The Derivative - Why Oil Didn't Go to $300, plus Chinese gold bugs, Copper Squeezes & Uranium Alpha with Josh Blanchfield (Avos Capital)

Episode Date: August 20, 2026

Jeff Malec sits down with Josh Blanchfield of Avos to trace his path from physics at Harvard, poker pro, and 11 years at Bridgewater (including co-heading the trading desk during Lehman) to running a concentrated, risk-aware commodities and macro shop. Josh explains why China is “ground zero” for global commodities, detailing how its import cuts, stockpiling, and scrap policies have shaped oil, copper, gold, and uranium, and why understanding flows and participant behavior matters more than neat top-down supply-demand models. He breaks down how Avos blends macro with very granular micro, like Chinese spec flows around Lunar New Year, refinery outages, crack spreads, and uranium’s inelastic buyers, to build convex, options-heavy trades that aim to capture upside tails while avoiding the classic commodity-fund blowup. Along the way, they dig into the realities of radical transparency at Bridgewater, the limits and promise of AI as a “research team we never hired,” the risks of an AI-driven labor shock, the true drivers of the dollar’s dominance and petrodollar fears, why he’s skeptical on small modular reactors but bullish nuclear, and how his Substack and broader investment philosophy challenge received wisdom on everything from munis to equity valuations. - SEND IT!Chapters:00:00-01:19= Intro01:20-09:01= From Boulder Trails to China’s Oil Trap: Josh’s Origin Story and DB Cooper Commodities09:02-19:27=China’s Dollar Dilemma, Gold Grab, and the Real Story Behind Commodity Power19:28–30:36 = From Poker Tables to Lehman’s Collapse: Josh’s Bridgewater Baptism by Fire30:37–37:57 = AI, Jobs, and Impossible Growth: Rethinking the Macro Behind the Magnificent Seven38:38–49:04 = Gold Flows, Burning Refineries, and the Uranium Edge49:05–56:26 = Capacity, Convexity, and Why Small Nuclear Isn’t So Small56:27–01:09:15 = Munis, Myths, and Moneyball: Josh’s Skeptical Playbook and Pop-Culture LensFrom the Episode:PODCAST:“Dr. Copper”: From Chilean Mines to Chinese Smelters to AI Data Centers in the US – with Kurt Nelson & Natalie Scott-GrayPODCAST:Going Nuclear: How Uranium is Powering Portfolios with Trevor Hall & Justin HuhnPODCAST:OpenSnow’s Joel Gratz built a Pod Shop for Powder Days: the PMs are Meteorologists and the Returns are FaceshotsBLOG:The Definitive List of the Best Investing MoviesFollow along with Josh and Avos ⁠on LinkedIn and Substack, and be sure to check out avos.co to learn more about what they are up to.Don't forget to subscribe to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-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, visit⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠⁠⁠⁠⁠

Welcome to the derivative by RCM Alternatives. Send it. Hello there. I feel like I'm Meg Ryan in the closet. And sleepless in Seattle, Bill Pullman's about to come in. It's late at night. It's dark outside. I'm recording the intro because I forgot today.

So magic of podcasting, you won't know the difference tomorrow when it comes out. Welcome back, everybody. You've found the derivative brought to you by RCM Alternatives, where we do a lot of great content, I hope, I think. We mentioned about three other pods and a few blog posts on this episode today. So I wanted to point you guys over to rcmaltz.com slash education where all those podcasts, blog posts, white papers, infographics, all that good stuff lives. Go check it out.

On to this episode where I jumped right in with the super smart Josh Blanchfield of Avos talking China, AI, and uranium, before even asking about his background, which is just, you know, Harvard professional poker player and Bridgewater. Nothing to see there. So somewhere in there, we covered his commodity-focused macro-slash-micro strategy, micro-slash-macro, however you want to call it. We get into it. Send it.

All right, everybody. We're here with Josh Blanchfield. Did I get that correct? You did. You got it. Thanks, Jeff. Relatively easy one. Yeah.

And I know that's not a real background, but you're near the mountains somewhere. Yeah, I mean, I'm, you know, a mile out my front door to the trails here in Boulder, Colorado. Ooh. I love it. Love hiking, spending time in the fresh air, 300 days a year of sunshine. It's not such a bad place to live. Yeah, it's either bluebird or snowing, basically, right? Exactly, exactly.

And then you broke my heart right before we came on, but you're not a skier. I'm not a skier, no. I live here for everything but skiing, basically. So I know that. I don't say that too loudly. I could get my Colorado citizenship revoked. We could talk briefly. I was just there in June, May.

I can't remember for daughter softball tournament, Colorado Springs, but we saw some friends in Boulder. But that between Boulder and Lewisville, I don't know if I'm going the right way, that huge project of they're just basically building a bike path for my brother told me like $100 million or something. You know, the first rule of government spending is if you have money, you spend it.

And if you don't have money, you also spend it. So I don't know, $100 million on a bike path. Sure, why not? I'll take two. It would be beautiful. But it's just right in between the road. It's like right in the, like, let's spend that somewhere where you see mountains or something. Yeah, fair enough.

Fair enough. And so what are you doing the winter? Nothing? Hike, snowshoe? A little bit of snowshoe, but honestly, not much. No, I'm a bit of a gym rat and happy to spend the time indoors. I'm a baseball fan, so the winter is a dark time for me. But otherwise, no, I don't get outside a ton in the winter.

This last winter was great for me, actually, because it basically never snowed. I know. The ski resorts obviously probably had a different view on it than I did, but it was nice to be able to just go hiking and walking and play outside without any snow on the ground for the pretty much whole winter. We had Joel Gratz, I believe, the founder of Open Snow, who does the app and track where the pattern is going to. be came on the pod and told us not to worry.

It was just a little anomaly. Yeah. I might be worrying. And then where you were in New York though, right? Before working? Well, actually, you know, I moved to Boulder from Shanghai. So I was at Bridgewater for 11 years. And one of the things I did there, sort of the back half of my career, Bridgewater was setting

up Bridgewater's operations in China. And so, you know, I, in 2016, the Chinese government sort of changed. the rules and allowed for wholly owned foreign subsidiaries. And so, of course, we wanted one. I took a team over there, we stood it up. And then, you know, once that was sort of mission complete, I had to figure out where I wanted to raise my family and have my next chapter.

And so I flew from Shanghai to Denver. I bought a minivan over the internet that I had delivered to the airport and took my family to Boulder. And, you know, that was eight years ago. And now I can't imagine living anywhere else. Right. you're just like, hmm, I'm going to go from, how is Shanghai's pretty polluted and gross, but also lovely? It's tough. It's tough. You know, I lived in Beijing from 2012 to 2014, also working on sort of Bridgewater's footprint there.

And that was really peak pollution where, you know, you couldn't go outside a lot of days and my kids had to wear masks all the time. And it was pretty rough. But, you know, one of the, I guess, pros of a, of a, of being ruled with a, iron fist, I guess, is that a country like China can change those sorts of things fairly quickly. And once it was sort of no longer taboo to talk about pollution and it was an acknowledged problem, it's amazing how quickly it improved. So by the time I went back to China living in Shanghai this time in 2016, the air was fine. It was just, you know, incredibly humid and hot, but it wasn't like the pollution was worse than New York or, you know, I didn't. any big city in the United States.

I can just see you, though, sitting on it, like looking at a map of the U.S., like, okay, nope, too many buildings, nope, not enough, this, like Boulder, perfect. Yeah, you're not far from the truth. I literally dumped, I mean, this is, this sort of gets into the nature of our investment process a little bit, which is I dumped every city in America into a spreadsheet and just started sorting and cutting, filtering until there was sort of one left, and that was Boulder. And so we moved here, sight unseen.

So price per square foot wasn't part of the model. Yeah, well, I mean, that's expensive everywhere. Yeah, price per square foot adjusted for, you know, local schools and green space. Yeah, that might have been part of it. But, you know, it's not like the places you want to live and are going to be cheap ever. That's, you know, sort of how supply and demand works. Quick story on setting up a woofie. I think I told you this down in Miami at eye connections, but the Bobby Schwartz,

my partner here and weed set up at our Sam setup of Wolfie. and he had to send his passport. I think instead of going, he had to send his passport into the embassy to get it certified or blah-boh-boh. So it came back FedEx. A few of us intercepted in the office. We opened it up, took the passport out,

had our Chinese intern, like, write a letter in Mandarin, put it back in the envelope and sealed it and like, and a new FedEx and gave it to him. And he opened it. He's like, what does this say? He's like, due to your illegal activity while in Beijing, we've seized your passport. You must return to the country to face,

And he's freaking out like, get the lawyer on the line, scream. We can only hold a straight face for about five seconds. Yeah, that's right. It's too good of a Joe. You have to not even be there when it happens to hold a straight face. Yeah. That's great. And so what just off topic here a little bit, but on those Chinese commodity markets,

like from when you first got there until now, you still look at them, I'm sure. Like what? Oh, yeah. Yeah. How? What's that growth been like, that liquidity been like? Yeah, no. I mean, so if you want to trade global commodities,

China's ground zero. You have to understand it. And I think that's always been true, and I think it's only gotten more true. So, you know, if you think about some of the big dynamics in commodity markets over the last 12 months, China's fingerprints are all over them. So, you know, kind of to start with that, to start with, you have the oil price during the war. I mean, if you had told almost anyone what was about to happen, we're going to be at war for six months in counting, straight over Hormuz is going to be blocked. You know, people pick a number. $300. $300.00. I mean, who knows, right? And what happened was, was none of the above. And why, why did that, why did that happen? It was basically China. You know, there's other sort of

SPR release here and a little bit of demand destruction there. But like the big thing was China. China cut their imports on a daily basis by the total amount. that Germany, Spain, and Italy use. Wow. So they basically took the equivalent of those three economies and just took that oil off the board. And, you know, I write a weekly substack and I wrote one titled Searching for D.B. Cooper.

I don't know, do you know D.B. Cooper? Love that movie. It's one of my top ten movies. Yeah, yeah. I think we had it on laser disc as a kid. Yeah, there you go. We were not the, we chose the wrong path. We chose the laser disc instead of the BCR.

at first. Yeah, right. You know, the D.B. Cooper, when I think of D.B. Cooper, it's the ultimate mystery that will never be solved, right? The guy jumps out of an airplane with the money in 1971 and never heard from again. And, you know, when we do the kind of sharp pencil attribution of how did China knock down their imports that much, we can't get there. And so, you know, did they draw from storage? Of course they did. Did they cut some demand? Of course they did. You know, they did all the things that people are talking about, but when you pencil out the numbers, you just don't get close to getting there. And so how did they fill that last gap? We don't know. We don't think anyone will know, right? But it's just an example. I raise it as an example because if you wanted to trade oil during this

period, you had to have a feel for what was going on in China. You know, the same is true in copper. So, you know, copper's had a big rally this year. And there's a lot of attributable. to the rally that comes from AI data center buildout, AI data center build out. Electrification. Electrification. We had a copper podcast. We're going to mention a lot of the other podcasts here. Yeah, yeah, of course.

Yeah, go for it. You know, when we look at what's actually going on, what's going on is that there's a supply problem. You've got Cadelco, you know, basically failing in Chile. But then, you know, importantly, the copper market and a lot of metals markets are always held together by the scrap market. You know, these metals are infinitely recyclable. And China changed the laws around taxes on scrap.

And so the scrap response to the rise in price has been tiny compared to what it would have been historically. And so when we look at what's actually causing the rise in copper prices, we see electrification is like a background factor. And the real factor is actually. supply both from the mines and also, you know, especially from the scrap. And then the other side of it being, you know, you basically are creating a Chinese, sorry, a copper SPR in the United States. And, you know, why is that happening? Well, because of the uncertainty around tariffs. I mean, put yourself in the shoes of someone who needs copper to run their business. Right? It's cheap to store. Grab it as much and as cheap as possible, right? As many times as possible. It's cheap to, it's cheap to, it's cheap. It's cheap. It's cheap. It's cheap. It's cheap. It's cheap. It's cheap. It's cheap. It's cheap. It's cheap. It's cheap. It's cheap. It's. It's to store, it's cheap to carry, and if you think there's some risk that there's a 25, 50% tariff coming around the corner, why wouldn't you stockpile it? And so the ambiguity around

the Section 232 investigation and the tariffs around that have caused copper globally to just get sucked into the United States and basically stockpiled, and that's created a squeeze. If you look at sort of global level supply and demand for copper, it's not particularly strong. Global supplies are fine, they're average. But the problem is where are those supplies? They're all sitting in Comex warehouses as opposed to being spread across London and Shanghai in the places where it's actually consumed. And that's creating a shorter-term squeeze. Which is weird, though, that then the comics delivered copper is rising as well, right? Like, it seems like there should be an arbitrage there eventually. Well, the arbitrage is still open. It's in terms of moving copper from London to

to the U.S. It's smaller, and so how much longer it'll be open, I think is still a question. But the reality is, is that's what's happening. Copper is getting sucked out

of warehouses around the world and shipped to the U.S. And that's why, you know, if you look at U.S. inventories of copper, I mean, they've just gone vertical. So coming back, I'm thinking, like,

when you say China's the big story, it's like Jim Rogers with his bow tie back on CNBC of like, China's the whole story. They're building, like, but different. right? Like that already happened, the super cycle stuff, if whatever we want to call that. Now you're just saying, like, the details matter.

The details matter. And, and, you know, the other thing is China, the Chinese government, in terms of how they operate in markets, is, I think they're unique, more or less unique, across the world, because they are traders. They buy, they, they buy low and they sell high. You know, if you look at the history of how they've engaged in markets like gold, like some of the metals, and in particularly the oil market, you know, they have traded it beautifully. And so they have acted as a sort of stabilizer in a lot of markets because when the price goes up, they sell and when the price goes down, they buy. They've become sort of that marginal swing player who, you know, has basically depressed. They've had a meaningful impact on commodity, volatility across almost all commodities over the last couple of years, and they've really compressed that volatility because they've cut the tails off. Do you ever think or know that they're actually like trading against their own announcements and whatnot? Right.

It seems like they have the ultimate Trump card, not to use that word, but the ultimate ace in the hole of like, hey, we know we're about to say no more imports of soybeans. So we're going to like wait and buy them up after we announce that or whatever the case might be. They could trade around that masterfully. I'm sure there's some of that going on. I can't, I mean, obviously, it's something I can't prove

or point to particularly, but, you know, the other thing is that when you talk about something like the Chinese government, you know, what do you actually mean by that? The Chinese government is just a collection of people, 99.9% of whom have no, they don't know each other and have no coordination.

And so there's often going to be times, I'm sure, where, you know, the left hand is doing things and the right hand is doing their own things. And sometimes it looks brilliant when they come together. And sometimes it's, just seems random. But, you know, there's definitely a strategic, there's a strategic underpinning

to this, right? If you look at them stockpiling uranium, if you look at, say, the last six weeks in particular, you know, China has stepped up big time to buy this gold dip. They are looking for deals. They know that, well, let me put it this way. When you run a trade surplus, you're left every month with a big pile of dollars. And you got to decide what you're going to do with those dollars. Do you want to lend them back to the United States or do you want to put them into commodities that you're going to need? And you're not just saying dollars haphazard that you mean U.S. dollars. Literal U.S. dollars. Yes.

Right, right. Global trade is in dollars. If you run a trade surplus, you're left with a pile of dollars. And so one of the things that we study is who has those piles of dollars, who gets those piles of dollars every month? And what do they do with them? And more and more, when we look at that picture in China, what we see is commodity stockpiling. You know, it's not random that China came into this war with an SPR four times the size of ours. That was them choosing to, for, you know, for basically reasons of national security to take those dollars

and make sure that they weren't going to be able to be squeezed for energy. I mean, look what's going on in Europe. So they're making those choices across commodity markets, and it's been a big driver of basically the lack of volatility. in some of these markets. And what do you make now that we're on that topic of the end of the petro dollar and all that hubbub of like, that can't last forever of like these countries

are going to figure out. I don't want to have this big pile of dollars. I want to sell it in one. I want to sell it in whatever. Yeah. I think that stuff is overblown. And the reason I think it's overblown is that, you know, when you think about it.

Because it's been overblown for 10 years. Yeah. Yeah, it's been overblown for 10 years. So, you know, But eventually it'll be right. I mean, it's not like the US dollar will run the world for literally ever. But the reason I think it's overblown is, you know, the fact that the world uses dollars to trade is actually only a little bit important. What's really important is what is the currency that you want to save in?

So we could create a new currency here today. We call them Jeff Dollars. Yeah. And we could say all global trades in Jeff Dollars. And so then at the end of the month, the Chinese would have this huge pile of Jeff dollars, and then what would they do with them? Well, they would say there's no bonds I could buy. There's no equities that I can buy with this. I can't buy commodities with it. I need access to deep capital markets that are denominated in this currency.

So they would just convert their Jeff dollars to the U.S. dollars and do exactly what they're doing. The thing that causes the U.S. dollar dominance is as much the depth and quality of our capital markets and our financial markets as it is the sort of, of historical artifact that this is how trade is done. And the two things don't have to be linked. Yeah. But you think that buying up of gold is a bit of a hedge on that, right? Yeah, but again, you can only buy so much.

Right. You know, you buy as many equities as the U.S. government will let you. You buy as much oil as you can store. You know, they're building more storage facilities to, you know, basically increase the size of their SPR. metals are great because you can pile them up, but you also, they're small markets. You have a big price impact when you come in and do that. So, you know, they're stockpiling uranium now.

They're building a new, you know, they're greenlighting a new nuclear reactor every month. And so they're stockpiling uranium to get in front of an increased sort of reliance on nuclear power. And so, you know, good, sorry. Sorry, that's crazy that they're doing both simultaneously. Like we're going all in on uranium and we're going all in on. more oil storage. Yeah, I mean, look, the... All hands on deck.

An economy and a civilization is really just translating energy into activity. You know, at the bottom of the economic, you know, pyramid is molecules of energy. And if you're China, and you are not fully energy independent,

you want to get there quick. Because that's a place where you're going to have to say, uncle quickly, if you get cut off. Civilization stops, functioning. Economies stop functioning if you don't have access to energy. Go back to your beginning. Were you in school for this? Did you come out saying, I want to know about Chinese energy prices? Like, give us the origin story. Yeah, I know. I think like most people,

I took life as it came and ended up in a place that I probably couldn't have imagined when I started. Yeah, I studied physics at Harvard. That's my degree. I actually, When I left college, I started a software company and internet privacy company that I sold in 2005. And then around 2005 was when the poker boom really was starting to pick up speed. And I played poker for a living for three years. Nice.

Live or on screen or both. And then there was this sort of crackdown on internet poker and probably more importantly, my first child was born and I said I should probably get a grubour. grown-up job. And Bridgewater had been recruiting me for a long time at that point. My college roommate had gone there straight out of college, and they'd been sort of knocking on my door. And so finally, I said, I don't know what a hedge fund is. I don't know what Bridgewater is. I certainly don't know anything about radical transparency, but I'll, but I'll, you know,

I'll take the leap. It turns out, you know, health insurance is useful when you have a newborn. And so I joined Bridgewater in 2007. It was, I think, maybe 250, 300 employees at the time. And that was a fascinating 11 years that I spent there. Got to wear many, many hats. I already mentioned the China stuff. So, you know, I lived in China for a total of three and a half years and got to meet a lot of... With your family?

You took your family. With my family. With my family. When I moved there the first time, I have four kids. When I moved there the first time, they were... 5-3-1 and six weeks. Whoa. Boy.

So my wife was brave. I think you're crazy. Yeah. Yes. And then when we came back, I had to put my kids in ESL classes because they only spoke Mandarin. Oh, wow.

So, so did that. And then, you know, sort of the other, you know, did a lot of research on commodities and on other asset classes. I did have a particularly unique life experience there

where September 1st, 2008, was my first day as the co-head of the trading desk. You might have heard about a few things that happened in the immediate aftermath is that. It's like, you know, I'm still trying to figure out where the bathroom is when Lehman fails. So obviously an amazing education there and was able, you know, just an amazing learning experience about what is liquidity in markets? What does it mean to be in a crisis and having to sell and having the sellers disappear?

and, you know, we were obviously the world's largest hedge fund by quite a margin at that point. And, you know, being able to figure out how to move our positions around and to react to circumstances that, you know, in retrospect, look, you know, scary but not that scary. And at the time, it was like, is capitalism dead? Is, you know, is we going to have a global depression? I mean, we don't, we didn't know at the time. And so being able to be nimble and understand what's going on there and actually execute through it was, you know, I got a PhD in trading, you know, pretty much, pretty much in my first couple weeks. You had years of experience in those weeks, right? Exactly, exactly. Or, you know, I'll give you another example.

You know, when you, it's very easy sometimes when you're trading to just push a button and not think too hard about where that goes. But, you know, at Bridgewater, we had automated counterparty systems, which were basically measures of who we want to trade with and who we don't want to trade with. And, you know, in a situation like that, you can imagine what they tell you. They tell you you take your ball and go home. So that's not good enough. Yeah.

Sorry, folks. Parks closed. Yeah, parks closed, right. So, you know, that's not going to work. And so, you know, you just learn a very practical, when you go through a period like that, you learn a very practical, real-world version of trading that is sometimes easy to gloss over. How much broke on your end? versus seeing step break on other people's in, right? Would it expose warts all over in holes that had to be patched?

Yeah, I mean, I think there were holes all over. You know, I think one of the things that we saw coming out of that was more trading that went through exchanges that could have gone through exchange, particularly in like currency markets. Could have happened before and it didn't. Yeah. Yeah. And I also think that, and I don't take any credit for this, obviously I was on the job for 10 minutes when this all went down. But Bridgewater was way ahead of the curve, I think,

in understanding counterparty dynamics and counterparty risk. And, you know, basically was able to get out of all the hairy names before the street sort of caught on. And, you know, what it cost to get out of those names was comical, you know, comically small relative to obviously, obviously what turned out to be true. And then also even what a reasonable guess ex ante of what was going to be true. And the street just, you know, I think was there was a fair. bit of, I don't know, like, I don't, complacency, I guess would be the word. Yeah. That, you know, of course, a Lehman can't fail.

It's impossible. Well, it's pretty possible. Yeah. Have you looked at their balance sheet? My buddy was at Bear Stearns, and he was one of the lucky ones who didn't use his shares in the company to buy his Hampton's house, right? So a lot of those partners had, like, borrowed their shares to pledge as collateral for their $10, $15 million hampton's house and then got double. Double whammy. It's like they say, I mean,

concentration makes you rich, but diversification keeps you there. Yeah. And then for Bridgewater's model, like you weren't like it's not day trading necessarily. So that probably provided some really too of like, hey, we've got our base model here. We don't need to go do anything crazy.

Yeah, yeah, though. I mean, you have to rebalance. You have to rebalance. You know, so at Avos, we do a mix of systematic trading and discretionary trading. And so we don't have any place where the computer is sort of hooked up to the markets.

The computer always has to go through humans, experience humans, and then the trades ultimately get filtered that way. And so there's that element of judgment that you can just never get away from. Maybe someday AI will... Yeah, I was going to say, still? Yeah, yeah.

I mean, that's its whole conversation. I wrote a... I wrote a substack last year titled The Research Team We Never Hired that got a fairly big response because we had raised a GP round for the firm that we were planning on using to buy, you know, researchers and expand

and then, you know, Claude sort of tripped over this threshold where it was like, wait, what are I supposed to do with a 25-year-old? So, but, you know, so the point being that there's still judgment required, and so if you have some model for whether equities are going to go up or down that is built on some business cycle dynamics,

and then Lehman fails, you know, you have to look at that and say, do I trust this anymore? Do I trust any of this anymore? Do I want to hold more cash? I want to de-risk? Do I want to flip my views on any of these markets? And so that I think that was the real challenge. And, you know, I got to see up close Ray Dalio and Greg Jensen in particular during that period,

how they navigated that. And again, just as someone still fairly early in my career, just the education from seeing those guys work through all these, problems and come out the other side strong was really something else. And what did, do you have a radical transparency approach at Avos? I would say it's less radical. Look, I think, how do I describe this? The culture at Bridgewater, there was a, like so many things, there was a kernel of it that was

amazing. I liked the fact that I could go to Greg Jensen and say, I think you're, I think you're wrong about this. Yeah. And he wouldn't just slap me. You know, he would say, tell me why. Yeah, go back to your cubicle. Yeah, right.

No, no. He was like, he was like, okay, let's hear what you have to say. And if Bob, you know, Bob Elliott, who you've had on his guest before, you know, we worked together for a long time. If he said to me, hey, you're screwing this thing up or I said to him, you're screwing this thing up, the response was, well, tell me what I'm doing wrong so that I can do it better. Yeah.

I mean, that's all great stuff. You know, that's what you need for sort of a high-performing team to really function. And then you get to like the iPads and the dots and all of this stuff around it. And honestly, that stuff I found to be mostly a distraction, an expensive distraction. And I do think that the firm, the success of the firm during that period happened despite it, not because of it. And because they were long bonds. Yeah. Yeah.

That helped. Yeah, yeah, yeah. But it's weird to me. It's like New York versus Chicago, right? Like a Chicago prop firm, that's all, everyone's doing all day every day. Like, Jimmy, what's the hell are you doing? That's a stupid trade. And they're just having it out in real time and then go back to their free versus New York.

Maybe it's a little more like, well, you need to report to the vice president, needs to report to here and bring your problem up the chain. Yeah. And, you know, and I do think that the transparency element where you're recording every call and you're recording every meeting and such, you know, the, there is a real benefit. to that at the, at the, you know, insofar as it, it really did help with sort of the office politics. Yeah. But then the flip, you know, the flip side is, is that we're human beings.

Yeah. And think you become garden and what you, like, you know it's being recorded. So you're not going to like dish on somebody. Yeah. And also, you know, the, it's one thing to put your ego aside. And it's another thing to become a robot. And most people aren't capable and or even want to become robots. And so, you know, you're getting feedback. all the time on minutia, it just wears you down. Yeah.

The funny part is now, like, without trying AI and, like, AI note takers, right? Or just, it's all radical transparency. Everything's, like, summarized in the AI note taker and shared around the team. Yeah. Yeah. Yeah. And, you know, AI is, you know, I have a lot of thoughts. We, we've integrated AI really deeply into our investment process.

You know, when I think about our investment committee now, when we make a investment decisions, I think Claude has a seat, you know. I love, I'm an investor Anthropics. I love that you're saying Claude has a seat. Yeah, I mean, Claude is the best by far. Look, this can change tomorrow, but right now, Claude is definitely, definitely in front of the pack, in our view. So, yeah, these things will change and, you know, who knows.

While we're on AI, and then I want to dive into the models a little bit more about my thesis, I've said on the podcast a few times of like, we're in for a massive AI-fueled recession, right? Like you just said you saved money on the researchers. We've saved hundreds of thousands on lawyers and accounts and everything. Like to me, the end game is deflation. What's your thoughts on that? Like, can it overcome it or is that the natural end to it?

Or it's either massively deflationary or massively overpriced, and it won't cause all that labor disruption. And then it's, those stocks have to be cut by 80% or something. Yeah. Yeah, look, I think anyone who expresses a very strong opinion about this is probably kidding themselves a little bit. I'll tell you, I'll tell you what my view is, and you know, you can throw it in the bin of everyone else's views and decide whether you think it's worth anything. You know, in the past, technology has displaced labor, and that's been okay, because human beings can contribute to an economy in basically one of two ways. you have your brain and you have your muscle.

And technology has disproportionately come for the muscle. And the brain has always been sort of where we reign supreme. And so like nobody, nobody expected there not to be a huge fall in number of farmers when we started inventing, you know, farm equipment. But there were other places for those folks to go, other muscle jobs and then, you know, ultimately brain jobs. And I'm not saying that you don't need your brain to be a farmer, but you get the delineation I'm drawing.

There's no third thing. So, you know, if you... The arts? Yeah. Right. So there's no third thing. And by the way, there's no reason to believe that, like, there's something about art that AI couldn't eventually do better.

So if you lose the brain, if you lose the ability for humans to contribute to the economy, via their brain, you're going to get a bunch of people running around whose marginal benefit to the economy is zero. And I don't say that, you know, in a pejorative way.

I mean, it's going to come for me someday probably. But the reality is, that's different. That is different than other technologies that we've seen. You know,

there's obviously been technologies that have nibbled away at that whole brain vector for a human's to add, you know, value to an economy, but the chunks that it's taking out of it are scary. And so I don't know, I don't really understand the argument that it's not going to cause a relatively large decline in jobs eventually. It hasn't happened. It doesn't show up in the data, but I don't really see how it couldn't happen. And then what happens next is totally a choice,

right? Because you're going to have a bunch of folks who are, who are, who are, employable, and then you have to decide whether you're going to do something like universal basic income or whether you're just going to let the, you know, torches and pitchforks out. Yeah. And, you know, given how nimble and cooperative our government is, I have no question that they'll be able to just navigate it smoothly with no issues whatsoever. But more broadly, you know, the idea of technology being necessarily deflationary, I think if you look at the historical record, it's mixed.

it doesn't have to be. It sort of depends on where the benefits, where the productivity accrues. If it just accrues to margins, then you don't have to see any kind of deflationary pressure. I'll combat you on that one a little bit. Like in commodities, technology seems massively deflationary, right? Totally, yes.

We had peak oil in 1972. Now we can drill a thousand feet down, a thousand feet over, get pockets we never even could have dreamed of. and then in agriculture and everything, like just every time the demand is up, they'll find a way. Technology finds a way to get the supply to match. And you put your finger right on it.

What made that happen was because they were commodities, the productivity gains couldn't accrue to margins because you can't claim more margin than I can claim for the same barrel of oil. Yeah, yeah. Right? So the question is, will AI be more like a commodity where the top 20 models are all basically the same?

and so they can't charge much more than their marginal cost for them? Or is it going to be more like, you know, other industries where actually Claude is just the best and you're willing to pay a lot for Claude, and Claude is able to charge fat margins because there's a huge demand and not good equivalence. But not, and then that brings up, like, but not too much, because then the human could replace it.

Like, it can't get more than the human replacement, right? Yeah. And so this is, you know, this is where I think it's really good to have a macro perspective on, on some of this stuff. Because, you know, when we look at the U.S. stock market, you know, you can go company by company and you can talk yourself into it with, you know, a few exceptions. I can't talk myself into Tesla. But, you know, most pretty much every other company, you can look at it and say, yeah, I understand the state of the world in which this thing is fairly priced. the problem really jumps at you when you aggregate those 500 companies together

and you realize that for all of them to win in the way that is priced in, the implied macroeconomic outcomes, you know, specifically growth, are ludicrous. And so, you know, like I think this, there's this conversation, you know, is the U.S. equity market in a bubble or not which I think is more or less a pointless conversation

because people mean totally different things when they say bubble. But, you know, for us, if you were to define bubble as the aggregate economic conditions that are priced into the equity market are more or less impossible, then we would say yes.

And that doesn't mean it's going to crash. It doesn't mean, you know, go short-yous equities. As someone once said, yeah. Yeah, exactly. So, you know, the, the, the, it's important, I think, when you're thinking about these types of,

you know, turning points in markets, things like, you know, here comes a big disruptive new technology that you have a granular understanding of what the thing is and how it works, but also you're still connecting it back to the big picture, to the macro backdrop and saying, U.S. growth is going to be 15%,

probably not. Okay, there's something going on here. Yeah, but it seems like the market's discounting that a little bit anyway, and they're just like, who cares, just own these seven names. And yeah, maybe the others fall by the wayside, but you'll be fine in the seven names. Yeah, which again gets you to your point, I think, which is like, okay, well, who one man's spending is another man's income. One man's income, you know, is another man's earnings.

Yeah, who's buying the chotchkes when nobody has a job. Right, exactly. Yeah. So you run a global macro model. We met in Miami and was interested in your commodity model, which seemed a little bit different. A lot of commodity talk here on the podcast. So tell us what you're doing with that commodity. commodity strategy, how it's different. Yeah, I'll let you take it from there. Well, we, yeah, we trade commodities. We have a dedicated commodity fund trades, metals, and energy, no eggs. And,

you know, really what we try to do is take our macro understanding that we built at Bridgewater and apply it to commodities while also sort of meeting in the middle with a really granular bottom-up understanding of the commodities that we trade. So, you know, we find that this is true in all markets, but we find it particularly true in commodities that the details matter and that if you just have a good macro model in commodities,

it's not going to end well for you. Avos is... What do you mean by that? If I have like a price of production for oil is whatever, $62, and it drops to $42, and I'm like, this is a screaming buy because of that cost of production. Like, no, there's details of why

it's at below that? Yeah, I mean, look, if you have a supply and demand model for copper, you've been short all year. Yeah, yeah. I mean, God knows what you'd be doing in gold. So, you know, there's a much more granular understanding that you have to connect to the notion of the macro notions. I mean, even, you know, we used to talk about,

there's this thing, Dr. Copper. Have you heard this phrase Dr. Copper, right? It's like copper told you everything you needed to know about U.S. growth. And now when you look at what drives copper demand, It's, you know, it's China and electrification and, you know, Codelco screwing up. And there's all these sort of dynamics in the market that are more important for day-to-day price formation than sort of aggregate global supply and demand balances, which, again, looking across markets, we think is more or less useless. So, so that's what I mean by that. And, you know, part of that is having a really granular understanding of flows and who's doing the buying and selling and what are their motivations.

You know, it's funny on some level, there are only two types of flows. There's people who buy when the price goes down because they like a deal and people who buy when the price goes up because the thing is going up. Yeah. The Chinese and trend followers. Exactly right. And so, you know, like, that's why we've gotten excited. So if you think, if you look at like the gold market, for example, we were long gold all

last year, more or less. We were long gold through January. and then a few days before the crash, we actually flipped short. And why did we do that? Well, it was by understanding the dynamics around those Chinese, you know, basically speculators, Chinese New Year was coming up.

People are not, Chinese speculators do not like to carry risk across Chinese New Year. And so if you study that dynamic, if you study that flow, you'll find that there tends to be a mean reverting nature to, you know, You know, whatever Chinese speculators are long, going into the holiday, they tend to take that risk down, which causes selling and vice versa.

Straight out of trading places. They got to sell that so I can buy a gift for their little kid. Right. And also, the markets are closed for two weeks. You wanted to sit there and just carry risk that you can't do anything about. So, you know, that's always a dynamic. But being able to see how much bigger it was this time than it was usually because of just how crazy the speculative fervor around precious metals had gotten in China. So not just gold, but also

silver. And so we were able to get short, you know, basically in the lead up to Chinese New Year and catch that move. That's the kind of thing that we do. And then, you know, when we think about the gold market moving forward. And that's a discretionary call. This is all discretionary. Like you're getting the inputs and then making the decision. It was a discretionary read of the situation that we had systemized. Yeah, yeah. Right. So we're seeing the Chinese speculators. We're asking ourselves how long before the exchange raises the margin requirements? Again.

We're looking at that and saying, how close to Chinese Negro are they willing to get before they have to unload this risk? And the combination of those things causes humans, me and my other colleagues at Avos. You know, like I said, we were, there's four of us who were on the investment team together at Bridgewater, you know, to make that trade. And then, so then, you know, you play that forward. and this is why I brought up that paradigm, which is there are only sort of two types of flows. Once the market starts to fall, the trend followers sell,

but the level of the price is still not necessarily attractive to the Chinas of the world. So, you know, for the last few months, you've had, you know, more or less the central bank sit it out while the specs and trend followers did their thing until, you know,

basically six weeks ago, China said, okay, I like where we are now. And now the central banks have come roaring back. They've reestablished a new trend, and we expect the specs who have already started to pile back on. We'll continue to pile on, and we think we're probably in the third or fourth inning

of a nice gold move here. Is that part of your flow analysis of like the central banks will follow one another? The central banks definitely have similar reaction functions to price. Yeah. There are certainly differences across them, and China is obviously the most important one.

So if you get China right, you more or less, you know, you're more or less are going to be okay. The other thing is it comes back, you know, the other thing you have to think about in the backdrop of a war is that, you know, if global trade is impaired, then trade surpluses can be impaired as well. And again, it comes back to the paradigm. we described before, which was, you know, you're left with a pile of dollars and you got to do something with those dollars. You're going to buy gold. You know, China, we think spend about 11% on average of their dollars ends up in gold one way or another, something between 7 and 11%.

And so if, you know, global trade is shrinking because, you know, I don't know, there's a war, you know, that's a dynamic that you have to weigh as well. Yeah. Yeah, because literally things can't move, right, exactly. Because, you know, fuel for those ships cost twice as much and, you know, they, they're afraid of hitting a mine. Then, yeah, of course, then there's going to be fewer dollars to invest. And we were picking up some of that dynamic earlier in the war as well. It seems to me like I want to rename it micro commodity trade, right? Like, that's a very micro thing. Like, maybe you're calling it macro, but it's, no, you have the macro view and then you're saying, no, but the micro is what matters.

Right. And so you have this macro view on trade balances and global trade. And that's taking, that's giving you that's sizing your pile of dollars that then you can filter through in a very micro way into the behavior of these central banks. And then what's that look like? That was a, you have different conviction levels and you'll put X percent of the portfolio on that trade and then you, what does all that sizing look like? You know, the, you can't talk about managing commodities without, you know, acknowledging the elephant in the room, which is that commodity funds blow up all the time. Yeah. And we think there's a couple of reasons for that. One of them is, I think, a man named Philip Anderan.

Yeah. Yeah. Outside of him, it's much less percentage west. Yeah. Well, you know, you get a lot of folks who enter the commodity space whose background is in the commodity. So, you know, I worked at Cargill for this number of years. I know more about soybeans than anyone else in the world. I'm going to set up a fund.

And then what happens is you end up one way or another with, like, really concentrated positions. And then, you know, it rains three days in a row in Brazil and suddenly your fund blows up. So, yeah, the spread has never been this wide. Yeah, exactly, exactly. And so, you know, when we thought about building the strategy, we took probably a year before we actually launched the strategy to really build a robust, tailored risk management model. The things on the shelf are way too reliant on assets that behave well, and commodities

do not behave well. You need to just take as a reality the tails and build that in. We try to profit from the tails. We do a lot of, you know, sort of convex bets, which, you know, out of the money options on various things, when we think that there's a squeeze happening in commodities and squeezes happen in commodities all the time. But the reality is that you need to run a tight ship on the risk side to survive. And, you know, the thing is, is that there is alpha in these markets. If you keep the ball in the fairway, you're going to do great if you have that alpha.

But the commodity markets are conspiring to get your ball in the rough. Yeah. And so, you know, you'd like grow over the fairway. Right. I mean, just in the strategy's been around for, you know, three, three plus years now. You know, you had your biggest ever single day moving gold, your biggest ever single day moving copper. You had, you know, obviously your biggest single day move ever in silver. And then, you know, everything. Right. And by the way, Russia, Ukraine, I mean, that has been a sneaky, I would say a sneaky lid on the oil price has been Ukraine deciding that they're going to, you know, play more offense and actually attack the refineries on Russian soil.

A lid or a floor? For actual crude, it's put a lid. I don't buy crude. You don't buy crude. Yeah, yeah. Refinaries buy crude. And the 12 biggest... Refinery's on fire, they're not buying any crude.

They're not buying any crude. And so crack spreads have blown out to the highest level ever because refineries around the world are burning. But it's put a lid on crude demand. I mean, you've got... got Russia exporting oil and importing products now. I mean, that's a pretty big change. Yeah, that's weird. Yeah. And, you know, so again, like there's a macro thing that there that, you know, you have to understand in terms of oil demand and growth levels and these types of things.

But at the end of the day, if you have a bunch of refineries on fire, you're going to get demand destruction through crack spreads, not through the price of a barrel of crude. Why just metals and energy? Battlescars from ag markets or just said, like, let's start with weather. It's just what we know. We'll trade anything if we think we have alpha in it. And one thing I'm pretty confident in is that I'm no good at predicting the weather. And I feel like it's tough to trade ags without a better handle on the weather than certainly I have.

I mean, you hear these stories of Citadel launching their own weather satellites and stuff like that. And it's like, okay, you know who else is at the table when you're playing? and that doesn't seem like fun to us. And then talk, so all sorts of metals, industrial, precious, even said uranium. Yeah, we love trading uranium. Is uranium a metal? What is your...

Yeah, I think uranium's a metal, yeah. Sure. Uranium to us is just, is great. And, you know, the reason it's great, I think is just, it's not big enough. to really attract the attention of the bridgewaters and the citadels and the, you know, of the world. It can't move the needle.

And so that's one thing that we think a lot about in terms of our strategies is capacity, which is, you know, we think about, we basically want our strategies to be small. We put, I have 100% of my own wealth in our own firm strategies. I want the performance to be good. And that means that we can't be too big

to trade the markets we want to trade. And when you look at the uranium market and sort of nuclear energy more generally, I mean, there is so much rich opportunity for Alpha. There's so one of the, I mean, sort of step number one, sort of like the first thing you look for in a market if you want to find Alpha is, are there people participating who don't care what price they get?

Yeah. And this is the classic thing trading currency. against central banks, right? They have things that they're trying to accomplish, and the price they get is the price they get. If you're writing a nuclear... You can argue the U.S. stock market of all those 401K contributions coming in every month.

Yeah, I mean, that's an example. It has its own nuances to it, but that is an example. But, you know, when you think about running a nuclear power plant, you know, your fuel costs are a relatively modest part of your overall OPEX. You know, are you going to not... You turn the plant off because somebody... is trying to sell uranium to you for 90 bucks instead of 89? I mean, come on.

Right? So you have these sort of captive buyers, and you have captive sellers. You know, like if you are a chemical and you pump a bunch of uranium out of your minds, like what are you going to do? Just like putting in your garage. Yeah.

You know, so you have a lot of inelasticity in the system that creates a lot of opportunity. And there are actually some hedge funds that we don't trade the physical, but there are hedge funds who sort of broker both sides of the market and they're able to sort of pick up on those elasticity as well. We do it through the public markets. They do it through the physical moving of the uranium,

but there's a lot of alpha kind of circulating in uranium specifically. Yeah, I'm waiting for the CME to get on the uranium futures and make it a bigger product. But we did the pod with the uranium guys. They were saying it's basically trades like futures now. Like people are buying a year out. The physical basically trades like a forward already. Yes.

Yeah. And then, you know, the forward price ends up being embedded in the price of a lot of the equities. And so that creates sort of opportunities there as well. The ETFs are so large relative to the size of the underlying companies that a lot of times the individual names just get whipped around by ETF rebalances and ETF flows. And so if you understand that in a very micro-rebalances, micro way as well. It's just another way to sort of extract alpha from the same, you know,

sort of family of markets. I was really upset with that. Learning on that podcast, I'm like the future small modular reactors. Like every college will have one, right? It's been fueling naval ships for decades. Like, no, it's like the size of a large parking lot. It's not like I'm thinking like it's a little ball like this and they're like, it's large. Yeah. And it's just not like three mile island large. It's like the size of a percol. It's still big. Yeah. That's the, that's the, that's the, that's the funny thing is that SMR's small modular reactors are not small and not particularly modular. So, you know, it's like a great name though. They got me. Yeah. Yeah, yeah. Seriously. But, you know, especially when you look at the power needs, you know, assuming we're going to do all this AI data center

build out, you know, SMRs aren't going to scratch the surface. You're talking about, you know, data centers that are pulling, you know, three, four gigawatts, you know, you need big, big, big reactors and lots of them to power something like that. LMRs. Yeah, yeah, yeah. Yeah, yeah. Yeah, yeah, yeah. I mean, it's, and, you know, the other thing I would say about SMRs is, you know,

I'm reasonably skeptical about the whole SMR story. I'm super bullish on the nuclear story, but skeptical in the SMR's story in particular is because I think we have China as sort of the canary in the coal mine here, which is that they have a, I would say a very build-friendly regulatory environment as it relates to nuclear, they can build whatever model they want, and what are they doing?

They're building the big boys. And they've cut the cost down meaningfully. They've cut the time down meaningfully relative to how much it costs and how long it takes everywhere else in the world. And that comes with practice, of course. And, you know, they're kind of providing a roadmap that to me is relatively bearish SMRs

relative to, you know, kind of traditional reactors. I'll bring us back on topic from it. So capacity-wise, what does that mean to you? You want to stay small? That's under a billion, under 500 million. What is that? Yeah, I mean, I think, you know, one of the lessons from the financial crisis, of course,

is that capacity is a mix of art and science. Yeah. And, you know, the way I sort of imagine it is, you know, you're doing your trading, and it's a little bit like driving behind a truck, you know, when you're getting closer, you slow down, and when you're getting further back, you can speed up a little. So, yeah, I mean, I think a few hundred million dollars to start

and hopefully let performance take us to a billion would be kind of a good situation. But we're going to be very, you know, we have other strategies that have much bigger capacity for trading things like uranium and gold and copper. There's so much value in being small. But you know, the normal playbook is just like, Well, we're at capacity.

Now we're adding softs. We've added, now we can increase capacity 33%. I know. And, you know, I... So you'll reserve the right to do that if it comes to. Well, yeah, I also, well, anyway, that's a, that's a longer, that's a much longer conversation about the incentive structures for financial, for basically asset management companies.

Yeah. So how many markets overall are you trading inside? There's like 15 inch or... Yeah, and we trade, you know, we're not just taking a view on flat prices. We do a lot of volatility trading. We do trade equities as well. And so, you know, we trade basically all energy and metals. We trade the futures, the equities and options on both.

And so it's not a base model where you're just like, we want to be long, we want to be short that gold. You might buy puts. You might sell GLD or something. Who knows? But, right? So you're looking at it of like, what's my best asymmetric payoff? Which instrument should I got to?

Exactly right. And we also, we use options a lot to create asymmetric payouts. We also use it a lot for risk management. And, you know, there are definitely situations where futures are better than options and there are other options are better than futures for expressing directional views as well. And, you know, we move between those. And then we're able to trade the sort of underlying commodities relative to the equities in those commodities in, you know, either spread trades or we can express that, you know, for example,

we were along Valero for a big part of the year. We thought that the strength in crack spreads was underpriced in the stock. That turned out to be a good trade. So we can do things like that as well. We're relatively unconstrained, which also puts us in a little bit of a weird place from a fundraising perspective because we tend not to fit neatly into one bucket, which is fine. We can live with that. That's Bridgewater guys. You know, we're always a little bit off, And then you're not, so per that, you're not trying to track commodity prices or be an inflation hedge or anything like that. You're just like, we're giving absolute return and just these are the vehicles we've chosen to do it. Yeah, and, you know, yes with an asterisk, which is I do think that we're trying to capture the big upside moves and commodities.

That's kind of like point A. And the other thing that we're really trying to do is we think about our strategy in terms of how it fits into portfolio. And it's important to us to be at most uncorrelated to, say, U.S. equities, where, you know, the bulk of our client's risk tends to live. And so we've been negatively correlated to the U.S. stock market. And so we think that that's an important characteristic that we, to some degree, we manage towards. So, you know, for example, during the kind of the early throes of the war, when, you know, you know, all global markets basically, I mean, certainly all global commodity markets

ended up with like a correlation of one. You know, you could look at the oil price in the morning and know whether gold was up or down and copper was up or down and everything else. You know, in that environment, we knew that the chance of an accident looked horrendously underpriced to us. We knew that if that happened,

that equity markets everywhere were going to puke. And so, you know, we put on a lot of, upside convexity in oil that, you know, obviously, you know, lost money, but that's the kind of thing that we would think about in terms of our process, which is, okay, we've got, we've got a double whammy here. We've got a negative correlation to the stock market and we have something that we think is materially underpriced. That's going to be a big trade for us. And then talk through that up versus down dynamic. That's just simply like it can infinitely go up and it can only go to zero

on the downside. I guess crude showed in 2020 it could go negative, but conceptually. Yeah, conceptually, yeah. That was its own thing. By the way, it happened because of China. So, I mean, you know, that's, it all comes back.

Yeah, I mean, like, we don't sell options. We buy options for risk management. We buy options for convex payouts where we have the premium at risk and we can make 10 times a premium if we're right. And if we're right, you know, if something is, is priced at 10. And we think there's a 20% chance

that'll happen, then we're going to buy a lot of it. And we're usually going to lose. And when we win, we're really going to win. I love it. So we would say the overall book is positive skew, right? Like you're trying to be it. Yeah, yeah, yeah. Love it.

Because a lot of, like, to your point, a lot of those ones that blow up are negative skew, like option sellers and commodity clothing essentially, right? Like some. Look, we bought a lot of options that expired worthless over the course of this war. and somebody sold them to us and made a pretty penny. For some of that, of course, you know, of course they were hedging and such, but there's a lot of naked options selling out there that looks really good until it doesn't.

What else you got for us? Anything I missed? No, I write a substack every Sunday. If folks are interested, it's free. You can just Google my name on substack. I read about investing this week. Show notes as well. Yeah, this week I wrote a piece that.

caused a little bit of a stir. The title, you might be able to tell what I wrote about from the title. The title was Munis are overrated, where we basically went bond by bond across the muni market and calculated like actually apples to apples benefit to owning them. And it's not a particularly pretty picture. So we write about that. We have a net. But the taxes, though, say, but you're in a net of taxes.

We did a net of taxes. Yeah. Our pencils are sharper than that. Yeah. We have an equity strategy, an ETF. I don't know what the rules are around mentioning it, but the tickers are a company name. And so we write a lot about equities and equity valuations.

And who got on your wrong side that you would want to attack muni bonds? Or people calling up with like, well, I'm looking at your absolute return commodity program, but I'm doing munis instead. Well, you know, the seems like two separate universes. We work with a lot of high net worth individuals, and they see us as someone who can trade commodities, but they also see us as having a broader, you know, capability around investing. And so, you know, when we get the balance sheet of a high net worth individual and it's 20% munis, you know, we see stuff like that all the time.

And, you know, there's, I think what makes munies in particular an interesting sandbox is that there are so many things in finance that are just believed to be true. You know, private equity is going to outperform public equity. That's just a thing. It's like religion. It's just true, right? And then you start to dig into these things and you ask yourself, is it really true? How would I know? What is the data show? Who's incentivized to, you know, sort of sell this message?

And you pretty quickly get a lot of these narratives, is falling apart. And, you know, honestly, a big part of what I, what I'm grateful for, you know, Bridgewater was, you know, it takes its pound to flesh, but I'm unbelievably grateful for my time there and the education I got there, the people I got to know. And I'm particularly grateful that when I read a story in the Wall Street Journal or in Bloomberg or whatever, my first reaction is almost invariably, really? You know, it's sort of like, you know, an embedded a skepticism in me, I think is extremely valuable for being an investor, being a trader, but I think also our clients, you know, appreciate it too

because we'll call balls and strikes on things that are just kind of assumed to be true. It's the old, I'm going to butcher the name of it. It's the Gelman amnesia effect or something, right? Like, right, if you're reading about, we see this all the time, like natural gas prices sold off 6% because rebounds and whatever. And we're like, no, we know an ETF that just blew out. and I had to sell it tonight. So it's like completely wrong.

And then on the next page, you'll read like something about like nickel or something like, oh, that's really interesting. But it's like the same source. And just I know for a fact that one's false, but I don't know of this one. And so I just take it and believe it. That's why I. A stupid trick of the human brain. It's totally.

And, you know, that's why I'm sure you know Matt Levine over at Bloomberg. Yeah. His column, I think the reason why I've become such a firm. believer in it is because whenever he wrote about Bridgewater, he did an incredible job and it was basically spot on. And I was like, okay, that's the thing I know about. And he's on top of that. I'm willing to trust his takes on lots of other things. And my beef with Bridgewater for years was that they reported they were in a managed futures database as part of their assets. And you guys, railing. I was writing blogs and everything. Like, hey, guys, managed futures assets isn't

really 800 million because 350 of it is Bridgewater. Like, We need to subtract that out of there and then talk reality. Yeah, also what Bridgewater does has nothing to do with managed futures. Exactly. I was like, we traded futures. We managed futures, but we didn't, you know,

there was no, like the typical things that you think about with managed futures. It was not at all what we did. So, yeah, that's funny. I'll put you on the spot to end since you've mentioned Pursuit of DB Cooper. Maybe I'll frame it as top five movies

you've put in your substack. as part of writing material. Top five movies. Well, look, I get a question that I get a lot is I'm 22. I'm trying to learn about markets. What should I, what should I do, which I read, what should I watch? And I always tell people, having lived through the global financial crisis, big short, like, nails it. I love that movie.

Yeah. And I'm a baseball guy, so I would put money ball on that list, you know, nothing too creative. And then, you know, the, the sad truth is that I'm a huge comic book nerd. So, you know, I was excited that, you know, the new Green Lantern show started up on Sunday night. The lanterns won? Yeah, yeah. I don't get it. What, there's two of them?

What do they do? The first episode was great. Well, in the comics, there's been lots of folks who have passed the ring around. Yeah, or there's more than one ring at a time. So that, you know, the intrigue grows. sci-fi nerd, but I've never actually gotten into physical comic books. Yeah, Green Lantern was always my favorite when I was younger. And so seeing it, seeing Green Lantern, I'm excited about the possibility that Green Lantern is going to be done well.

One movie I will not put on my list is the Green Lantern movie from, what was it, 10 years ago, whatever, with Ryan Reynolds. I mean, that movie is a complete mess. But I have higher hopes for Kyle Chandler and the, in the crew on HBO that's going on right now. So we have a best investing movies of all time list that I'll send you. Yeah, I like to see that. It includes Pretty Woman. That was about a private equity, like, guy that was hold up in the hotel going over his numbers, right? If you squint hard enough, pretty much everything can be called an investing movie.

Exactly. Awesome, Josh. We'll leave it here. Thanks so much for your time. It's been fun. Okay, that's it for the pod. Thanks to Josh. Thanks to RCM.

Thanks to Jeff Berger for producing. RCM for sponsoring. We may be on break next week or may do a solo six-pack for you. I haven't done one of those in a while. Or maybe bring on a friend of the pod. So, which is to say, I don't have anything planned yet. But stay tuned. We'll see you next time. 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.

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, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCSM 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 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.