to sell a lot of stock at once. Unloading it in small dribs could take weeks and might drive down the price. So banks are asked to bid for the entire block. They typically submit bids at a discount to the market price.

Winning banks then offer the shares to clients at a slight premium to the agreed price. So basically, we have more block trades than ever because we have more IPOs and larger IPOs than ever. And inevitably, there are going to be big blocks of stock for sale. And it's really hard to sell a million shares of something in 500 share increments, especially given the liquidity stuff that you were talking about. So then the question becomes like, you have Wall Street banks who are charged with finding buyers. And inevitably in that process, they're going to talk about how much is for sale and people will have the opportunity

to front run. And then you might have people deliberately carrying that out. Yeah. I mean, I think it's a challenge because on the banks, it's kind of they have to do some level. I would almost say like due due diligence in getting pricing for these things. You know, so they have to talk to talk to people to say this is coming. Yeah, they have – and I mean whether it's like you're going in and saying in the specific or, hey, so I've got a block of a fitness company that I –

Yeah. But you've got to get price information. Hypothetically, if I were to have – if I were to have 50,000 shares of a certain fitness connected fitness company I can't tell you which one could be anything could be anything what would you pay for that like that's kind of the process yeah exactly and I mean it has to be and I mean yes it would be wonderful if markets were totally fair and you know average people would get the same information but they're not and they're never going to be. Block trades, $70 billion worth of this type of transaction in 2021, which was a five-year high.

Morgan Stanley was the most active, leading more than a quarter of the deals by value. They earned $300 million in fees. The E-Trade baby only does block trades. Does this show up in any of the liquidity stuff that you look at? I think, you know, the way how we look at, not specifically this, right? But you could tell when chunky orders are coming through on screens, right? You talk with guys through different chats, right? You have an understanding, okay, this much is getting done. It gets done at the same time every day, right?

So it's like things like that you understand. I'm actually more surprised that people were not knowledgeable of this, right? From a trading standpoint or if you're a trader on a desk, you understand that these sorts of things go on all the time. They've been going on for years. I think what people weren't knowledgeable about was the process and what a gray area it is to have a trader talking to a select group of elite investors about big amounts of stock that are coming. And I think that part of it is probably what captured people's attention. Yeah. And then the investigations where they say like – I think there's a guy at Morgan

Stanley that they took his computer or something, right? So what do you think is going to happen with all this? Somebody will pay a fine and we'll move on? I think so because it's – I mean it has to be – I mean it feels icky. I mean talking about it, you're like, oh, it totally sounds like insider trading or whatever. But it does have to be a way that markets work. I mean like how can you simply sell millions of shares at once without causing – Well, you can't.

Like block trades have been around since the 70s. Yeah. So this is a longstanding thing. But what's changed again is you have a lot of new participants in the market who don't know anything. And they're like, wait, what's going on? Because they are sitting in these stocks that are being block sold and just getting hammered. And they can't believe that there's somebody that knew and they didn't. But I mean, there's other ways you might not know in the specific sense.

But, you know, you think about a company goes public, you know who the early shareholders are, you know, like maybe there's like a six month lockup or something. And not that everyone liquidates at six months, but these are things that as an investor, some level of that information is available to you. So if, you know, like the early holders of a company typically have like, I don't know, like a five, six, seven year time horizon, you should always be thinking, hey, what if they liquidate? What, how would they know? Right. And we know the lockup. We we know the lockup periods and when they expire on the direct listings, we don't. True. There is no there is no.

Right. So and there are some very big direct listing stocks trading in the market where you would just have no way to guess when when insiders might want to sell big chunks of stock. Last thing on this. Another investigation. Short sellers, federal process, this is WSJ, federal prosecutors are investigating whether short sellers conspired to drive down prices by sharing damaging reports ahead of time and engaging in illegal trading tactics. So basically the justice department is taking hardware and communications from some very prominent, famous short sellers and trying to see whether or not they're talking to each other prior to releasing a report and or trading ahead.

This is another thing where like – Color me shocked. Doesn't everybody know that this is going on? Exactly. What's your take on this? Color me shocked. Like I'm surprised. You mean to tell me there's gambling in this establishment right right right and and look if you if you speak with other

guys that are in the business right that speak with other guys in the business you're bound to catch wind of these things right there's been numerous times where you know you hear at you know somewhere through the grapevine look this guy is interested in doing this he's putting out this piece at this time it's not on dinner. It's not on Bloomberg Messenger. What exactly is illegal, though? What are they being charged for? Is it spoofing? They're not being charged.

They're just being investigated. What are they being investigated for? Spoofing is illegal. So pretty much they're kind of like front-running their work, right, and letting people know ahead of time that, look, I'm putting out this report. Okay, that's illegal.

And they're co-mingling. Let's say Carlton runs a hedge fund and she's bullish on a stock. And then we have lunch. We go for sushi and she lets us know, I'm about to put out research that says XYZ company is 30% undervalued. And then we trade. There's nothing wrong with – we're not colluding. That's the point, right?

From a moral – when you look at this, right? So let's say if you had a bunch of aliens looking on the planet and they were looking at what's transpiring. What is morally wrong about that? Because when you think about how sell-side research gets put, like, isn't it the same dynamic, right?

Well, no, no. Sell-side research, the analyst can't tip off his hedge fund friends that he's about to upgrade a stock. No, but you talk with people, right? And say like, no, no. Sell side research, the analyst can't tip off his hedge fund friends that he's about to upgrade a stock. No, but you talk with people, right? And say like, look, I'm bullish on this name. Okay, I could be bearish on this name, right? Research is a bad example. I think the better example is like an ideas dinner.

And it's like 12 hedge funds and they're just informally like I'm bullish on this stock. It's not illegal to say that you're bullish on something before you buy it. From a moral standpoint, I kind of view the same things. Yeah. Right. I really don't see, you know, what the real big issue is. Well, so the spoofing part, though, is illegal. And I think this is probably what they're really getting at.

They're trying to figure out if right before these research reports come out, somebody is sending fake sell orders to an exchange to generate activity that makes the market nervous and then the report hits. But isn't it also true that you would have to do that to such an insane degree? I don't know. I mean, so there's an example where like it wouldn't just be like, oh, I'm putting forth, you know, like making it look like I'm doing like one trading lot or something. I mean, you would have to be kind of going back and forth, back and forth, back and forth to kind of like create this.

How hard is to do what Carlton's talking about? What is a fake trade? Go to any prop desk in the world. Go to any prop desk in the world. And if you look hard enough, you'll see that. You'll see that activity? in the world. And if you look hard enough, you'll see that. You'll see that activity all the time. Every trader understands,

especially like big market makers that control that name, understand how to do this things. I will move in order. I will shift in order. I'll move something like, is that painting the tape, but to the downside, I paint painting the tape historically is like one of my funds. Biggest holdings is camp is Campbell Soup. The quarter is about to close. I think I can get this thing 50 cents higher, and that might have a material impact on my alpha versus the benchmark. And so I'm going to paint the tape with buy orders that I might unwind tomorrow. This is the opposite.

Right. Let me give you guys an example. Let's say if you are a trader, right, where you were just talking about that other dynamic with the block trades right you now have to buy 50 million dollar order right that needs to get filled today are you just gonna go and just start buying stock like right out the open no you're gonna buy a little bit right you're gonna move the market down a little bit buy a little bit more here right you'll you'll pull your orders out to you know kind of see where the market stabilizes it's almost the same thing right you have to like work and maneuver the order. That's trading.

Right, that's trading. Yeah. Right, and like when people talk about spoofing and this and that, right? Sure, one could be a little more aggressive, but I could guarantee you every prop desk in the US has some sort of form of their trader doing that specifically when it comes to large orders.

Now, what about scalping? So here's another example. I issue short research on, I'll just make up a name. I issue short research on the BATNIC Corporation. How dare you, sir? And according to my research, I think basically he's cooking the books,

his accounting is a sham, his products don't work, blah, blah, blah. So I put out my, I sell the stock short. Then I go on Twitter and I drop my report and I DM it to an anchor at Bloomberg. I DM it to a reporter at the Wall Street Journal. I make this whole big fuss. The stock falls 20 points. And then I cover it.

After I've done my media barrage and i scare the shit out of everybody and i cover it but i don't disclose that i covered it i think but but so that presents a problem but couldn't you make the same argument in reverse if somebody's bullish on a stock and they put out a report and the stock runs up on the report and then they sell it that's just as fucked up. But one of them seems shadier than the other. I think it's contextual, right? Because if it's like, look, I'm coming in with a large order and I'm just moving the stock down, you know, 3% and I'm getting out.

Okay. Was you really bearish on it? Right. Did that change the value so much or is it just are you putting shekels in your pocket? Right. So I think these things are contextual. But if you talk about it, I put it on the board. Especially you say a stock is a zero, which you hear like people that are active in shorts, you often hear them say this is a zero.

If it goes from 80 to 60 and they cover it and they don't disclose that they covered it, did you really think it was a zero? Or were you using hyperbole to move it close to zero? I feel like the regulators could look at this and, you know, kind of attach a price target to it. Right. So if if the analyst has a price target and it reaches there, it could be contextual to say, OK, well, this is his call. It got there. That's fine. Right. But if it's like, yeah, you're calling it a zero. Right. And the stock's at 50 and it goes to 45 and you cover that. Yeah. Like, what are we really doing here? So this right. So maybe this is just going to be a one byone situation where they're not going to treat all short sellers the same way and say that releasing a report and being short is necessarily bad.

It's maybe what you do after. Yeah. I think. I would hope that they – Are you guys covering this? I mean I would imagine. A little. And I think the other issue in that especially the SEC is looking at is like the amount of transparency in the market. So I mean, short sellers, one, I mean, when you look at like 13Fs, short positions don't

have to be disclosed here. So there's this whole part of the market that operates that average investors don't have a view into. And I think what regulators are trying to do, and maybe they're not picking the right avenues for doing it, but they're just trying to find their way at where can we create a law or precedent or something so that we can have more transparency on this really mysterious part of the market. I don't want to see a situation where short sellers aren't allowed to speak publicly or aren't allowed to be on Twitter. I almost don't want there to be short seller transparency because with the targeting that goes on, they'll just get blown up. And I think you need short sellers. You need short sellers. I think with some short seller transparency, because then it becomes so much wider.

I mean, yeah, short sellers do get blown up. But when you realize how many there are out there, it's like you're really going to, they can't be attacked that much because there are so many of them. Oh, they can be attacked. A few could. They could put people out of business. Well, they have to be very careful about, I think, shorting stocks but putting themselves in a position where they can get boxed in. Yep.

Because there's already too many shorts in that name. And structurally, like, there's just no way out. But I think they are adapting. Like, they're not operating the way they were in January 21. Yeah. Oh, my God. That was ridiculous. I just don't like a situation where they're not allowed to talk.

Yeah, it's a free speech issue. You should be able to be bearish and think a stock is overvalued and go on Twitter without people looking at you and saying you're distorting. Like you should be able to be negative publicly. I just – and I don't know how you legislate or whatever, whether or not someone is being disingenuous or not because that's what the issue is. Well, here's how. If you see scalping, like flagrant, like, dude, you just went on five TV shows trashing this company and you covered it for five points. Like, that's how you draw the line. And also very obvious examples of spoofing.

If they see you sending fake orders and canceling them routinely, right as you're dropping a short report, like it's an easy case to make. For a single stock, yes. But then you could also say, you know, the short seller could say, well, here's what else happened in my portfolio. I had to cover my position. Here's what else was, what was going on in the market. I had to do this. You know, my conviction is still, and I mean, look, they may be lying very well, but you know, there are going to be other things where they can kind of get out of that. And we could all agree that's like the hardest job. Being a professional short seller is the degree of difficulty there is probably harder than almost all of our jobs, especially the last two

years. I think the regulators have to get out of this gray area, because a lot of times when we think about financial regulation, there's always this gray area. And I feel like with something like this, you need to make this black and white. OK, you can or you can't do that, right? Because everything is a gray area and you see guys get in trouble for something and then some people are kind of doing the same exact thing and nobody's getting in trouble for it. So if I said to you, all right, here's the new short seller rule. Nobody's getting in trouble for it. So if I said to you, all right, here's the new short seller rule. You can publish a report.

You can tweet. But you have to stay short for a period of 10 days. Is that fair? I feel like something along the lines of that is fair. Or it could be contingent on, again, their price target. Oh, if you put out a price target, then you have to cover within a certain threshold. But again, back to Carlton's point, like what if the story materially changes? Is it realistic to cover near that price target? Yeah.

Yeah. So that's why the gray area exists. It's like – it's very hard. It's very hard. All right. Let's wrap here and go to favorites because first of all, you guys are awesome and I could talk to you both all day. But I want to be mindful of the fact that the sun is going. The sun's getting real low.

First of all, do you have any favorites for us, Michael, before I do mine? I do. What do you got? My friends Tom Morgan and Frederick. I don't want to butcher his last name. Frederick writes a great sub stack called Necker Value. Oh, yeah, we met that guy. That guy was here, right?

I've hung out with him before. Yeah, we've met. Okay. Yeah. We met him. So, so Frederick and Tom did this amazing podcast. Tom is like a deep thinker and somehow writes about finance and does it in like a really unique and interesting way. That was an, an amazing listen. Necker's insecurity analysis on sub stack. Yeah, it was awesome. It was really, really good. Okay. Uh, Carlton, what have you brought for us today? All right. So I was on vacation last week, so I was going through my magazines. There was one piece in Harper's Bazaar and for us millennial gen X types.

It was a piece on the women's music in the 90s, like your Fiona Apple. Lauren Hill. Lauren Hill. Her album. Her album. Hello, Alanis. Meredith Brooks. Oh, my God.

Did you watch the Alanis documentary? I can't yet. Okay yet you can't go back well it's I mean part of it is I can't go back because I remember when Alana's first came out and where I was in my life

you know oh my god boys I was 9 years old we 13 yeah 12 just guessing yeah 94

yeah 94 95 ish so like I am not that person anymore she's not that person anymore but She's not that person anymore. But we were both here and we kind of went in opposite directions, I feel. You didn't go into music. No.

Right. Oh, my God. You would not want me to. But yeah, so it was just like this fun read where you kind of like we took for granted like the incredible music that we had in the 90s. All right. This is called The Joy of Sad Girl Music. Yes. Who was your favorite from that period?

Like a Gwen Stefani girl? She was so big. I mean, I did like Gwen Stefani. I was moody here. So it was Fiona Apple for me. Like, do you remember the TV show Daria? Yes. That was you?

I mean, I wouldn't say that. But yeah, people in like middle school and high school. I mean, I wasn't that monotone, but I kind of had that like I wear all black and like, you know, I smoke my clothes, cigarettes. Hilarious. And as part of my pledge to read more non-work related things, good for you. Joan Didion's The Year of Magical Thinking. I've heard of this, but I have no idea what it is. Yeah.

So it's a book that it's a sad book. She wrote it for the year after her husband suddenly passed away all right so it's a feel good yeah totally I mean I like I'm realizing I don't look that good because I'm like my sad girl are you okay are you okay do you want to talk I mean we're talking right now but um no it's just I mean it's about grief but I think it's like one of those ones that you walk away where you're kind of walk away feeling more appreciative for like moments you have with people. And she's a writer or she happened to have written. Yeah, she was a writer.

She actually passed away at the end of this year. OK. I'm sorry. At the end of 2021. Oh, my gosh. I'm sorry. I'm sorry. Dude, not cool.

My bad. But no, a writer who was really known for documenting like the 1960s culture in California and all that sort of stuff. So yeah, like it's a good book to pick up now. And there's like, there's like stuff there that you can get out of it. Yeah. I mean, again, it's like one of those ones. It is a sad book. It's about grief. But it's one of those ones, like especially after everything we've all gone through in the last two years, we kind of like walk away where you're like, yeah, I want to do i want to connect more with people i want to you know oh i'm the opposite like really yeah the circle is getting smaller i mean it's for me it's getting smaller but it's but the ones i do want to connect

with i i want to connect i walk around my town with my mask on i'm like quadruple vaccinated i've had covid six times i have the mask on just so like there's people that i've known for 10 years that i'm just you wear a full face mask. Yeah, I'm wearing a motorcycle helmet at this point. So I don't want to connect with anybody except for you guys. You brought us donuts but did you bring us a favorite?

I'm going to hit those donuts hard. The Fruity Pebbles donuts. Do you do anything other than finance? World markets? Yes, I actually I box and I do jujitsu. Same. Oh, no, wait. Me too.

I don't do jujitsu. I box. Not well. You go to a boxing gym? Yeah. How long have you been doing that? I've been boxing for about eight years. I've been doing jujitsu for about seven years.

What's the difference between boxing and jujitsu in terms of getting good at it? Oh, man. Jujitsu takes so long. They call it human chess because it's all very tactical. You ever see Warrior? I just re-watched that amazing movie. No, I didn't. Tom Hardy?

No, I didn't. I didn't. I thought you meant Warriors, like the movie about the gang kids in the 70s. Oh, I love that movie. Yes. I would re-watch it. Warriors is amazing. You should watch it.

It's on Netflix now. So you good? Like, are you a good boxer? Are you a good fighter? I mean, come on. Are you doing it for weight? Like, are you doing it for, like for fitness and to compete or mostly fitness? So I'll tell you guys this.

I tell this to people in the finance business because they kind of get a kick out of it. I'm actually the training partner to a guy who's ranked eighth in the UFC. Come on. Serious. His name is Gregor Gillespie. What does it mean to be a training partner? He just beats the shit out of you? Yeah, so I'm one of the guys on the jiu-jitsu side

that when he's getting ready for camp, we get the call and we get to go. Are you really just doing fight club? Jiu-jitsu's on the ground. Yeah, it's fight club. Yeah. So is it fight club-esque? Are you getting very injured or not really?

No, no. Surprisingly, sometimes my partners will see marks and stuff on my face, but I don't really get a lot of marks and stuff like that. So when he's competing, do you get really excited? Yeah, yeah. It's an amazing feeling because, you know, I think the whole gym is pretty excited. You know, guys push each other and then it's like, you know, your body feels pretty beaten down. Like Sundays I'll wake up and I'm just like, oh, my legs, my back, like everything hurts.

What's the dividing line between guys that compete and guys that are the training partners for guys that compete what what's what stands between one becoming the other well the skill level is tremendously different right so of course i'm not saying i i beat up on greg at all right i get whooped nine times out of actually 10 times out of 10 right right but i think uh you know the ability for you to kind of go in there and give a guy work and work with him and be tactical in your approach and be somewhat okay, good enough to be a training partner, I think it's a pretty cool thing. And he's risking way more injury than you are. Oh, yeah. In his fights. Yeah, for sure.

Can I give you your name for competitive fighting if you want it? Like what I would put on your belt or whatever? Yeah, yeah. Let's hear it. All right. Chris the Vix City Elk. I like that one. I like that one.

You just come with the volatility. Yeah, yeah. All right. So you can have that. That's a good parting gift. I'll trademark that. Did anybody watch this shit on Netflix inventing Anna I'm watching it this weekend

I have followed that story though wasn't that a big story in a magazine I think I read I read the story Jessica Pressler wrote that yeah I have such

professional jealousy of Jessica Pressler like she is a fantastic reporter I know her really I mean I kind of know her but

she's amazing how accurate is the story because there's some journalistic integrity stuff going on there. What does that mean? You're throwing bars? I don't believe that she actually did this stuff. Well, I'm saying I don't think that most journalists would compromise their integrity in the way

that they're portraying. Who plays the journalist? Anna Chomsky. I love her. Oh, she's good. My girl. She's great. And Veep.

And Veep. Yeah. She's so great in the part. Is she playing Jessica, though? That's right. Yeah. I mean, they give her a different name and, you know, different details. Is it good?

I haven't watched it yet. I'm watching it this weekend. But, I mean, the print coverage of it was just awesome. Do you know about this? Inventing Anna? You know, I've actually seen, like, people tweeting about it. Check it out. So I want to share something my friend Brooke Hammerling put on her blog, Pop Culture Mondays.

Brooke had a run in with this chick like a few years ago. And it's like wholly in line with – so you should go to Pop Culture Mondays and read Brooke's whole thing. But Brooke knows a lot of famous people. And she knows a lot of like high profile New Yorkers. She's a pub, like she was, she was a publicist. Now she does corporate strategy advising CEOs. But she also knows everybody in Silicon Valley. So she was a perfect target for this Anna person to approach. And she tells the story about just this girl pursuing her like texts, calls, hysterical calls. And Brooke just summed it up about like how is it possible that New York in its entirety, bankers, like real estate people, how do they all get taken in?

And Brooke was saying famous people are actually the biggest star funders. So it just takes one, one person to make the intro or speak highly of you and the gates open up. And again, this wasn't even about money in my opinion. It was about clout, the thing that is plaguing the world right now. I think Brooke has it nailed. It's interesting. They show like all of these rich and famous New Yorkers getting taken in and excited by their being involved with Anna and her fake projects. Yeah.

And it wasn't one of her fake projects that it was like going to be a creative space. She was going to rebuild. She was going to build her own Soho house. But nobody like thought to ask why. Yeah. She's just running around like my dad in Germany has all this money. She has a Russian accent. It's like the whole thing is crazy.

But if you're like a trust fund kid or whatever living downtown and like, you know like this woman is like, oh, I'm going to build a space for creatives. I mean you can see how a bunch of 20-somethings grew up rich would be like, oh, yeah, that's totally what I need to do. I'm a creative type. I need a spot to let my – I mean she just played into that kind of like self-efforts. Yeah, and she gets the bankers and the architects who are like these old white guys who are not cool anymore. Yep. They feel like rock stars being in her orbit. And that's part of the seduction.

Well, this was – I mean I don't know how much time we have. But this was totally Adam Neumann, right? Like Adam Neumann with WeWork. And he's going to all of these bankers. I don't know what episode you're on, but she starts living with Billy McFarlane, the guy that did the Fyre Fest. That becomes her boyfriend wait for me I did not God and this is all real so he's planning

the fire fest yeah and the best joke in the whole series I'm gonna ruin it she goes he like pitches her she goes that's too small scale for me and it ends, you know, we all know how it ends. All right.

Anyway, those are our favorites. Guys, good job on the favorites. And good job with all that. I don't know about all that MMT stuff. All of that. MMT. You're a modern monitorist fighter. All right. So we're going to wrap up.

Duncan, what was the thing that we were going to tell people this week? We have an announcement? I forget. Well, we have a new hat in the shop. We did that already. Yeah. Go to idontshop.com for the latest in financial blogger fashion.

You will not find the official compound merchandise anywhere. That is the only place to go. That's idontshop.com. New animal spirits coming this Monday, Michael and Ben, and Wednesday. And an all new What Are Your Thoughts on Tuesday. Thank you guys so much for listening. Make sure you leave a review for the podcast. Make sure you hit the star button or whatever, depending on what app you're using.

And we will see you next week. Good job. All right. We're going to start recording now that everyone's warmed up. John, you want to plug in the equipment now? Yeah. You feel like you got this? Yeah. Was that fun? Yeah, it was. That was very cool.