The Derivative - The Polymath Pod: Jason Buck and Zed Francis talk rates, vol, and cheeseburgers?!

Episode Date: November 14, 2024

To close out the 2024 season of the Derivative podcast, host Jeff Malec sits down with two friends of the pod, and friends of his - Jason Buck and Zed Francis -  for a wide-ranging discussion on the state of the markets, the unpredictability of macro events, and the importance of understanding underlying structures and dynamics. The conversation begins with an exploration of the unexpected market reactions following the first Trump election (in ‘16), highlighting the challenges of the past, and ends with making sort of, semi- predictions for the year ahead in 2025. The guests delve into the concept of "volatility echoes" and how past events can influence future market reactions. The discussion then shifts to the impact of interest rates, with the guests analyzing the significant moves in the long end of the Treasury curve during the recent election week. They debate the potential implications for asset classes and the role of political influence on market dynamics. Beyond the macro landscape, the podcast also touches on the evolution of option strategies, the rise and fall of "pod shops," and the importance of liquidity and market maker strategies in stabilizing markets. The guests share their insights on navigating the complexities of the financial world. While the core of the conversation focuses on the markets, the episode also features a fun and engaging segment where the hosts and guests engage in a "Mount Rushmore" challenge, sharing their top picks for burgers, dive bars, and fine dining experiences around the world. You found it - the pod that gives you financial insights and culinary recommendations - so bring your appetite for mind and body…this ones’ juicy! SEND IT! Chapters: 00:00-01:38= Intro 01:39-13:39= Recency Bias and the Volatility of Election Reactions 13:40-25:40= GOLD & the Delicate Balance of Market Resilience / Activist investors & Risk Adjusted returns 25:41-37:29= 2024’s most interesting trades & Stability Breeds Instability 37:30-48:51= Rates, Risks, & Realized Volatility 48:52-01:01:11= Outflows, Podshops & Random bones for the future 01:01:12-01:20:20= Menus & Markets: Mount Rushmores of eateries from “Culinary Experts” & 2025 insight Follow along on X (Twitter) and LinkedIn with our guests Jason @jasoncbuck | LinkedIn and Zed @convexitas | LinkedIn Don't forget to subscribe to ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and our host Jeff at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@AttainCap2⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, or ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ , and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-up for our blog digest⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or 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 or potential profits. And listeners are reminded that managed 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. For more information, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠

Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. Hello there. Happy holidays. Well, we're not there quite yet, releasing this a little bit ahead of Thanksgiving, but this will be the last pot of the year year as we'll be taking off Thanksgiving through New Year's Eve as we've done in years prior. So the greeting makes sense, at least to me. So I want to send

you off in style. We've got two of my favorite guests to come on and talk through the election and what it might mean for markets, what caught their eye in 24, what 25 might look like. We're talking with none other than Jason Buck of Mutiny Funds and Zed Francis of Convexidos, both of whom are no strangers to the pod. They get into all the nitty-gritty on trend, vol, rates, and more before we take a little detour at the end and discuss who is on each person's Mount Rushmore for best burgers, dive bars, and fine dining. Send it.

This episode is brought to you by RCM. From clearing to execution, portfolio construction to outsource fund ops. China to Nebraska, RCM has you covered for all things futures and derivatives. Learn more at rcmalts.com. And now back to the show. All right, everyone. We're here with two guys I've never met before. Jason Buch. How do I spell your last name?

How do I pronounce that? Oh, Buck. Buck. Thank you. And Zed Francis. Welcome, guys. oh buck buck uh and and zed francis welcome guys the eye is silent frank's zed frank's uh so i wanted to get my two pals on here uh talk about what's gone on so far this year maybe what people are sleeping on that should have been a story and wasn't,

and even the big stories, what do we make of it, and then what's in store for 25. I'll start with Jason. You love making predictions and macro calls based on elections and whatnot. What's your thoughts on 25 real quick, or what's your thoughts on the overall prediction market, I'll say. I've already been bamboozled. I was told this was gonna be a podcast about food and not about global macro predictions. So the only thing I think is

interesting is, you know, after the first Trump election, you know, 2017 was like the lowest of all environment ever. We had 15 straight months, up months for the s&p 500 now are you going to bet on that for 2025 i don't know you know like it so i think that's i don't think it's a predictor but i think it is fascinating that that's what happened but the reason why as you alluded to i hate predictions is actually there's a story from uh going infinite you know the book about um sam bankman, where he brought up when he was at Jane Street, apparently he worked on a project. So I think this comes from SBF, so I'd take it with a grain of salt. But allegedly, he worked on the project at Jane Street for the first Trump election,

where they were trying to get election results faster than anybody else. And they had modeled that for months and came up with a system. And they were. They were getting election results faster. But they expected in a Trump win to be bad for the stock market. So they were shorting the S and P 500. And so they originally were up because they were getting the early election results. They were up 300 million on the trade. Well, in the middle of the night, the markets decided it would be good for the economy and went the other way. And it reversed on them. They ended up with a negative $300 million

loss. And if true, that's the biggest loss in like Jane Street history. And it's a $600 million swing. So like the other day when I had my in-laws were asking me before, prior to the election, what are my predictions? What it will do for markets, et cetera. I always, you know, my favorite answer is I don't know. And nor does anybody else. And said, we were on the golf course with a friend who works at Apple or Amazon, I think. Amazon. He's like, oh, hey, two finance guys. What do you guys think is going to happen? What do you think is going to happen in markets with the election? And you echoed my thoughts. What were they? I'm pretty sure I've said the same thing every time, but just vol crush and everybody's going to move on with their lives shortly thereafter. Yeah, non-event.

Both of us kind of said like non-event. They're both the same in terms of markets probably. I think what's actually interesting is last week S&P option volume was below its yearly weekly average. So you have like the main event and an FOMC meeting and actual trading activity was a smidgen below the average for the year. So you're like, you know, I think that really shows you that it was all the news was pent up, like what is going to happen? And then whatever was going to happen, almost like no matter which way, anything, as long as it ended, we were all going to move on from it. Ted and I have talked about this before. There's a trade where you can trade the IV ramp going into earnings. It's interesting as volatility will tend to pick up going into an earnings announcement. But what's interesting when you do that over multiple quarters and

everything, you start to notice this echo of volatility, where if earnings had a surprise the last quarter, you'll see implied volatility ramp higher going into those earnings. So people are really on recency bias. And I always thought it was interesting in the 2016 original Trump election, it was kind of unprecedented. And so volatility kind of popped during at that at the election night and so what was interesting then going into 2020 because of that recency bias from 2016 even though it's four years ago it's just that one iteration um they were really pricing in the volatility for the election and it was really there's a huge kink in the in the vol surface around the election um on november 5th and so that was interesting that this time it was down a little bit but it just shows that like even these small iterations over you know with four years in between, we tend to price in the recency bias. And then so like Zed was saying,

with this one being quiet and popping, it'll be interesting to see if the next one has kind of a low implied volatility going into it. Zed, do you have any thoughts on that? The 28 one you're saying? Yeah. No, we don't want to talk about it yet, Jason. No, I think it was just too clear like

vol was too darn high right so if you if you remove last week the month ish leading up to the election realized volatile in the smp was between nine and ten essentially and intraday if you just took the high and low uh of the day was like a four so it was like we weren't moving close to close we're moving even less once the market was like a four. So it was like, we weren't moving close to close. We were moving even less once the market was open. So just absolute dead zone. And, you know, finger in the air, you're like, okay, what should implied volatility in the S&P 500 be?

You're like, eh, about 15% what realized is. And then the wings, obviously, that pulls back towards the middle, but like, eh, 15%. So you'd be like, okay, the correct, no event volatility for S and P 500s, I don't know, 11 and a half, you know, 15% higher than 10 would be your finger in the air. Like we went from day before election implied volatility over the last year being like 93rd percentile skew was like 98th percentile, meaning puts were expensive relative to calls in terms of steepness. Vol of vol, people buying calls in VIX was like 96th percentile. And then by last Friday, implied volatility was 50th percentile.

SKU was like down to like 54th percentile. Vol of vol is 57th percentile. We all went right back to like the middle of the last year. And surprise, surprise, one month S&P implied volatility was like 11.6, exactly 15-ish percent what realized volatility was prior to the week's event. So we were way overpriced for a long period of time. Event happens and then everything went right back to, in theory, where it should have been trading the whole time. Historically, has that happened in all elections that you can remember, Zetter?

You have data for it? Or is it because of January 6th, last time with Trump, and because there was the specter of maybe the contest, Zetter, we don't know who wins for a long time? The risk being priced into this event was higher relative to how little risk was actually in the market. So the spread, if you will, from how elevated implied volatilities and how steep skew was relative to the very limited nature of risk that the market had in leading up to the event was very dramatic, that spread. I mean, four years prior, implied volatility, it was a smidgen higher than what it was coming into this one but we were also moving like crazy it was 2020 rather than you know watching paint try and having one of the best risk adjusted returns years that we've seen you know basically since 1995 so very very different

outcomes i think most of the charts will be like just picking a vol number and being like oh you know it was high but not like outsized but you're like well relative to the actual risk in the marketplace it was pretty darn dramatic uh how outsized. But you're like, well, relative to the actual risk in the marketplace, it was pretty darn dramatic how expensive, if you will, volatility was going into the event. Do you think related to that? Like, I was thinking, I'm sure you guys heard the same things. Almost everybody I talked to or everybody I heard talking about it was like, oh, we'll see how long it takes to know the election results, right?

Is this going to be contested for weeks or months? And to me, my contrarian nature just want to take the other side of that, right? Because everybody operates off a recency bias right yeah no i think uh because whatever every poll was like oh he's way up oh she's way up you know whatever the iowa won the week before right and i think the real answer is we know the data truly is just garbage um and polls who answers their phone anymore right there's a number you don't know, are you answering your phone? And what is it? The fun French

guy trade, the thing that he looked at was the ask your neighbor poll, which essentially is forget, you lie if you talk about yourself, but you don't lie about your opinion if somebody says, oh oh what would your

neighbor do uh but you know all this i think is just throwing numbers at the wall and the answer is uh the wings were just as likely as uh nobody knowing and things being close i love this concept of recency bias spanning years and you can probably argue of like well the last world war blah blah blah blah happened right we have recency bias going back 50 years 100 years well it's election cycles right it's just like the you know our other favorite four years of the olympics right but like yeah so if you're talking about a few elections right you're going to be back several decades so it is the recency bias of that and then for 2025 though what do you think like correct me if i'm wrong like this is the whole

thing about markets right why i don't predict is they can, they can do wonky things or do things that you don't expect. So, you know, I don't believe a politician when they're going to get elected. But with Trump said he's going to imply all these tariffs, right? But then obviously, you think about tariffs, you're going to have competing tariffs of everybody retaliating as well. All of that should intentionally, you know, essentially, if you read your read your you know macro textbook should be inflationary um so is that something like we should be thinking about for the future but if everybody the expectation of the inflationary nature of that is like you know like once again back to like just big game theory yes it's the cadency and beauty contest like the example that was like the french you know prediction market guy that thought oh i'd ask my neighbors of what their neighbors think it's again, it's like, is it kind of priced in or expectations? So that was the, by far, my opinion, the most interesting thing last week was the long end of the treasury curve, right? So the, as you're saying, everybody leading up to the election, the known trade was, you know, Kamala wins, that's going to be stagflationary, lots of spending, more regulations, whatever, more of the same,

but on that side of the house, like, oh, Trump is definitely hyperinflationary, lots of spending, deregulation, tax cuts, like, we're just going to, you know, spin out of control, hyperinflationary world. And the first move was the long end selling off almost 20 basis points, essentially overnight on Tuesday. But we never really saw the lows in the long end that we experienced overnight during the trading session on Wednesday. And it actually kind of started rallying a little grind on Wednesday. And then throughout the rest of the week, rates kept on going to the point where 10-year treasuries last week were completely unchanged, no move at all. And it's

because so quickly, the narrative of him changed from hyperinflationary guy to ultimate, de-reg, we're going to find all this productivity gains, like we're going to have growth without additional inflation. And, you know, that was 48 hours, that narrative. Right, Elon's going to fix the deficit. I'd agree, nobody actually knows. The fact that like, this was the beat the drum, definitely the move, it's going to take place and completely reverted in 48 hours, so a completely new narrative. And that comes back to our golf

course conversation with that guy well both are going to spend like drunken sailors yeah right like so it doesn't matter who's going to win in terms of both they're going to spend and then it's just what happens to counterbalance that how do you square gold in that whole thing, Zed? Because it was weird that gold was down at the same time that tenure was down that night. Well, I mean, my joking answer is I don't know anything about gold. And my wedding band is tungsten, even though... You're supposed to say nobody knows anything about gold. Exactly. My doctor buddies say that's dumb because if I ever smash my finger, they can't cut the ring off.

They'd have to cut the finger off. That's why your wedding ring is gold because you can cut it off um but i think back for the day but it's coming in hot i love it there's probably some like uh old british sailing ship background up there like yeah if you got caught on a thing yeah uh but i think ultimately gold was a i I don't know, tail risk hedge. And so similar to vol, event goes by, vol gets smashed. Like, I don't need my hedge anymore. The event's over. And my hedge in that case was gold.

So I do think that's gut shot reaction that people had it as the negatively correlated to equities thing in the portfolio event rolls off. Like equities are happy. get out of the hedge thing and just for some people gold was that thing right but it's like the real traders are buying 10 years for their inflation hedge not gold yeah but you think a part of it is like as you know we talked about this many times before it's like gold is an interesting hedge but not necessarily in the cute time frame you're looking for like over you know decades or, it's an interesting inflationary hedge, but it could be something different. And then I believe, I think Matt Faber was talking about the other day, is like, is this

the first year in history that you have both gold and S&P up well into the double digits on the year? You know better than me. My guess is 2021, but I don't know. That'd be my random guess. Sounds like a blog post. But related to that though, is like speaking of just. That'd be my random guess. Sounds like a blog post. Related to that, though, is speaking of just these narratives and changes so quickly,

what is it, months before the election, Trump comes out as now Bitcoin positive. And talk about just a crazy bull run for Bitcoin this year, and then the last few months, and then even election week, post-election. But also, do you guys think this is just the exit liquidity via via those etfs or the bag holders are now going to be retailer i just think all we know is that the greatest roi is buying politicians right you know you got coinbase like what 75 million pack and you know that stocks up probably 100 in the last month or so or you know elon just doing million uh dollars a day lottery in your state jason uh yeah at least like a hundred hundred billion of personal wealth gain like that's good you stole

my thunder i had that as a question why aren't we talking about those guys as activist investors right that's that blows away any hedge fund that's an activist investor like what did elon put up 10 million and maybe a hundred million of his time to make $5 billion? Right. To your point, that's a huge return on investment. It's shocking how much that if you actually look across the board, like how little you would have to spend to like capture all the government employees on both sides. So it's, it's, it's fascinating that you don't see it even more often. And like, I think, I think that people that are a bit of a stretch when they said if Kamala would have won, he would have been in jail and lost his company so he had to make that

bet but i mean i think that's a little bit too egregious of a comment oh i think he knew exactly like if she won there's nothing that's going to happen to him they're like rule of law and he was fine and whatever he's got a right to his opinion and then if he wants he makes 10 billion dollars so it was like totally a one-sided trade um but you don't think they should be he's an activist investor i want to i want it like right we like akman and all these guys we trumpet their ability to get on the board and like change minds and eke out 13 or something on a stock because they changed the board or got this activist stance and like here's elon like obviously he was doing it for his stock price and for his private his own wealth that's my belief maybe he was doing it for his beliefs but

but you know kindergarten stuff yeah like activist investing is kindergarten stuff to buying politicians that's a story as old as time is political graft right yeah i guess but i'm saying they're like they should we should exactly they're kindergartners this is like ap bio level stuff that they're pulling off with the politicians like they should be trumpeted as the better activist investors especially what would you find out like tangentially all like government jobs in this country and then tangentially related to government jobs is like 30 of our workforce so yeah why wouldn't you that be spending your money there last bit on markets and the election here u.s has massively outperformed foreign jason was sharing with me a chart today or yesterday on uh since the global financial crisis since 07 08 before that it was

not at all right foreign usually outperformed u.s and why would that continue with this new administration why might not it any thoughts on that yeah i mean this was the first move is definitely you know pure usa usa right equity markets like as i said fixed income markets were small rally right you know it's not even like inflationary. Dollar, obviously, was spectacular strengthening last week. So it's definitely the gunshot move, without a doubt, is more of the same, but potentially even more dramatic. Right. But if you take it to its extreme end, right, we become China. Everything's totally nationalistic. We're just going to keep all the money here. We're going to do all this. Like at some end point, that doesn't work out so well right with in relation to the

other countries or maybe we're so unique that it does and we're like if we struggle they're going to struggle more i don't know but part of it is their the chart i sent you was like historically um for the long arc of history like markets, it's like they have 53% dominance by ex-US global stock markets, where since the GFC, that's only 18%. So that's just having American dominance since the GFC. And then more importantly, like, you know, I knew it was high, but like, I keep asking people is like, since 2010, what's your guess of multiple returns for the stock market? Like, what has been the multiple return since 2010 uh if you're invested in sp500 only what do you mean like the average annual return yeah well average annual return equals your multiple over the 15 years like how much you think you're up i mean multiples are double a little bit more than that actually but the

multiple is 10x like it's like your return on spot right yeah. Yeah. Yeah. Yeah. You're you're talking about. Yeah. The PE multiple is double, but then the return is 10 X. So we're at like a 15% CAGR since like 2010. Like that is an unprecedented run in world history. I knew it was good. I didn't realize it was that good. And I was just thinking about, you know, people that were in their peak earning years, you

know, 15 years ago when they're in their fifties and now retiring is like a 10 X return. I mean, granted, they probably weren't in SPY only. They're probably in some sort of target date or 60, 40 or 80, 20. But I find it fascinating. But also the problem, Jeff, though, with this that I, you know, always take umbrage with is that we're talking about a narrative, right? And the pernicious thing about narratives is they're strongest at tops and bottoms. So right now you could tell a great story of American exceptionalism, and it's easy

for us to do as Americans. But also like part of that story is that, you know, Europe and Asia can't compete with us on AI and the technology front. And this country is going to continue to outpace everybody on both, you know, work ethic and ability to innovate and have the most innovative companies in the world. And all of those sound great when you're telling you the story and hindsight bias. like a lot of times that's right at the turn right yeah and it helps that they have that 10x history to prove it right yeah exactly yeah because what's the x us over that same time 2x 3x maybe yeah if that no i i do think it's mind-blowing that returns the last essentially 18 months have been so spectacular and it doesn't get much coverage if you will right it's like realize volatility has been basement and returns have been spectacular like the only in the last you know our lifetimes that are like somewhat similar is 2017 and like returns were less but vol was truly zero uh 2013 was pretty similar to right now. And then 1995 was basically the best of the best. It was high 30s returns and something like an eight realized volatility. But this is pretty rare how spectacular risk adjusted returns have been in 2024. And that's obviously after a pretty spectacular you know quarter leading into

2024 so we've had one heck of a run uh and yet the market's pricing and you know very very little risk you know i i had to like check it three different times that i was shocked that high high yield spreads are now 273, which is the tightest they've been since the GFC. And really it was only like a quarter and a half in 2007 that they were tighter. So you're like, and like, you know, Oh five, six, seven spreads. We're very, very tight due to aggressive securitization, really grinding the gears tighter and tighter. And we're like almost there. So it's like credit markets are saying no risk

at the moment relative to history. We have spectacular returns as we said, and yet everybody, everybody now seems to be max bullish. Like I can't find any negative articles about anything. Yeah, that's the, the sentiment's the highest it's been in history, right? For bullishness, which as you know, is a contra indicator.

But like your two points that I think we're up like through today up over 26% year to date. But if you go trailing 12 months, it's 38%. And then if you go probably like you're saying 15 to 18 months, it's even higher than that. And yeah, it's just like insane to think about. But I always think the counter to that would be, and like you're saying, credit spreads being so tight is stability breeds instability.

Hyman Minsky, right? Like this is what happens as everybody says, oh, there's no risk anywhere to be seen. And it's, you know, bullish sentiment at its high is like, when does that crash come? But then I also at the counter of that argument with going into 2007, 2008 GFC, we had gone 1400 trading days without a negative 2% move. So like the market can just keep ripping like this much longer than we expect.

It's just, we don't know when that's going to happen. And one thing on your sentiment side, the bullishness on equities, as you say, is basically at all time highs from sentiment, but bullishness on bonds is also like about as high it's just like straight up by everything that's crazy given right bonds doesn't have that past three-year profile at all i mean that's that's a contrary right there people are bullish on them because they've gotten so beaten down question yeah i think it's as you say it's the you know

i guess by america right it's it's all yeah or is it but jeffy i think it's as you say it's the you know i guess buy america right it's it's or is it but jeffy i think you're though you're talking about like nominal returns in the drawdown where maybe zed's talking about like we were talking about mailbox money people just want those that that income right it's like a ubi for the rich right if you can afford to hold treasuries you're getting a nice stable income yes my here's the the democrats are idiots full stop no but like they should have been trumpeting like hey we're at all-time highs this is the best performance in the market this year and that year like no one was talking about that per se right of like it was or the the Republicans were genius of, oh, things are

terrible, things are terrible. Ignore the stock market. Yeah, that's only for the rich people. What does a four-year bookend have anything to do with global economies? Absolutely nothing. Yeah, we pretend like the president has some control over global economies and asset flows globally. It's insane. Yeah, and inflation, right? Like inflation was all COVID. Why are we pretending it was one party the other let's switch gears a minute talk what kind of strategies or markets or things surprised you in this year in 24 as i'll mute myself yeah go for it jason you have uh more of a broad view i don't know about surprised right like that was uh that's the hard part like what is surprising you found interesting yeah um i mean it was interesting like uh from a i'll start with

a commodity trend perspective right q1 we had the big coco trade and it was interesting, like, from a start with a commodity trend perspective, right? Q1, we had the big cocoa trade. And it was interesting that commodity trend following was doing well at the same time the stock market was ripping, which doesn't necessarily always happen. But as an uncorrelated asset class, it does happen over time. But what I think is more interesting about the cocoa trade is that, like, if you have the classical philosophies of trend following, you should have as many markets as possible. But what is interesting when people build trend following systems, a lot of times they'll be like, well, Coco hasn't trended in two to three decades. So I'm not going to include Coco. It's a non-trending market. Well, then right when you needed it at most, all of a sudden Coco started trending for the first time in decades. So I think that's what I think is interesting is more surprising on portfolio construction when we're going back to this idea of recency bias, when you maybe exclude markets because they haven't performed the way you want to, whether it's convergent or divergent trades, well, that can easily flip and kind of show up right in your face. Go ahead. No, don't go for Jeff. I was going to pivot. Go ahead. Come off that.

All right. Well, my pivot was essentially, to to me the most interesting thing is the risk on risk off light switch is just flicking even like faster you know it's it's been a pretty consistent theme since the gfc that as soon as there's been oh geez there's more risk in the system and it bleeds out you quicker and quicker and quicker. But man, August was pretty phenomenal. How essentially the event week, actually markets were flat, vol was down, vol was down. And it's like, it just could not retain any sort of risk off environment from seemingly like hours at this point in time. So I

think that was the most mind blowing part is that we're more aggressively leaning even down that tunnel. Do you think part of that is technology and risk department, right? Or like things are more real time, we have more idea at a hedge fund at a bank or wherever of where everyone stands, what the actual risk is and technology, we can either flatten it out right away or. So I do think there's one big structural reason why that can happen. And I think prior to essentially 2010, most of the risk was warehoused in a handful of institutions that all acted incredibly similar, right? So investment banks were the residual dumping grounds for risk.

They would welcome that risk. That's how they made money. And they all had very similar, you know, shock profiles and mechanics of how you de-risk and things along those lines. So it's like concentrated holders of risk that had a very similar reaction function was what we were in prior to 2010. Post-2010, they've been kind of removed as the main risk takers. And now the new risk takers are dispersed. And they do many, many different things. They don't have the same reaction function of how

they have to remove risk they have different models they have participated in different markets and because it's dispersed around these players with different reaction functions the ability for when there's a risk off event to have somebody in that ecosystem click the switch to actually start taking more risk is just very, very, very different. I think that is the structural change that's taken place from call it, you know, the mid 1980s through 2010 and then 2010 on is just where that sets. I would argue those new groups have more skin in the game and they're losing their own. Right. Versus the guy at the investment bank desk who might lose his bonus or whatnot. Yes and no.

And he's maybe puking out, but, well, it's not my money. As long as you have the liquidity, right, not to step on Zed's toes, but as long as you have the liquidity there, the spreads have widened, so you have a much more target-rich environment. You have a higher P&L in those. As long as you don't get blown out

and you have the parameters where you can step in with some liquidity, you're even better off. And almost like to Zed's point, it was amazing to see that was the fastest vol crush in history, you know, from a vol spike. And what was interesting is like, even if you look at like volmageddon, which was a pretty idiosyncratic siloed trade, right? It still took months for the vol to get crushed back down technically. I mean, most of it's towards the end of the month, but it still took months for it to

trail off where we're seeing days or weeks now. And do you think part of that related to what I was just saying, those that is like, you know, those players after the market opens, you know, and we start getting more liquidity come back in, people are covered those positions whoever got blown out, then they know they can step right in. And this is a this is a real opportune time as long as they have the liquidity to take advantage of those wider spreads. Yeah, I think ultimately the mechanics of, we'll call it the new regime, is they have the ability to just say hands off. And that was much more difficult for essentially banks to do, right? They have customers calling in like, hey, I need to do this. I need to do this. These guys are not beholden to any specific customers. They're just like, hands off, let dust settle.

Upstairs, they're saying, how much juice do we have to actually lean into this move? And they come with, okay, this is what we're willing to, you know, put to work in terms of risk budget. And then when they get comfortable to do so, they are aggressive. It's not a slow bleeding into market. It's like, okay, this is a risk budget. What we think is appropriate here, like go. And that mentality of both being able to step away and then put the foot on the gas

versus everybody prior is, you know, risk manager tapping shoulder, like, you got to get out, you got to get out. Like, no, no, this is the opposite. They're like, all right, we've been kind of just blocking and tackling market making, doing our thing. And now these are the events we're looking for. Like, how much do we want to put at risk right now to take advantage of, you know, this change in situation?

So totally different mentality versus, you know, feeding into the problem. Like they're kind of like crushing the problem to be opportunistic at this point in time. And it has worked so well, right, that that risk budget number has probably been going up and up and up, along with those same institutions have been getting bigger and bigger and bigger. So they have the ability to lean into it more. So that'd be my main gut is basically the amount of money at risk that they're willing to put in each event over the last 15 years has only accelerated both because it's worked well and because it works well, they're bigger. Tangentially related to that, do you think, because all of us are entrepreneurs and business owners on this call, I think it's interesting that like, without naming names, but there's a prominent options market making firm down the street for me that was started by five partners, but it's all their capital. So do you think part of that is like, without having the institutional infrastructure, they can move that much quickly, because they just make one phone call and say, hey, this is the risk I'm willing to put on. They say, here's the parameters.

They say, go for it. Like, instead of having to run up and down an org chart. No, completely. Like that's what I mean. It's just, it's faster and faster because again, confidence to take more risk increases after you win a bunch of times, you yourself are wealthier. So like the numbers are bigger and your conviction and doing the right thing obviously increases the speed at which you're going to say go for it but so say i'm one of the four people listening to this podcast the and i'm like oh well these guys say these guys just come in and support the market and it bounces back why why don't i mr retail just come in and buy those dips what what could go wrong well you probably don't have the uh fortitude to withstand being wrong it's just is probably

one of the right but if i base it on those guys are going to come in and support the market they're going to always sell the spikes they're always going to buy the dip and but that's that's the nuance i think of what zed's saying is that light switch is so much faster what we're saying is like when they they pulled and pre-market on on monday august 5th but then once the market opened and things started to settle down and they saw the opportunity in that set, then they turned back on so quickly and just started taking fistfuls of making markets. So that's what I think Zad's more saying is they will only turn it back on when they see the opportunity set in their favor.

So if it cascaded the other way, they would all just stayed outside. They wouldn't have made markets, right? They would have stayed on the sidelines, which is why we saw this irrelevant VIX index number is because the bid-ask spreads were so wide and it was skipping over strikes because they just stepped away, right? But like the Zed saying, they can step away quickly. They can step back in quickly, but they may just step away permanently if they don't see an opportune set. Is that a fair way of categorizing?

But also to that point, then everyone turns the off switch. There's no more selling pressure. It's just, you might not be able to survive a week waiting for the event to end. And these folks can survive more than a week. Right. But like you guys are two in the weeds, I think the nuance to me is nobody understands

nuance so they're just gonna be like no it always bounces back the ball always crushes back down and now it's doing it faster and faster and faster just and even to your point i don't have to be retail trader i can be the guy with his own money of like you're saying of like oh last 10 times this was the best trade we've ever had let's do it the 11th time or you're saying and maybe they were risking two percent of their equity now they're risking five now next thing you know they're risking 10 yeah it's tina and btfd yeah from your point people are going to keep buying the dip until it doesn't work stability breeds instability but yeah we're talking about the nuance of the market makers might pull away permanently or they can come back in when they think it's opportune they're

just much quicker and so yeah it looks like as they have found opportunity sets to still make markets it's been a buy the dip mentality where that can easily change well but maybe yeah i'm arguing that maybe it can't maybe we've we've entered a new normal where right they can come in they turn they have the quickness to turn off the switch they don't cause that cascade and then there is no cascade because they're not nobody's causing it right absent some huge whatever 9-11 type tragedy or something's happening where every mom and pop person is selling also yeah but i think you're we'll call it feb to march 2020 waterfall as a good example like i think they were you know the market makers in general were a big stabilizing factor the latter half of february and you'd even argue kind of like that first week of march but you know

then they're like man this this is not a uh a snap recovery here let's uh adjust the playbook and the risk that we're taking and then you saw things go actually haywire the next couple of weeks. And if you were just random retail guy, you're probably gone by the time we get to May 1st. And Jeff, in your scenario, it's not the market makers. It's that everybody is fully risk on and yields are getting compressed. So they're taking more and more leverage to get the same amount of yield. And then now the panic happens so quickly, they have to really reach for those hedges. And that's what explodes the value of those hedges, not necessarily the market maker stepping away. Related but different. Do you think, I'm already seeing it. We're already seeing,

probably all of us seeing it, right? One, you have all these mutual funds with alternative income, which is just selling options to more and more option selling strategies. Hedge fund strategies are coming across my desk. Like, look how good we've done the past three years. And right. We started in 2021. We have a sharp of 6.4. Like, how does that end?

Same as it always does in tears but do like do people need to be more cautious or right i'm kind of going back with this this time's different theme maybe right so that's what that's what those guys are pitching of like this time different we can use zero dte we can do quick hedging with this and that. Right. So I think one of the biggest misnomer for what called that broad category is that they're short vol products. The risk that they're taking in general is the main one is not short volatility. And as these iterations of products have evolved, it's become less and less in terms of the overall risks they're taking in the short volatility category and more and more in the long delta and essentially selling skewed jump risk, anything in that category. But very few are selling volatility and very little of the actual risk taking is in the volatility camp right because like you're trying to be a little more specific on that for my buddy george at home yeah like the

purest you know short volatility type of situation would be selling like five-year variants like we're truly harvesting implied volatility versus realized volatility. We're selling volatility. What these things are doing in general is selling, we'll call it at the money, puts and calls. They used to be doing maybe a little bit of three months, probably mostly one month, and now it's one week, and now it's one day, going along that trend. If you're selling a one month putter call, the main risk in there is the 50 Delta. It's actually directional is the number one risk that you're taking in there.

And like one month, we'll call it half and half, you know, short volatility and short jump risk, you know, something like that. But as you get closer and closer to-... Because it'll go right into the money and then you just have a long future on basically. Exactly. The point is the main risk in these things is delta. And as you get shorter

and shorter, you're shifting more of that short vol risk towards jump risk rather than short volatility. And delta is an almost increasing component because a one-day option is binary. It's either a zero delta or a hundred delta.

That's the main risk that you're ultimately taking. So it's delta, then jump, then, eh, you know. Implied volatility matters a little bit for what the price of that option, but that's not the risk. If one-day option implied vol goes from 10 to 100, oh, there's one hour left on that option. You're not even going you know, one day option implied vol goes from 10 to a hundred, you know, oh, there's one hour left on that option. Like you're not even going to see it in the price.

Like that's not the risk that you're taking. Maybe we need to change our terminology to selling risk versus buying risk instead of selling volatility. Well, I think maybe, maybe let me say it another way. Cause I think one of the nuances that was saying before, I mean, let's exclude zero DTE for a second, but let me say this back and see if I have it right. It's like historically short ball trades, right? Let's just say a simple, like they were selling deep out of the money wings or something, right? And they're collecting that premium. That's a pure short ball trade. But now you're saying people have long beta that then they're selling covered calls or they're collaring, et cetera, or hedged equity that they're just foregoing their future income, so to speak, for income now, right? And so you're saying that that is a much more slow grind of losses where it's more the whipsaw

losses where they get the pin risk on the way down and on the way up. And then people will be like, well, this underperformed my S&P positions over a quarters or years. And that's what they're going to take it off where if you had a pure short vol position, you can blow up in a day. Well, I mean, if the risk you're taking is short volatility, your P&L should move based on implied volatility changing or your every single day realized volatility being more or less than the implied volatility that you sold. And essentially none of these products care about changes in implied volatility. That's not what's driving the P&L, nor necessarily the realized on a daily snippet

versus implied volatility. It's delta or it's jump risk. So delta, obviously we'll say like 50 delta, like the fact the market goes up every day, that's what's causing you to make money or your risk jump. Oh, you're, you know, August 5th, your Delta went from 50 to 100 like that because you still jump, not necessarily volatility. You know, the last year realized volatility has been lower than implied volatility. Selling volatility would have been a profitable position, but essentially the ultimate numbers in a, we'll call it a productized world,

meaning where people care about notional, are too small. They're not exciting profit numbers. You got to put up too much. Right. So it drives everything towards taking more and more Delta risk and taking more and more jump risk because those create bigger numbers in a product ties, i.e. notionally driven world. the notional amount of risk that you would need to equate to just sign again we'll go to the extreme like one day at the money options is you know five six seven times like from a notional perspective that would be like the risk equivalent um but that's just not how products you know necessarily work people get really fixated on one-to-one and so thus we've ended up in a world that's selling a lot of jump risk and taking a lot of Delta risk, but not really selling much volatility.

Do you think those take out the beta components of those products? Do you think their option strategies are terminal break-even? Like as if I was just selling the volatility naively back in the day, right? Is it collecting, collecting, collecting on that risk until it doesn't then you lose everything you collected so where these things go haywire is is actually more of a like uh december 2018 because again like the products are built in in like a notional landscape right so it's like you know margaret goes 20% tomorrow and it's only down 18%. Like that's, that's a win. Right. It's like, it's not great, but like, Hey, like that's fine. It's,

it's gappy moves with some chop where you have the, Hey, I lose 3% Monday and Tuesday. I only make 50 bips and then i lose three percent you know wednesday and then hey i make 50 bps thursday on the recovery kind of thing and you keep doing that over and over again and you're like whoa december like the market by the end of it was you know only down you know 10 i'm down 20 what the heck happened there now that is the problem like it's it's it's gappy moves with some chop likely over a shorter time periods or really jumps out to you where you but they know that perform the market of one in 21 and 50

type month years right so there were the product Isers are willing to take that risk okay we have this small risk of this kind of move happening. Let's take it. That's how it initially starts off, right? But then everybody piles into the trade and now you got to bring your strikes in tighter, right? So then you just change the probability distribution, right? And then like Jeff, you're saying like, you're just saying like basically options are zero sum over the long term. Yes, but there's tertiary effects of rebalancing what's the rest of your book look like and are you hedging your you know external business risks and other ways of looking at it yeah i mean like listen like the i guess 18 is

like the funnier for a lot of stuff but like you know evolve again in february 2018 that that was essentially a we'll throw everybody in the basket of like people that essentially try to harvest skew or sell skew. Like that was them. Like that's their, you know, really, really bad outcome, but that's tough to put in like a, a, a non LP type of product. Right. So like the product people are very notionally driven. You can't really sell harvest skew in a notionally driven world. It's like, again,

just like the potential return numbers are not interesting at the end of the day. And so where you get problems in the productized world is just that, like, if we just went up and down 2% every single day for like 30 days and the market's completely unchanged, the product world, people are not doing well. And that's when everybody goes to like what the heck happened like the market is unrich and i've lost a lot of money like that's confusing like you told me my risk was notional one-to-one like how did i lose more than just owning the

underlying risk which a way to think of that is if i'm delta hedging that constantly right i'm losing on my delta hedge on both sides yeah no and that's why most of these things back before you know recent world kind of did the one month don't do anything like there there is a reason why uh you know the largest hedge equity product out there does longer iterations and doesn't touch it because you know they may or may not win or lose you know the coin toss at expiration but they can't get chopped up which is ultimately what you know ends these products what looks worst on the marketing brochure right yeah and then to put to also to syncretize that i think what you're saying too is it's interesting is like you can't build up

enough of that like skew harvesting or whatever to be too big to fail right it's always going to be a small product in a niche product where these products the it's really death by a thousand paper cuts right and by going quarterly or whatever on the rules they've extended you know so it's more of that slow bleed out before as people slowly rotate out of those products because they're not performing with line with their expectations yeah like i mean like obviously obviously the main one and december 18 was the iron condor folks, right? It's like, hey, this is meant to be, you know, two to 3% yield enhancement to your portfolio. And, you know, we're selling put spreads, call spreads, meaning like the max risk is whatever the difference in between those strikes are. And you're like, yeah, that's the max risk for like that iteration. But you can do that time iteration of a week, a month, whatever the rebalancing schedule is, infinity amount of times as time goes on. And so that's how you end up in those situations where like, well, they rebalanced or things expired, then you did it again. Well,

you lost that tranche again, and they lost that tranche again. And that's where the chop really just eats the notional style products you know and i'm just because they just lose more than the sp500 which everybody thought was like the max possible worst case scenario and my brain just goes to like an article in four years of like well mrs smith didn't know she was selling jump risk and this when she invested in xyz alternative income fund she thought they were like loaning money to teachers or something i don't know right it's like that's the big disconnect for me of like what they're calling it marketing it versus what's actually happening under the hood seems to be a

pretty wide wide division there and either way jeff you're gonna look like an a-hole right like when you're saying before like warning about the the returns of this then everybody's going scoreboard we're crushing it why don't you shut up and then after the fact is like are you are you you know stepping on mrs smith's neck after this are you calling her an idiot like how dare you like you're this is not a good scenario to even be talking about we talked what interests you which we got got into. What about what sucked? What kind of strategies? What things were like really poorly performed poorly in 24?

Right. Like any in your world, Zed, dispersion, skew, any of that stuff? No, I mean, what was not fun was essentially the last, you know, we'll call it eight weeks because implied volatility again was extremely elevated, realized is basement. And, you know, there's not much to do other than do your best hand fighting to acknowledge that. Realize needs to do something to get. Yeah. Acknowledge that like, yeah, options are just too darn expensive. And we all know why.

And we all know that's going to stay that way until it rolls off. But, you know, hired to do a job. And so you have to still keep trying to do the job the best you can. So, yeah, that last eight weeks was not fun.

Very happy to be past that. We already talked foreign versus value verse growth right the Russell had a few crazy big moves but overall right nobody cared I mean I you you had that in your like notes of things to talk about and I might really pay attention overly like the narrative is growth is better I just went to like a couple random random indices. I think more than anything, it just screams like, this was just an awesome year. You can't lose anywhere. I mean, like whatever value index I picked, they were all up between like 20 and 25%.

Like, yeah, the growth stuff was like pushing 30, but you're like, man, like the bad thing was up 20 to 25%. And I always wonder, like, it's not even like growth versus value, Jeff. I think the overarching thing is more rotation and pod shops. And that's when you see those big spikes in a day, like on a Russell or something like that. It's to me, it's more like rotation from, you know, these, these, uh, pod shops or whoever's trading faster. And that's what people then assign it to growth versus value. But that, that may be a misallocation of of what actually happened the other one that absolutely sucked this year and jeff you have a long history of this is like commodity trend following right

for all of the returns you just said it was awesome with coco yeah yeah it was great q1 uh but then you had the commensurate drawdown so this is why historically it's going back to even what zed said about you can't, you know, things, you know, they can accumulate large size, tend to accumulate large sizes as the good times roll. But that's why the maybe you have never seen truly large size and commodity trend following because most of them have more ratios of 0.2 to 0.3. So you have to take these commensurate drawdowns a lot of times after you have good years.

And that keeps, you know, money from plowing into them a lot of times because they take some pretty sharp drawdowns and it can be quite painful to hold that asset class. And you mentioned pod shops there. Let's touch on that real quick. I know you've talked and interviewed a lot of them, Jason, right? If all the retail money is flowing into alternative income, it seems all the institutional and professional money is flowing into pod shops and that model.

What do you like? What do you dislike about that model? There's a couple of things. One, we're actually starting to see outflows this year. So this is the first year of outflows since 2020 in pod shops. I think it's still de minimis,

but I wouldn't put too much credence in that. What I think is interesting and not interesting about pod shops is the actual PodShop model has a sustainability and survivability to it, but I'm not sure there's that true alpha that they believe with the PMs below it. And what I mean by that is, you know, I've talked to some of the best, you know, people in the analytics that have really analyzed different PMs for PodShops and even persistency of returns or the persistency of this alpha

they're trying to use with their, you benchmarks, they will limit it to like two to five years of just one regime. Because as soon as they go into more regimes, it looks like they have alpha decay. So I'm like, yeah, of course they do. So why would you do that? But then if you think about it from the 30,000 foot view of the actual pod shop, and you're cutting 50% exposure at down three three and then 100% down six, and then you're replacing them like Lego pieces. That's how you maybe get the returns from these pod shops continuing to move forward is because it's more about the emergent portfolio aspect.

If you get with running hundreds of pods versus do these individual PMs, do they actually produce alpha in some sort of sustainable manner? I'm absolutely dubious to that. And then the other thing that makes it exceedingly difficult is after 2020, when you had all this money flowing into pot shops, and especially in 22 and 23, is, you know, when they're spending $50 million bonuses to get these PMs that they think have alpha over the last two to three years, is that likely to be persistent? And how much does that detract? And then eventually, when they've had these like kind of lower single digit returns, you see the institutional allocators getting upset um because then they start looking at those pass through fees and now that becomes

a problem and instead when they're putting up double digit returns that thoughts you've been anyone trying to poach you and put you in a pod now i was gonna say like i mean the you know we'll call it rise of the pod shop was one of the reasons i left uh being at a hedge fund in 2013 uh you know for the first call it six years of my career when i was at a long short distress hedge fund like we had serious edge that we can enact and like you know did well uh but you know post kind of 2010 2011 really came to the conclusion that if you weren't massive it was going to be really difficult just really difficult because you became you had to focus on not only like you know what are the the potential risks that we can take but

how do we get out of these? Because our capital base is not going to be stable. You just had to admit that unless you're massive, your capital base was going to fluctuate, which then drove you into less and less attractive positions, knowingly so, because you had to worry about operating the business side of investing way too much. And, you know, along with that, obviously you get less favorable terms in terms of ability to access very various, you know, leverage and things along those lines. And I just came to that conclusion after, you know, kind of 11, 12, I was like, I don't think unless you're at a behemoth, the hedge fund industry is going to likely be successful no matter you know how great you were

as an investor so drove you to you know you had to go to one of the behemoths like and you know i think that is the attractiveness of the the pod situation is it allows you to in theory have somewhat of a stable capital base and and things along lines. But now you're like, I got my risk overlord as an individual pod within the shop. So it's a different type of instability of capital. But yeah, it's not surprising to me, this is where things ended, if you will. Yeah. My signal, it might be the top for pod shops is there was, we talked with a group the other day, it's like a cottage industries formed of finding those traders and getting them out, right?

That the pod shops are hiring these groups to go in and kind of like pod recruiters, essentially, which I'm sure has always been there, but it seems it's more focused on that trader aspect than someone, right? They're not, these people aren't on LinkedIn. They're not saying they want out, but they're being recruited to get pulled out. Last thoughts on what could be in for the year ahead in terms of Zed, in terms of Vol?

We'll finally see some realize, who knows? Yeah, who knows there? I think the main thing I'm focused on for 2025 is the return for rates actually being in focus um i i think i think the long end of the treasury curve is going to really tell you like what what what is going to be the the game plan for most asset classes uh in in 2025 and it's of course it's like you know nobody cares about cares about inflation anymore. So that's gone. You know, we've, we've had our like backup and treasuries, but it's like, Oh, you know,

we're, we're hanging out at four, three and tens. Like we were at five like a year ago, like this is all good and fine. So I think everybody's really ignoring the, the concept that, you know, your, your discount rate matters for, for the fair value of any asset class. So to me, it's 2025 is can rates kind of remain in this lazy mid-fours range, or do we actually get some significant shift? And I think that'll be the main driver of risk in 2025. And for me, Trump, as a real estate guy he right he hates high rates he's

gonna be like lower lower i need to get right everyone know my real estate friends needs to get these deals done at low rates yeah well i think that's i think that's a funny way because everybody obviously you know howell leaned into it last wednesday for from the question of you know like oh like can you be fired and him being like no uh but i mean like these aren't these guys gonna be like friends this time around like they didn't like each other because he was raising rates and you know 18 right like he's in rate cutting cycle mode they're gonna be friends yeah it was where they didn't give him like a 50 i mean i guess he gave him a 25. Yeah, but to me, there's no way that he would, Trump would want or allow higher rates.

Then that's a whole nother question whether he has that authority to control that. Yeah, and I mean, again, the longer end they have less control over is the real answer. And long end holders are kind of topped up. I mean, the pension community is already kind of de-risked. So like there's nothing additional to buy insurance.

Yeah, they sell more product. They need to buy more duration, but that's not, you know, an overwhelming move. It's like a GDP growth type of situation. Sovereigns don't really are not exactly excited by US paper. And at the end of the day, what stabilized rates a lot was actually retail, wealth, anything in that channel, actual taxable investors were decent buyers of duration in 23 and early 2024. And I think it's as simple as, you know, as Jason said, we got a bunch of, you know, older folks with a lot of money that got brainwarped by, you know, zero rates for a long period of time.

And so they viewed four as like, wow, that's amazing. Like, let's go ahead and work it in. But like, that's kind of one time-ish of an adjustment. And then two, I think the messaging for those folks is actually shifting, not even necessarily like FOMO, but I think they forget that you pay taxes. Income rate, I'm at 4%. So the whole like, geez, these darn treasuries made me get a really big tax bill this year like it makes it seem a lot less attractive so i i kind of think the natural home for all this paper that we know is coming down the pipe there's there's not a lot of places to stash it so yeah isn't there an etf

for that now where you can buy they give you basically the t-bill rate without taxes um yeah they're let's not that that's debatable on whether that's going to carry into the future so let's point that out but as as they as zed and i have the eternal debate is like i don't think people care about taxes more than care about mailbox money they just care about getting those checks and then they'll worry about the taxes later and then jeff i'll play your game i'll throw you out two random bones for you for the future one was uh i heard jared dillian say this the other day so maybe some other people have been saying is like his uh you know conspiracy or maybe two percent probability is that uh biden steps down now and kamala goes ham or yolo for the next few months and that just throws a wrench

and everything so that i thought that was interesting and then we could get our first female president yeah yeah there you go and then i would go the other one out of the blue is i'm long tritoons right now if i've seen anything it's like these boomers have a lot of discretionary income and they love tritoons i think you're late on that but yeah the uh because that yeah bentley or whatever the b name that one big group sold to barrington yeah they sold to seeoo like three years ago so you might be late on that trade but for sure yeah they're like oh I have a double decker I can turn it 90 degrees with a skier on there I'm I'm big on that myself we're going to nominate some Mount Rushmore's

for food this is really your guys favorite topic and as Jason alluded to we we told him to nominate some Mount Rushmores for food. This is really your guys' favorite topic. And as Jason alluded to, we told him to come on and we'd talk about food. So Zed is my go-to here in Chicago. Like, hey, I've got, not only does he have good restaurant recommendations, he can give them specific. I can be like, hey, I got some college friends coming into town. This is the vibe. Oh, I've got my old physics teacher coming into town. We need this vibe.

I've never had dinner with my old physics teacher. But you get the vibe. Oh, I've got my old physics teacher coming into town. We need this vibe. I've never had dinner with my old physics teacher. But you get the point. So Zed's good at that. Then Jason is well-traveled, knows little dive bars, knows fine dining, knows everything. So let's just do, we'll start it off with my, and I borrowed this from Bill Simmons, right? Instead of like what's your favorite he has you do a mount rushmore so then you get four right instead of just having to pick one who's better jordan or lebron michael jordan obviously but fine they

can both be on mount rushmore they can both be up there and then we can argue who's up there so let's start with burgers. We can get, we'll, we'll do back and forth. Everyone put one on the Mount Rushmore or you can each have your own Mount Rushmore. I'm excited to see how much Zed and I crossed over. I think there's at least two places we're going to,

we're going to cross over, but Zed can start. So we're just going one each to start. Yeah. One, one each. You each get four, but one each.

Ah, geez. All right. So to me, the best burger is without a doubt the black label burger eminata tavern and i knew you're gonna i knew that was the first crossover we were gonna have right there yep all right i've never had it all right i gotta go black i gotta go off of mcdougall street yeah minetta tavern i knew that was good i knew that was that was one of my guesses that we're gonna have crossover so seeing how you went more uh you you went outside chicago for that one

i'm gonna steal a chicago one from you and i'm gonna go warlord concur that thing is i went back there the other night oh boy that thing's good um yeah but zed's had that and you put it above you put the black label above and what a great restaurant name warlord it's the best name yeah uh Zed you're next so you're not going on this Jeff are you not you're not participating Jeff is this just I'm not participating yeah it'll take too long so I'll go a weird one uh because it's the hog salt family but it's not ash of all i actually think the burger at armitage ale house is spectacular that place is blown up people are like let's go to armitage all right chicago we got two chicagos jay said it's hard to be it's hard to be hot hog salt

in everything especially even ash about but i'm gonna go i'm gonna start with a hot take i am not a big fan of the smash burger craze i grew up on like thick juicy burgers like rare in the middle you know like the eddie murphy mcdonald's yeah like the wisconsin sharp cheddar you know some good dijon on there like get your ketchup out of here those are what tomatoes are for like i just am not a smash burger fan but that said i have to give a little shout out to my boy chris costow at charter oak in saint helena napa valley he has one of the best smash burgers in the country and i'm sure we're going to get this later but there's nothing like a three michelin star chef going down market

and trying to create the best burger on the planet you had that did it didn't you when you were there yes i don't know if i had the burger but was there i mean i'll just throw in oshavalk because you guys mentioned it but you're saying the armony jailhouse is the same. I don't know if I had the burger, but it was there. I mean, I'll just throw in O'Shavalk because you guys mentioned it. But you're saying the Armony Jailhouse is the same family? I didn't know that. Yeah, they're hog salt. But I'm telling you, their burger is a little different than O'Shavalk. And I actually think it's a better rendition of the Smashburger. And I ruined Jason at O'Shavalk when we were there.

What did I say? I'm like, I don't like cheese. And it's too cheesy. And all he could think about was the cheese at oh shabal but i do try to stop it at small shabal every time i'm in chicago so i do i'm a big fan of oh it's very good they redid that one near you zed it's like easier to get in and out of there yeah and it's got uh ice cream in there because they took over mr freeze and so it's like it's now you're like you know uh banana split old school ice cream shop and

small cheval all right we're moving on fine slash great dining fine dining great dining worldwide hold on hold on i got one more thing to say about burgers this is it's all nuance right like it's your burger to bun ratio it's a lot of little nuances because like even like canard in portland does an amazing like steam burger but they're like steam sliders and they use king's hawaiian buns but like you gotta yeah but you gotta get like the the like the meat to bun ratio has to be just right and that's what i'm saying sometimes the smash burgers don't quite get it so i'm just i'm just airing my grievances with the uh especially without cheese one favorite fast food burger steak and shake five guys i don't like five guys that's all right five guys all right i'm not in and out even after living in california for 15 years in and out is like yeah it's better

mcdonald's or burger king but in general it's kind of garbage probably five guys because i think their fries stink yeah it's hard to me to like lean in on the burger because the fries all right great slash fine dining worldwide jason you go first so and maybe if we go back and forth that's just too much it takes too much time but like um i think about blue hill at stone barns in new york is one of the best dining experiences i've ever had another one somewhere related to that on this fine dining three Michelin star side is, um, the French laundry is back. The French laundry probably spent a decade going down and it is back with a vengeance in the last few years. It's really crushing it. Um, obviously there's tons of

choices in Chicago, but I'll leave that to Zed. But I will say what's interesting. I thought when you pose this question is like fine dining, great dining is like, I think we may all be in agreement here. There's nothing better than three Michelin star quality service execution, but done in like a Bib Gourmand style, right? Like like, I'm not interested in that, that kind of, you know, death march marathon anymore. So it's really about how do you get that high quality execution in a casual setting where you can just order a few items and have a drink and go. And that's why I think like the places like Charter Oak that I mentioned earlier, you know, there's like dozens of places in Chicago we could put up there and that that's more Zed's domain, but it's just trying to find those little spots these days.

That's, that's more on point. It's almost like Jeff reverence was that talks about, it's like, you got to know like what kind of vibe you're looking for. You can't just recommend random restaurants. It's like, who are you with?

What's the night about? Like all of those things truly matter. Yeah. So I'll, I'll go shotgun blast to like real quick on the course. It's real quick. We're going to Barcelonacelona for thanksgiving because nothing says pilgrims like the epicenter of catholic persecution but um anyway my wife's

like hey do you want to go to this it's michelin star it's it's a little expensive but it's only 10 euros per course i think it comes out to so it's pretty good i'm like oh that sounds good but like how many courses are the kids she's like oh there's only 27 courses 270 euros per person with the kids no we're out we're done and and also the time of that right like how long does it take 27 course anyway all right zed yeah so uh it's both you guys are leading perfectly into my list so the relaxed amazing dining that i hit hit a decent amount in our neighborhood is Schwa. I'm a huge fan. I've been around for probably pushing 20 years now, to be honest.

I haven't been there in like 10. I got to go back. All right, Schwa. But still BYO. Just spectacular, different every time. You know, French, you know, leaning. But yeah. And can't beat the environment. just spectacular different every time French leaning but yeah can't beat the environment

very unique there I think weirdly the best specific fine dining meal I've ever had which is a rarity for these types of restaurants but man probably 10ish years right when Next opened they did an ode to el buli because el buli

had just closed and grant had worked at el buli early on in his stint and so he you know got access to the full you know 20 odd years and did the best of and i think they did one course per year that el buli was open and they just nailed it like they actually had a lot of the el buli staff flown in to so it was like you know this wasn't people like making their dishes it was like it was the right folks doing it all but that was probably like the most out of this world meal for next in chicago brilliant idea they change the theme every three months or so three or four or something and you buy tickets to it so it's but my problem with next always is they should change the decor also like i think everyone would pay 10 15 20 more on their bill if you

totally change the restaurant yeah every time you came and then it's right and one one time was your mom's food your room as a kid like 1926 steakhouse right and they have dates and times so you're not only a type of food but like a date to it as well which is cool sorry interrupting now uh quintanil and mexico city we thought was absolutely out of this world spectacular it was better than pujol pujol was much cooler restaurant in terms of your decor there jeff yeah but quinceanera was spectacular the best dish was uh this duck confit tamale that my wife neve after it came out was like that was you know so good and the guy was like oh do you want us to bring you another one like at the end like we're gonna you know go through the the full sequence but like do you want like an extra dessert of a

basically a duck to confit to poly to go and we're like yeah and they sure enough did it it was great a second hit uh and then now this is gonna be completely unhelpful jeff but there's a mystery restaurant that I've never been able to find ever again in Barcelona and I can tell you it's near it's near the nightclub Soutan I two three blocks away I'd say like southeast I've been back to Barcelona many a time can never find it oh well we couldn't find it how am I gonna you never know just look for a random tapas place but it was we went to the hotel arts uh in port olympico we went to uh you know the front desk and we're like where should we go to dinner and she tossed out a bunch of like bs tourist places we're like no no no where would you go to dinner? She's like, okay, like really tough, but I'll phone call it in. She just literally called us a cab.

We got in a cab, get to the place. The guy just had, you know, post-it notes, you know, of reservations, if you will. And it was me and three buddies, so four, you know, loud Americans crashing their bar, waiting to get seated. And because we were so annoying and annoying the locals they uh sat us quickly rather than you know two hour wait that it was supposed to be but we ordered the entire menu at the end of it like they're like do you want anything else and we're like run the whole thing back like it was so good all of it yeah times two but i'll reiterate what zed said that's

fascinating is like mexico city is arguably the best food city in north america it's so good it's ridiculous and you can get all types of food not just like mexican cuisine and they really hit on those things we're talking about of like really high execution with very casual environments and you know like the weather everything's amazing kind of and they they source the ingredients from all over mexico and all the different regions so it's hard to beat that the one i forgot to mention because you think about you guys homers in chicago is uh uh curtis duffy who used to is now ever when he was at grace that was one of the best meals i've ever had when we were at grace like he can he can execute with the best of them um and then seeing how you're going all this homer chicago stuff i

have to give that shout out to to philadelphia is arguably the most underrated food scene in america more james beard award-winning restaurants than ever before I've taken uh Zed out in Fishtown I mean the density of restaurants in Fishtown uh from eastern Mediterranean to it's the best Thai food in the country to the best pizza and then Frysat Sun is my like penultimate restaurant for that like really high Michelin start upstairs but then you can sit at the bar and eat downstairs and it's just absolute perfection do you think that we've lost in america like there's no longer right i get off the exit taking my kid to some baseball game in between here and indianapolis maybe a bad example there's really nothing between here and india but right you're there's not like a little local restaurant with some good food it's like applebee's chick-fil-a right like those

the cracker barrel yeah the lower budget stuff is all now exactly the same so to get that real true flavor of a city and now this you need the fancy you need the fine dining the expensive stuff i mean maybe you can say dive bars and that stuff still holds some stuff but i don't know to me that's where if you really want that flavor of a city you have to kind of go upscale jason would be fair that's probably fair but the nice thing about that though is the diaspora from places like new york city and la and chicago is like when rents got like too high pre-pandemic or during the pandemic a lot of these chefs went back to their hometown so now those smaller tertiary cities have just amazing food cultures because people were trained in major cities and came back.

Neither of you are putting Alinea on the list? Too stuffy? I really like Alinea. It's not my top four, though. Yeah. All right. Fair enough. All right.

If there's anyone still listening, we're now going to do dive bars quickly. This is where the crossover is going to happen. I'll let Zach go first. I don't want to steal his don't know i i will i lean in heavy midwest uh so my number one dive bar because it's the place that makes me happier than anywhere probably in the world is the buck snort in north woods wisconsin because my annual snowmobiling trip that's always our first stop you go in there and you get a Bloody Mary with like, you know, two bratwursts and a wedge of cheese in it. And it's just very, very happy place.

Locals, I love Archie's, Chippin, Inner Town. I probably hit up Lemming's the most due to ease near daycare. But, you know know really good locals and then like you know best intentions i don't think it really is a dive bar it's on the edge but also a very good burger uh best intentions and then like you almost need like a whole new category for like slashies jeff like you know like are they actually dive bars or like probably not like they're their own unique specimen what is it right liquors or olas i swear zed made up this word he swears yeah what do you mean a slashy where it's packaged goods oh got it um that's the famous one where

they still smoke here in chicago on the milwaukee and well richard's i don't know if he would call for that as a slashy like you could go in there and buy it he's got that little cool yeah never closed during the pandemic love it but this this is the hardest part of this question like i knew ted and i would have crossovers with best intentions in chicago but like is that truly a dive bar right like if you take a dive bar and then you're diving yeah yeah but you make a great cocktails and great food is it still a dive bar or are you going there to like you know get your mick ultra or whatever it is i mean like it's that's right the the ambience feels like a dive bar but the service the food and the drinks are not dive bars good point all right right so if we can cross over into that you can forget about

your entire mount rushmore the best dive bar in the world is ernie's tin bar outside of petaluma california that says vento as well like it is we've all been there i agree that is the best dive bar yeah and and i my one b would probably be best intentions if we're going that but then there's a there's a place in east austin called la perla that that's the true dive bar let's like you get like a mick ultra with tabasco on the on the on the top when you open it up the tabasco falls in like it is truly a shithole dive bar and but it's phenomenal and it's it's surprising still there is everything that's getting torn down in austin um and then i'm sure yeah throughout the midwest there's just tons of great dive bars but it's even surprising like i was saying ernie's

tim bar northern california northern california because it has all those old roadside bars in the 50s to your point jeff about you can't pull off the roadside where in Northern California, they still have great roadside restaurants and dive bars. Like there's like this place called like, uh, Thompson's corner saloon in Cordelia, California by regulation or no, like, are there other places not allowed or it's too sparse? They don't have the footprint. They just stayed around. I don't know why, but like you can find shockingly good, like roadside restaurants and dive bars still in like northern california i love it all right we're gonna leave it there any last thoughts go to a dive bar support your local dive bar that's right support local restaurants and dive bars yes that will keep inflation in check and then you won't have to buy the heck out of your 10 years um all right thanks guys this

has been fun we'll see you well we'll see you before then but virtually on a podcast we'll see you next year um this is it for the podcast for the year we're going to take off thanksgiving till after the new year so thank you guys and listeners. Have a great holiday season. Okay, that's it for the show. Thanks, Jason. Thanks to Zedd. Thanks to RCM for sponsoring. Thanks to Jeff Berger for producing.

As mentioned at the top, that's a wrap for this season. Season four, I believe. We'll be back in the new year for season five and 25. Have a happy and safe holiday season. Until we talk again, peace. You've been listening to The Derivative. Links from this episode will be in the episode description of this channel. Follow us on Twitter at rcmalts and visit our website to read our blog or subscribe to our newsletter at rcmalts.com. If you liked our show, introduce a friend and show them how to subscribe.

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