The Derivative - Status of Alternatives - A Live Recording from Uncorrelated Puerto Rico

Starting point is 00:00:02 Welcome to the derivative by RCM Alternatives. Send it. Hello there. Welcome back to the derivative, brought to you by RCM Alternatives, where we sponsored different alternatives conferences around the world. Did so down in the Caribbean last week at Uncorrelated Puerto Rico, where a lot of the content was on why investors and managers and the rest should move their lives down there and run their businesses from the island.

Starting point is 00:00:37 It's not just about low taxes, they said. Although my takeaway was mainly in my meetings out there. outside of the conference with other investors and whatnot, that it's definitely about the low taxes. Anyway, leaving that aside, I hosted a panel on the current state of alternatives there. And after telling everyone, I don't like where you go down the line and do introductions. And everyone spends five minutes doing their own bios, taking up all the panels' times. I sort of botched the intros and just got right into it, called everyone by their first name. But when you got your own podcast, you can redo it.

Starting point is 00:01:10 And that's what we're going to do here. So here we go, a little more fun. Joining me on the panel today, the pirate himself, the cockroach-loven, slipper-wearing, vocab professor, Jason Buck, founder and CIO of Mutiny Funds. To his right,

Starting point is 00:01:26 the volleyball spiking, dollar milkshake drinking, Puerto Rico resident, Brent Johnson, CEO of Santiago Capital. And last but not least, the big wrestling fan with a unique look. We're talking Ascot hats and Cops

Starting point is 00:01:40 custom printed shirts, Mark Tower, executive director and head of business development at Asset Management 1, USA. Send it. All right, we're going to get out of the derivative. So we're just going to get right into it. But, Brett, you live here. Do you ever get sick of this view? Is that? Do you ever get sick of this view?

Starting point is 00:02:04 No, it's fantastic. And I'll say I moved here five years ago, and it's been a fantastic mood, not only from a personal and business level with my family and no tier up a 17-year-old. son now who absolutely loves it. And anybody wants to think about it and reach out to somebody who's actually done it on that baby a tie. Love it. Jason, you come visit me in Chicago and tell me

Starting point is 00:02:25 this is the best place of the country, including our super high taxes and non-community field. Should we spend a little time ordering Chicago versus Puerto Rico or no? Chicago versus Port Bickett? Yeah. I was in Chicago summertime, Puerto Rico, the rest of all right.

Starting point is 00:02:43 And Mark, Jersey versus Puerto Rico, any contest? I mean, you know, I'll defend Jersey all the way long, so I mean, I got Jersey that's worried about. Love it. So we're going to get started. Kind of goes through a bunch different alternative investments that all of us up here deal with. I'm going to start with what I deal with most day in and day out, which is the managed futures,

Starting point is 00:03:06 global macro, volatility space. Last year with the Trump terrorist, this year with the war. You know, we set those up to be non-coilated to kind of perform when everything else is in the in the dunks. And they haven't quite done that the last two crises. So whoever wants to jump on this first, what's what's those specific alternatives working the way investors perceive they should be working? I'll take it. So I need a gemony for individuals, which is a little different than managing for institutions. but I'll tell you some of the things that we think about when comes to an alternative

Starting point is 00:03:45 the biggest single factor is always the liquidity associated with it. And some alternatives have good liquidity and some alternatives have longer term liquidity. But anything that's longer than two years, we feel you have to be extremely highly convicted on that thesis. And the reason we say that it's kind of multifaceted. So if you stick with me, it's kind of a three-pronged answer of why. But I think for the last 20, 30, 40 years, we got used to an environment where everything eventually reverted to the meat.

Starting point is 00:04:19 Whenever there was a crisis, whenever there was volatility, whenever there was an adverse event, the world worked together for the most part to bring that back to the meat. But we think that was the reason is that was backstopped by a longer-term mark of history towards globalization and cooperation. But we think that that is over, and we think the art of history is now swinging back towards de-globalization nationalization or regionalization.

Starting point is 00:04:43 And as a result, that cooperations that always brought things back to the mean, we think is gone. And we don't think it's coming back. And so we think that a lot of things that have worked for the last 20 or 30 years

Starting point is 00:04:56 are not going to work as well in the next 20 30 years. And I think that's why they have them has worked as well for the last two or two or three. Jason is violently waving his hand down there. As my athlete is a man in Pocodot's slippers can. I'll piggyback on Brent and like he's saying he was looking at the present of the future, but to answer Jav's question specifically,

Starting point is 00:05:16 we manage an ensemble of volatility to risk at Kamalvi strategies. And specifically think about volatility. Historically, if we go back to the tech law, the 99-2000, it took years for volatility to come back in. Similarly, with GMC in 2007-2008, it took years for volatility to come back in. Then we come to COVID, it takes months for volatility to come back in. And then we were just joking in the tariff tantrum. And last year was one of the quickest mean reversions we've ever seen on volatility of the markets.

Starting point is 00:05:44 And then I believe this morning we're back to all-time highs again from what's going on in Iran. And so once again, these events are compressing and coming back to all-time highs faster than we've ever seen before. But like brand setting is that like a Hyman-Minsky-like moment, like stability breeds instability. And everybody's buying the dip and expected things to come back until things break cataplysmically. And we go on a new regime ship for the coming decades. And we'll see. Nobody really knows. What?

Starting point is 00:06:10 Do we think it's a symptom or a con us? Right? Like part of me thinks, okay, I guess the question will be why. Why is that happening? Is there more option selling? Is there more selling the tails every time they have it? Or DeMinsky, like I said, Skidli B's instability, right? You got structured products.

Starting point is 00:06:27 You have all these, vals selling ETS now and everything. And those are becoming larger and larger in size. And that's creating these barriers to the market that is that buy the get, that mean or version quality DBC of the market. And they could do really well. for long periods of time until you break out past the two sigma event and you know volatility flicks and you have air pockets and things people start scrambling for the exits no no one wanted to throw the taco train in then well the baby all start off since that you know i i worked for

Starting point is 00:06:54 from gold as an airsab one which is a asset nashiburn on my rizuo bank in that itch life so since i'm owned by my companies of my bank compliance disclosure these are my thoughts not that of as a And I was supposed to say, this is on the record. If anyone says yells out something crazy in the crowd, you're on the record. Be forward. Well, you know, I don't know about the taco trades, but, you know, one thing that I think we're seeing

Starting point is 00:07:22 in the liquid hedge fund were surprised in their spot-on is, you know, March was Leibeth, and it was a lot of dispersion to its strategies, all the way from all January to Habrow. And one of the worst before me, Mald said he goes back to January. back to January 22 is what I do have, one of the industry you acts.

Starting point is 00:07:41 And then to, you know, the point, then you guys just stayed now evidence in fact. It means all the way back up. So I don't know if it's necessarily the taco side, but it's definitely everything in the last year where this is a iteration where a tweet, you know, a war tariff can turn the industry kind of upside down very quickly.

Starting point is 00:08:06 If you're on the systematic side, an MC signals before, it could really rehab on Portolia. But then once things kind of settle, then, you know, the world isn't falling, always seems to be coming back. So I don't know if that's something that's sustainable. It's definitely not great for blood pressure.

Starting point is 00:08:25 And what do you tell an investor who's, you know, I invested in this stuff because it's supposed to do well when everything else is struggling. It's now you're struggling while things are struggling. Like, are they throwing in the towel? They're just going to say, I'm just going to buy Dorado real estate. It seems a safer bet. I mean, if it's all coming down at once, yeah, you might have to look at other, you know,

Starting point is 00:08:50 uncorrelated assets between light real estate. So on the issues. It's not working in use. You're seeing, you know, January and February, you know, for a lot of the X-front strategies, weren't great, but then it sounds still fantastic. Marks and Chloe and Edomuk, the November April is looking decent. Anyone want to put a silver lining on my, my,

Starting point is 00:09:16 my cloudy outlook here? You're referencing in Marx of the best. It was like last month was one of the worst months for multi-stratory hedge funds and everything for years. And then to Jeff's point, you're not seeing that kind of pop in volatility. To give you an idea that implied to realize spread

Starting point is 00:09:33 last month was, you know, on average, an eight handle got up to 15, meaning you were overpaying per insurance and it didn't really come in. So if fear price in the market is much greater than the moves we saw, which is surprising kind of giving what happened to March. And so people give up on their negatively correlated

Starting point is 00:09:49 tailor rate strategies and everything, usually right before they need them most. So it's kind of a commercialical process. But at the same time, we're talking about other strategies like commodity trend following that provided those uncorrelated and negatively correlated and negatively correlated returns in 2022, and we're seeing them start to produce returns again this year.

Starting point is 00:10:04 They're a good concept or outlook for a market where you're having a regime shift or you can't necessarily predict the future of what the headlines are to create on a day-to-day basis. It's fun being invested in commodity trim because you're massively long, the energy complex at times like this. So you're at a party talking with people complaining about $5 gas in Chicago, you're like, I hope it goes to six, seven, eight, I'm both. Now let's go to some less liquid alts. PE and private credit. I used to always do this off my phone on these panels, but my eyes are not what they used to be, so bear with me as I try

Starting point is 00:10:49 and read this. So, right, all the big family offices, institutions, everyone's in private equity, and they started moving into private credit massively. But the environment, we're starting to see gates, we're starting to see no distributions, all those

Starting point is 00:11:05 publicly traded, let's see whatnot, Blue Owl are all down. What's the what's the environment? What do we see there? No, so it's funny. Private credit has been one of these. He couldn't call the Black Swan because literally everybody's been talking about it for two or three years. It's a Ray Rhino is the internet, right? And really slow, I mean, we wrote a piece on it, I think 18 months ago, you know, and we weren't the first to do it. And there was many subsequent to us to wrote on him. Everybody kind of knew that we could get into a situation like where, having now, right? But yet nobody can stalk it. And so there was kind of this interesting phenomenon.

Starting point is 00:11:47 Everybody knew it was just a matter of time. But it was also so much money was being made. It was impossible to resist for many people. And I don't think it is as a as large a systemic risk as kind of the 2008 time period, even though the numbers are in some ways just as big. Because, you know, in 2008 it was the banks. And it was their public. equities that could be liquidated in order to kind of get out. And a lot of these private credit funds have five, 10-year maturities. They don't have the same liquidity structure that was present in 2008. And I think it's mainly the private credit funds who offered liquidity in order to gain more assets under management are now paying the price because they're the ones seeing the

Starting point is 00:12:38 large redemptions. And so I think it's going to hurt, but I don't. don't know that it's going to become as big as systemic event has been brought in. I think Jamie Diamond just yesterday or two days ago said there's no cockroaches in the private equity will. Yeah, I think it might be a few cockroaches, but they may be enclosed in the illiquidity fashion. Yeah.

Starting point is 00:13:00 Yeah, I mean, look, I bear that. I think when you're waiting to that, shoot a drop on five or three years now. And it just kept getting bigger and digger. and even though we all saw the equity of misdage Now to present point, it's not a way I mean, the way you have money-married funds that were illiquid indeed, so the car is like that, but we're expecting this, and I think, you know,

Starting point is 00:13:25 the good managers are sticking to be round and they're still going to make during the right rates. I think it's out of the query mismatcher how they were sold when it's true downstream to, you know, expecting month of the purity on something that's obviously the merger lock assets. It's like, that's not good for. So, you know, once that kind of works itself out,

Starting point is 00:13:47 and it gets back into the proper alignment, I think, with the investors and managers and the terms really understanding. Oh, there was a gating feature here for a reason. You know, so, yeah, monthly, you might not be able to get it because he's going to be washed to the door and never seen until the gates and not what anybody. Best done per reason. So now, I think now that this is the work itself,

Starting point is 00:14:12 Elfrow, create some opportunity for more liquid alts, so we're ready for lots on stage that earn those distances, made. It's long-term private credit. How many out there are invested in private credit? How many are worried about it? Okay. For the listeners, we had maybe 20% were actually worried about.

Starting point is 00:14:37 You might as I think? I'll address in two ways. I think it's interesting because we think about creative funds structuring all the time know what we do. And so a lot of these have been stuffed inside interval mutual funds, which are, you know, an interesting way of putting a wrapper on this product to provide some liquidity for an ill-idid product. You know, typically you were locked up for 10 years and you had no liquidity. Well, in the interval mutual fund wrapper, you can have 5% pro rata redemptions quarterly. So I'd always said that on the tin, but now people want 15% pro rata redemptions

Starting point is 00:15:05 because they're trying to get their win now they're all crying about it, but they all knew it was only 5%. And so now the news begins high to get up that they're gating redemptions and everything, and they're not. It's just structurally part of having an intervie mutual fund, and I'd rather have that 5% quarterly liquidity than Pied in a 10-year lockup. So that's one fair thing, I think, for the industry on the private credit fund side. The one thing I may be a little bit more dubious or circumspect in the systemic risk there is we actually stumbled out of this years ago as we're looking at structuring things. And I was trying to figure out what Apollo and Eldrick were doing and how they set up their products and everything. And so everybody knows

Starting point is 00:15:39 they have their annuity companies now and everything. But it's starting to come to light, and I think brands even probably talk to others too, is they also own the offshore reinsurance companies that are reassuring the annuity products. So it's not necessarily the private credit hedge funds or interoper mutual funds I'm worried about. It's the lack of collateral and the lower margin when the reinsurance is underwriting the same company that's providing the annuities for Americans at this point. And so there's a cascade there that, you know, maybe could potentially be a systematic risk or systemic risk, excuse me. But at the same time, I'll say the nuance is Apollo is very smart.

Starting point is 00:16:16 And so they know what they're doing on the underwriting side. But as we've seen historically, there's been very smart people when you reduce margins, reduce collateral, increased leverage. Sometimes you know, you might get your actuarial table off just by slightly and then we have a real cascade drop. What's everyone think if there is a cascade? Where do you want to be? So we've sold this for several years now, and we don't think this has changed. And in fact, we're even have a higher conviction on this is that we have a strong concentration of all our assets,

Starting point is 00:16:48 even if we're diversified in the United States or in Martha Medapur. We do not believe in the de-dollarization trends that's very popular. We do not believe that the bricks are going to rise up and tape over the world. And we think that the extra return that you could potentially get by investing overseas is not, worth either the capital risk or the liquidity risk, which we see as a result. And so, you know, we're, we're fairly diversified. Your real estate equities, Mottabees pulled, but we do it all, are almost all focused in the United States, included Puerto Rico, including Puerto Rico.

Starting point is 00:17:25 Right, Puerto Rina is we're part of the events. So yeah. But that's almost a great, right? You kind of get an international investment feel with the dollar base at rate to the piece. I was going to ask one more thing. So you don't believe in the de-dollarization. There's just an article on Saudis kind of are moving away from their dollar sales.

Starting point is 00:17:46 Do you believe that? Like the whole petro dollar is going to die pieces? I think it's largely in. I don't see this to be honest. I really love everything. That's going to do you much of all. I think what's going to happen, I think, and this is a little bit of a tango tangent in a way. It's a podcast.

Starting point is 00:17:59 We're definitely seeing a de-globalization effort, and there will be strong efforts by government's around the world to de dollar is. But with the invention of stable coins, I think we're going to see an increased adoption of the dollar by citizens. So I think the real battle is going to take between, is going to take place between foreign governments and their citizens, not between the United States. He was out of countries. With the evolution of U.S. dollar stable points that allows foreign citizens to hold U.S. dollars by the touch of a button on their phone, rather than dealing the local currencies, which even though the dollar may be bad, their local currencies are even worse, creates a mismatch between demand for local currencies and the needs of the local government

Starting point is 00:18:43 outside the United States. So I think we're probably going to see more dollarization from the dollar reservation. Like a cleanest, dirty shirt theory based on the other. And don't anyone who knows mail break. Go look at my Google YouTube dollar mill shape theory. Did you coin that? Yeah, I did. Some T-shirts may have. So you touch it on crypto. I have been on my notes I can't read as under real assets. Is that right? But we'll pretend for now it's a real asset and it's under there.

Starting point is 00:19:24 So real assets, gold ripped last year and doing that this year. Crypto, let's just start there. Gold and crypto, give me your thoughts. Should those be in a portfolio? What are their function? Like just trading vehicles or should be in the portfolio? I think that gold should be the cornerstone. own with everybody's portfolio. Everybody should own wool. Price and dollar. Price in dollars.

Starting point is 00:19:48 Now, you don't have to have 100% of your portfolio in gold, but I think a healthy allocation of anywhere from 10 to 20% was very appropriate. And well, it mainly be, and I don't really even care what the price does. So it's more of like a long-term hedge against instability. And I kind of think of gold as a put option against the certainty of politicians and simple hangers. and when they screw up, bulletins would do pretty well. And in many ways, I feel like Bitcoin is the inverse of toll, although it has many of the same qualities.

Starting point is 00:20:19 But what I mean by that is, I think Bitcoin is the purest play on global liquidity. If liquidity is plentiful and speculations high, I think Bitcoin will do very well. I think a minute liquidity starts to disappear, and the speculators in risk assets disappear, I think Bitcoin falls. So I don't put them in the same category,

Starting point is 00:20:39 You know, they carries many of the same characteristics. I think gold requires or or deserves a much bigger allocation in a portfolio. But I don't have a problem. If you have a speculative part of your portfolio, I don't have a problem with Bitcoin beating them. I'm going to throw a question. You can wave it into your answer, Jay. But what have you seen with investors chasing, right?

Starting point is 00:21:04 Like, go on tons of people flooding into gold of like, this is, I'm increasing allocation and then right as it sells up. So what do you say in terms of alternative allocations? Brent and I've always been kind of aligned on this because if she decides it's in gold Bitcoin, but also to you point out, as I did you say, is it, is it a hard money real asset or is it trading sarty? And right now they're kind of both, right? And so in the interim, we have to worry about price run up, et cetera, maybe trimming her positions or rebalancing. And, you know, I always like to, you know, I love Austrian hard money in theory, like communism. It's theory. It just doesn't quite work in the real world. And unfortunately, we probably need

Starting point is 00:21:43 of elastic and inelastic monetary systems. But, you know, our flagship product is called the Cockdorch Fund. So you can have a general idea of what we do. But we try to protect our clients' assets and make sure they stay rich over multiple generations. So as part of that, we do hold a significant amount in both gold and Bitcoin as a form of Fiatheed. Because when you do have those interim periods, what we do go back to what is collateral, what is hard money. And before we go back to in the lap, you know, tip back to elastic money, you want to have those in your portfolio just in case. And so what that is in the size is, nobody can do it perfectly, but you can imagine what gold does in very cataclysmic environments, or you could imagine if the Bitcoin maxis are right, you know, what is going to need the return on that asset class. So now what you're really trying to do is maintain your purchase power parity and just not go girl.

Starting point is 00:22:29 And Jason Spun actually has some physical goal in Texas. And we were going to do a little YouTube short. We were talking about flying to Switzerland, like going with the gold from Switzerland to London to JFK down to Texas, how are that worse. But next time. But part of that is a good example, though, is like we all try to predict the future and make sure we're going to be okay the future with all of our investment portfolios. But prior to COVID, we looked at having physical golden locations all over the world that's brought diversification. But then we found out in COVID, we couldn't get our gold back to the United States. So if 90% of our flying bases in the U.S., we'd probably have to have 90% of our physical gold

Starting point is 00:23:06 with any tribal location. And what everyone thought was gold, right? Russia attacked Ukraine. It came out. They had moved much of their reserves to gold before that, which seemed like a great trade for them. And there's some murmurings that all these central banks are at Ddollar as I'm Brent, and moving into gold.

Starting point is 00:23:25 So is that just more hot air, that's noise? Or do we think that's what drove the price in? I think that's legitimate, and I think central banks around the world and countries around the world are trying to diversify, and that is what's driving goal higher. I don't necessarily think that gold will lose out to the dollar. I just think other foreign currencies will lose out to the dollar. So I've talked about the dollar and gold rising together versus other foreign currencies. And Mark, as just, what did you call it, Jason, a trading sardee? You're trading sardee.

Starting point is 00:23:57 I mean, does anyone know that term? It's an old Wall Street term. It's basically everything we're trading is like trading Kansas sardines. And eventually somebody wants to open to eat the sardine. That's not there for it. It's there to trade sardines with trade prices. You don't open the sardines. All right.

Starting point is 00:24:13 Love it. You also, and you have what's on the tin. I've never understood that sand. It's like whatever it says on the tin. That's what you're like, you built a phone. That's what it's supposed to do. Do what it says on the tin. But where's the tin?

Starting point is 00:24:25 It comes from a coffee can or something like that. Yeah, there's old foldiers there or something like that. All right. Anyway, from you guys, pure trading wise, like you'll go anywhere. Would you get into crypto futures, derided, liquid? For our quant business, it's pretty much all futures options, you know, these securities. I don't really the exposure about the crypto zone there.

Starting point is 00:24:50 I think our, you know, a weird division that does invest in the external managers, and some of them are starting to kind of start to research process on on crypto at will pick they've done anything yet but I think they're just started to kind of have put themselves and I don't know if they're going to do with the crypto potter or they'll try to find like a manager that does the exposure with all will find and then I'll throw in in the real asset world which is not what any of us do so of course we'll talk about it right the power play with all the AI with all the

Starting point is 00:25:26 data centers, that's really been the biggest real asset trade of funding data centers, getting the land. Anyone have thoughts on that? Is that a short-term phenomenon? Is that going to be a good trade in front-in-forward? So I'll take this because I think there's a related thing that we're involved in, that's kind of ancillary to this, but I think largely a big power competition between the United States and chime was really a technology race.

Starting point is 00:25:54 and whoever wins that technology race, I think we'll overall win the big hour competition. And what do you mean by power competition? Geoferro. Yeah, geo-worlding. Geopolitical position union or global chessboard type. Because we're talking about data centers in there. That's physical power.

Starting point is 00:26:13 But that's world power. That's right. And the interesting thing is, is to win the technology race, you need power as in an energy power to power the technology that then helps win that race. We think whoever wins that race will be able to design kind of the global technological architecture for the next 56 to 70 years, much in the same way the United States did

Starting point is 00:26:34 for the last 56 to 70 years. And as a result of this, there's an area that's kind of an alternative asset that we're heavily involved in now that is defense-related technology in minors. I think that in the next five of ten years, this is going to be the biggest capital wave of anybody in this room ever see go into defense capital and natural resources. And I can tell you from an institutional perspective, from the United States government perspective, they intend to win that race. And they're going to spend an incredible amount of money to do, sir. I don't know what they will win, but they are going to try. I know that for a fact. And we think the money to be made by being part of that is pretty astronomical. How do you, where they're going to spend an incredible

Starting point is 00:27:22 amount of money, they're already an incredible amount of money in the hole with the dollar thesis, right? So like, hey, they're just going to keep spending to make this happen. Does that hurt the dollar thesis? Or you kind of have it as a hedged. Either way, I don't care. The dollar very possibly loses value in purchasing power turns, but I don't think it loses out to other foreign appearances. You said that three times me now. I did it on the fix, maybe. Yeah, and whatever you think, whatever you think the national debt is going to, I will take me over because I think it's going to go much, much higher. And I don't think it matters right now. It will matter, but I don't get it matters right now.

Starting point is 00:28:13 Jason, you were nodding your head on minerals or something or liquor or defense. As a Brent Sunday day, there's plenty of companies you can look at the U.S. that have rare mineral rights. And it's not about if you have barriers. It's the refining of errors. And that takes the stirrup of the pen to change that over the night. And that's kind of what Brent's alluded to there. On the other data center thing,

Starting point is 00:28:32 I mean, that's obvious trade I think we all know about. I was trying to think about what's the tangential trade related to that. So we were looking at things like this is not trading advice. We were looking at things like FTR, financial transmission rights on power grids. But at the same time,

Starting point is 00:28:48 if you're looking at like the Texas AirCOP power grid, you could have a real problem in winter and maybe that has nothing to do with data centers. So you're just trying to think of tangential plays. And Brennan were talking about last night, You know, a lot of the energy crisis on the physical side that's going on with Hormuz now, a tangential play is obviously they need to spin up coal plants, whether that's for day senators or just powering the UK. And a related trade to that, I think, is ironic.

Starting point is 00:29:11 It's long carbon credits. It's essentially a long full play. Because as they spin up this coal plants in the UK, they have to offset it by buying carbon credits. So it's just an interesting tangential play that I always find kind of ironic. It's kind of just, yeah, yeah, something on there. The other thing that Jason and I were talking about last night, was this a law of one fructs. And most of us, I thought you were going to say it.

Starting point is 00:29:34 I wasn't going to steal your thunder. I've been late for you to say it. So, you know, so I've been doing this for 26 years now. And for all of my career, commodities around the world for the most part traded at the same price. For your other, you were in Asia or South America, the United States, or a year. There's always been little differences, but they have, by and large, been in the same. And as a result,

Starting point is 00:29:58 The challenge was always to find who could produce the widget at the lowest price and delivered at the lowest cost. But because we think the world is fracturing and because we think it is de-globalizing and because governments will throw up tariffs and trade restrictions in geopolitical alignment, we don't think a law of one price is going to hold. We think commodities, the same commodities will trade at different prices in different regions. And what that means is that the input costs or your preferred company or asset or sector is going to need to figure out where they get those inbrates and what price they're willing to pay because just going with this cheapest option, we don't think it's going to work anymore. And I don't have the answer to it.

Starting point is 00:30:47 I'm still trying to figure that out, but it's a big problem. That's received Microsoft buying Three Mile Island or whatever that deal was, things like that are securing our own resource. Mark, man, throw it to you. You guys are systematic shop. Quine. Like, do you hear all this and like, it doesn't matter? Right? It's going to show in the quant. It's going to show in my model. We're going to trade it. Yeah. I think that's in a good way. Right? That's a posse. Yeah, that's Pazzo. Yeah. I think that's, uh, that's how our team is. Now, we do be a, you know, a Tokyo based firm, you know, kind of big picture. you have seen a lot of reverse inquiry for people looking for exposure in such an

Starting point is 00:31:26 That's not for our quantity that says for our two of our Loloid Yemton, Tokyo, but yeah it is something they received trying to pick up a bullish maybe look a lawyer on the systematic side yeah it does not I always tell he's AI trade inferential like you need an AI to just make up what the trade was for the clients because people still want to know the score right so do you have trouble with that with investors of like Well, why did you put on that trade? You know, I think when they're having any conversations with us about that,

Starting point is 00:31:57 it's kind of baked in that, you know, it's systematic. It's not a trade that we're putting on. It's, you know, if it pretty good at the fact is. So, you know, if there want a rationale around it, we can dig into Godo with the here with Ian and stuff. Top, in the weeds for a second, kind of the tariff last year, the war this year,

Starting point is 00:32:24 when markets went a little bit wild, it wasn't 08, but they were, right? There were periods they were, ball was screaming, oil was screaming, liquidity wise, like your guys on the train desk, the traders there, are there saying no problems? Or is anything like red flag of like, hey, if we have, if this went a little further, it would have become a big problem? On the liquidity side, no problem. That's something that we'll be going to as far as I'm a lawyer. But yeah, it did do haywire because a lot of these things never happened.

Starting point is 00:32:53 So, you know, when you build your bottle to account for everything that's ever happened before and suddenly he had, you know, tar up supposing the entire world, okay, there's nothing to look back at it and say, okay, how do we encounter this? Well, never happened. And then, you know, as of being drawn out, you know, it wasn't able to get self-correct because of all this stuff hadn't happened before. Once things started settling, yeah, you didn't see the rubber band come back and he ended up having a pretty good run, you know, across, you know, many markets and a lot of different strategies. And last year ended up being pretty good a year.

Starting point is 00:33:28 I think collectively in hedge funds, right? A-ray was the best since four or five years. But Q1 last year, you remember, wasn't good. Well, very choppy. And every strategy they expected to do well was it. And actually one of the bigger winners was market neutral. market neutral ended up being a broader win last year of Rost-Exuan's phase.

Starting point is 00:33:50 That wasn't anticipated. It was supposed to be, you know, long short. It was supposed to be, you know, health care. It was supposed to be a dispressionary napro, multistrate, systematic macro. So sticking on the liquidity, something that has looking like tons of liquidity growing, the prediction markets.

Starting point is 00:34:12 Is this a threat to? Alternate investments? Is it a benefit to alter investments? And anyone started to work it into portfolios or had investors asking about it? Anyone? This is the area I followed on up. Like, I point out of honestly, I just don't have any answer for it. Because on the one hand, I think it could become extremely large, especially with like tokenization of assets now and kind of the combination of prediction markets of tokens. I could see it growing really, really bit. On the other man, are you really going to allocate billions of dollars, whether Jall Trump has been to tweet something to a N. I don't know. If you know he will.

Starting point is 00:34:54 Well, in this, if you know he will, there's a lot of money to be made. And obviously, that's been happening. Right, that's part of the problem. Like, they're unregulated, ocean institutional capital allocate money to that type of thing. That's, that's modern my bigger question, right? Yeah. Well, that's my, no, that's my question. Hmm.

Starting point is 00:35:12 At Simon Print, Intel the liquidity is there. I mean, like, IBKR is finding going out their product. You know, SIG is making markets on Kalshi. So, like, they're going to grow over time. But I think it's just another tool in our toolkit, right? It's a way to make you have some binary options that are alternative hedges that make you can't get in the more traditional limited markets. I, we had a, sorry, market.

Starting point is 00:35:34 I was just, you know, I put that almost akin to some of the roles in the online medic. And, you see, you know, the legalized bedded, you know, for sports across, you know, the U.S. and in certain states now, and this is kind of that next step further. You've just got to wonder how it's going to be regulated and how it could be manipulative because it feels like it's pretty easy been to kind of, you have some, you know, you have manipulation cheating inside information. I'll tell you're going to love it or hate it. We had a programmer from Spain and he built a whole dashboard he was pulling in

Starting point is 00:36:12 from Polymarket and Kalshi API. We were just looking at one basketball game, Miami Heat versus Toronto Raptors, and there were 120 line items or something, right? For like, is this guy going to have this rebounds? It's the first quarter score. It's the first basket. I'm like, supposedly all these,

Starting point is 00:36:30 I've heard a couple things of housewigs using Claude to throw that all. And I'm like, no way. They're not putting 7,000 things into Cloud and asking for prediction mark, I bet. So I'm with you. It's interesting right now, but, uh, I don't know. But in the Chicago, we're getting a little scary because it's kind of encroaching on our futures world. What alts make sense in this Puerto Rico tax world?

Starting point is 00:37:08 I don't know why I said it's so slow. Are you asking to invest in the Puerto Rico, what alternative assets in? Like you're just in our kind of toolkit of managed features or you're holding a long-term real estate play or something like, what makes sense to put in a wrapper to get down here? Where do you get the most banked you a buck? So the way you get your most bank for your buck is you move your business here. And then you do business all five. That's where you get the biggest bank group up. Whoa.

Starting point is 00:37:38 Well, ladies to for instance, like we primarily take 1256 contracts, which have preferential tax treatment in the U.S. But obviously, if you're in Puerto Rico, you don't have to worry about any of that. So pack gains, regardless of the contract, you know, rapper, doesn't really matter. So I still think alternatives are incredibly important, but I'm obviously preaching to the choir in my own book. just for hedging your portfolio and enjoying no matter what kind of happens in the macro-conic landscape, you would have for her. But like an active strategy would be more beneficiary here.

Starting point is 00:38:07 Oh, the job question being an ad. You're an active trader being here is it's Harry's. So why was that? Paradox. Perry. In more ways of one. Mark? Yeah.

Starting point is 00:38:20 I need look at my view on this was developed last night during the welcoming reception. And I got to meet a lot of folks. that have moved their businesses down here, that have moved their lives down here, and just, you know, the tax credits, the no capital gains, I mean, it just see, like, it's a no-brainer to,

Starting point is 00:38:38 if you want to come down here and you want to trade, if you want to go to your business down here, only real estate down here. Yeah, that's, that's a pretty easy answer on quarter. You know, I'll say, I'm going to tell you, I am not an expert on this,

Starting point is 00:38:52 and I am reasonably paid up this, so I might not have to exact the right to, Earlier, there was a gentleman up here named Alberto Baca, and he's kind of like the godfather of economic development of Puerto Rico. He's an incredible type. The guy who got to watch? Yeah. And so if you get a chance to talk to him, do talk to him.

Starting point is 00:39:12 I recently learned that there is a way that you can form it. If you don't live in Puerto Rico, you can become part of a company that's located at Puerto Rico. And then that company, Puerto Rico, can get the tax tree. of having the same is that you did look here. And I think as long as the gains don't get distributed to you while you are in the United States, you get the tax for gains. Now, again, I'm not exactly, I don't 100% understand the structure, but I know that it exists. So if you, and then there's a company here called Green Isle Capital that I know does this.

Starting point is 00:39:49 So if you bump into either of those two entities, the ask there about her. We're going to go into some new stuff. AI, how many people read that Citrini piece on the Tuesday? Zero, one, one guy, all right, you should all go read it. So that's been my thesis for a while, that AI is massively conflationary and we're headed to a bigger recession. We saw, we've been seeing the layoffs have been coming. Citadel came out with a rebut and said, like, this is just like the loon, the car, everything else is just a new technology. People will pit it.

Starting point is 00:40:21 So where does everyone stand on that massively recessionary or just another tech? I don't think it's just another technology. I'm one of the people who does believe think I really do think it's revolutionary, and I think it can have an even bigger impact on the world than the internet did, which I know sounds kind of crazy, where I actually think that is possible. But there are going to be some deflationary side effects as big.

Starting point is 00:40:42 So my guess is that one of the ways the society will try to deal with these problems is some kind of a universal basic income from governments, because the worst thing in the world is out. have a bunch of run and poorly 25-year-old kids, you know, with idle time on everything. And so they're going to have to, we're going to have to try to, they're going to have to, I think they're going to have to figure this out on a larger scale. This kind of conflicts up my, you know, personal libertarian means. But I just think that's where it's going whether I wanted to remind.

Starting point is 00:41:16 Yeah, yeah, I think Elon Musk is on your side there, right? That's the only answer. For us if they're saying, Buddy Whips or whenever it's like, if we use this storable contacts in 1900, 92% of Americans were farmers. Now it's less than 1%. You know, we're unbelievably accreated at finding new ways sort of things for us to do. Like, I mean, it goes back,

Starting point is 00:41:36 everybody's been talking about 20 to 30 hour work week for decades, if not a half a century. Yeah, we all figure out how to work 100 hours a week, you go where we get more efficient technologies. I also think this could be unique in the distortative effects that you have with all big flaws and everything. But I did, once again,

Starting point is 00:41:52 it's tiguate casks, not jobs. and it's also a delayed effect. I don't know how many of you interacted with U.S. healthcare system in the recent months, but that's not going to change in time in the near future. So all of this stuff's going to be delayed and kind of spread out over years,

Starting point is 00:42:06 so I'm not sure how great the deflationary effect will be. One of the things I think about I forgot to ask you this brand, that's not a video take on this, is like if the hyperscalers are building out data centers and everything gray out, how do they not just become industrial reits and those multiples that took away down?

Starting point is 00:42:22 I think that died of data they're becoming utilities. Yeah. Explain that? Because they're basically, instead of being technology companies, if you're after build out the physical infrastructure for the data centers, essentially you're an industrial real estate way.

Starting point is 00:42:38 And that has a single-digit multiple compared to 100x multiples. I don't think these data centers right now, I have single-digit multiples. They were like, very nice. But I see your... Mark, you got tossed? Yeah, I don't think...

Starting point is 00:42:53 the world is falling with the AI community, you know, either the Terminator or the rising machines. It's a tool. I think it's a very beneficial tool. I think it's going to help, you know, across all industries. But, like, even just breaking it down in a simplistic form, it's still got to get better. It's still getting stuff home.

Starting point is 00:43:12 You still got to, you know, you have got a check, right? You know, especially if you're just using it for education or using it for, I'll be just learning little factoids. you know, a lot of the channel. I'll be right by business plan this year for my company. I'll be my son read his resume. But then, you know, if you ask, you know, one of these tools, you know, I think I saw something on the Internet.

Starting point is 00:43:37 You know, what's the month of the year that has an exit? And the answer was December. It's like, oh, okay, are you sure? He's like, I'm sorry, go, it's October. So I go, okay, are you sure? It's like, no, I'm sorry. It was February. Oh, okay.

Starting point is 00:43:52 So, yeah, all for three. So it's not going to replace you know a good thing. You've got to still check it. It sounds like you're using chat. JVT, need to move over to Clyde. You get that wrong? Part of it, though, too, is that we're doing to, we're thinking about it through businesses and jobs.

Starting point is 00:44:11 And I think maybe we need to shift our perspective a little bit and think about it as we're all just entertaining with our. You know, going back to this idea of farmers, like in America, less than 1% of Americans are farmers, and less than half a 1% are, in the military defending that land for the farmers. The other 98.5% of us are just entertaining each other. Now, we think it's, you know, very sophisticated to what we do.

Starting point is 00:44:33 We run hedge funds and everything, but with 10,000 hedge funds out there, everybody's just choosing their particular brand of like whatever entertains them the most or says the most about them. So, like, we're just, I always think I'm not competing with you. I'm competing with Netflix, right? So I'm up here just a dancing jester. You know, I'm just trying to entertain you. So hopefully you find my entertaining interesting.

Starting point is 00:44:52 and then you invest in my business, which allows me to keep entertaining people. Be entertained as dare as I leak. Thus the slippers. During the tentity, Mike. And in your... So wrap that into an investment thesis that you could interview.

Starting point is 00:45:11 So if it is recessionary, the hedges are in place, if it's just another technology, who knows, right? To me, and I invested in Anthropic, actually in the depth, it said the U.S. labor market, $60 trillion.

Starting point is 00:45:25 and their evaluation they were raised in money at was based on saving $15 trillion of that. So my grain went to like, what, if you take $15 trillion out of consumers' pockets to spend in the economy, that's right? That's a big problem. So I tangented there, if that's a word. But are you using it in your investment process? Are you seeing managers you allocate, right? Everyone had those Twitter, and I was like five years ago, right?

Starting point is 00:45:52 There were all these hedge ones that were just going to read Twitter and get the, I haven't seen many of those succeed. But is anyone you're allocated to or in your own investment process using AI? So we use them, we don't use it exclusively. I feel like it's one of these things. Well, yeah, AI helps smart people be a lot smarter, but it doesn't make a stupid person smart. So we use it, but we don't use it exclusively. I'll give you an anecdotal answer here. I have a couple friends who are extremely successful asset managers in,

Starting point is 00:46:22 personally would never have to work another day in their life if they didn't want to and largely manage their own money and used to manage money for very large, either hedge funds or private equity funds. And each of them have told me that in the next three to five years, that AI will manage 99% of their own in the portfolio. And these are two of the smartest people I know. And, you know, but we just met. Just, yeah, but just, no, but just absolutely brilliant.

Starting point is 00:46:51 And my, I think it is if these guys are not as smart as the AI and they are going to trust the AI to manage their portfolios, that says something. In my world, they carry a lot of weight. I had one last liking around question because we were talking about it last night. If your strategy was a WWE wrestler, who would it be a book? Mark's a big fan, so I'm going to start with Mark.

Starting point is 00:47:29 And so I'm going to start with Mark and Saurang. I didn't prep you for this one. I don't know. It's you're a fan. Great question, Jeff. So it's, he's Russell Media Week. So we have to talk about some of the supportive stuff. I mean, it's got to, you know,

Starting point is 00:47:41 that of Puerto Rico. He's got to be a luchador. So for me, it's going to be, you know, either rabis cereal or, uh, pent it. I have no idea what any of that meant. But it sounded good. And you got some claps. My wrestler would be Logan Hall.

Starting point is 00:47:56 I mean, Captain America. He lives Dan Zera. Yeah. does down the road. A little bit crazy, a little bit out there, but still the strongest and still the best. I'm light on my knowledge of wrestlers, but I do walk around my house telling my wife all the time that I'm Rick Flair and you're not. So maybe that. And the Jeff, before he flows, I do want to point out so that I'm going to gasperent's head up for a second. I find it really interesting. With some of the smartest things I ever hear are some of the most obvious things. And it's like a bend wall amenda brought, right? When you brought up fractal geometry and said, look, those trees are not. You're plightal. We go, oh, shit, no shit. I knew that my whole life, but nobody said it. So that's a genius that Benoit has. I think people need to really consider what Brent said about the law of one price.

Starting point is 00:48:37 We were talking about it last night, and even if you want to trade oil now, B-T-I versus Brent are going to have very two different, very different price structures and maybe term structures moving forward. And I think if you learn anything from these days here and probably there are nothing from our panel, but hopefully you remember Brent's brilliant comment about the law of one price that we lived under for the last probably 40-plus years, maybe a shift moving forward currently and into the future. Love it. We'll leave it with that. Everyone, if you enjoyed this, go listen to the reviews, sound loaded, and you do this our phone.

Starting point is 00:49:10 Thank you. All right, that's it for the pod. Thanks to Jason. Thanks to Brent. Thanks to Mark. Thanks to Jeff Berger for producing. Claire with an assist this week. Thanks for the folks at Uncorrelated for letting us do the podcast down there.

Starting point is 00:49:27 And check out for Mark, Brent, And Jason will put in the show notes where you can find more info on them. Peace. You've been listening to The Deriviviv. Links from this episode will be in the episode description of this channel. Follow us on Twitter at RCMaltz and visit our website to read our blog or subscribe to our newsletter at RCMaltz.com. If you liked our show, introduce a friend and show them how to subscribe. And be sure to leave comments.

Starting point is 00:49:56 We'd love to hear from you. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations nor reference past their potential profits, and listeners are reminded that manage futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The Derivative - Status of Alternatives - A Live Recording from Uncorrelated Puerto Rico

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