Transcription
Let's get some facts. 37% of you aren't subscribed to this channel. That's almost four out of 10, just freeloading the alpha. So, come on, hit subscribe and I promise to keep leveling up the show with the best guess and the juiciest insight. Go on, do it now.
Hi, I'm Ral Pal and welcome to my show, The Journeyman. The Journeyman is where we travel to that nexus of understanding between macro, crypto, and the exponential age of technology.
Today, we're going to cover macro. Macro is obviously dear to my heart. I've been in macro for three decades or longer now. And it's how I think about the world. It's the lens of which I operate. It's how I invest as well. And all of us can learn from the greats of the industry how to invest better, how to think about investing, how to join the dots, how to manage risk. And this is a conversation that I want to have for you with a good friend of mine, Alex Gurovich. Alex has been on many times. He's one of the great macro thinkers, but he's also written many books about trading and investing. And I want to pick his brains on how to think about investing better.
But before you go, I just want to thank our sponsors. Today's episode is brought to you by Figure Markets. And right now, they're giving away $25,000 of USDC. One individual will win 25,000 USDC with five additional winners receiving 1,000 each. Enter for your chance to win by clicking my link below and depositing it into their democratized prime product where you can earn up to 9% APY. Offer is only available for US residents and $1 equals one entry. And don't forget, Figure Markets cryptoback loans let you borrow against your Bitcoin or Ethereum with up to a 75% loan to value ratio, one of the highest in the industry. Whether you're looking to reinvest or double down into more Bitcoin, cover everyday life expenses, or just have cash on hand, these loans make it simple. Interest rates start as low as 12 and a half% with no credit checks, no long applications, and no prepayment penalties. Download Figure Markets app today.
Okay, let's talk to Alex. Join me, Ral Pal, as I go on a journey of discovery through the macro, crypto, and exponential age landscapes. In the journeyman, I talk to the smartest people in the world so we can all become smarter together.
Alex, always a pleasure to get you on Real Vision.
>> Yes, always super fun to be back. Love being back on Real Vision.
>> Yeah, I've not seen you for a while. We bumped into each other in person in London, but we don't see enough of each other and it's always a good conversation. So, for people who don't know you, let's just do your quick background so people understand who you are, what you do.
>> So, I I'm a hedge fund manager. I run a hedge fund called Honte Investments. It's a global macro fund. We're located in the Bay Area. Um my background is that I used to work for JP Morgan doing global macro trading there. My educational background is mathematics. And over the time of working on JP Morgan, which was like 25 years ago almost I developed a strategy, a certain strategic approach. I wrote a couple of books about my strategic approach and the and and I jumping ahead with my book plug about 10 years ago. published a good book called the next perfect trade which delineated the set of my
>> which was a fantastic book. I read both your books. I have not we'll come on to the new book in a sec but they're amazing. People should read
>> there is
>> the next perfect trade. Yeah.
>> Yeah. the new the second edition is out and I had this idea that over this 10 years um uh I I laid out some set of strategic principles 10 years ago and it would be kind of interesting look back and see how they panned out where I was disciplined where I was not I'm sure we'll go more into this but this was the idea be not just clean up the first edition but also add some notes from 2025 to see how uh how those ideas panned out what proved to be wrong where I was able ble to be steadfast where I was led astray and I wrote another book uh which is about pandemic finance the trades of March 2020.
So, um, talk us through the the first book, you know, what what was going on at the time. What were you trying to get across? Because I want to go through the journey of the books and talk about the new book. We'll talk about markets and stuff later, but I just want to because I think it's important for people because they learn a lot from these books, learn about how to invest, how to think about investing. Um and you've taken people you know on the journey of the mistakes, the victories, all of that which I think is a you know very honest and useful approach for people
>> right I think my book was when I wrote my first book the first version of the next perfect trade I wrote it in 2014 and 2015 and that was inspired partially by the highly unusual setup the markets had in 2014 which I considered to be one of the two greatest opportunities in the history of financial markets. The first one was in 2002 and the second one was in 2014 and I probably most people will not think of those years as the years of greatest opportunities financial markets but at least according to my strategic system those are the two years and those are the two perfect trades I cannot find equal to them neither in the past nor since and
>> talk us through that trade.
>> Well, the the I probably should walk through both of them for a second, but the setup in 2002 was um it's really 2002 was a very it's kind of like a proof of great minds think alike or whatever you want to say somewhere in the end of 90, beginning of 2000s. I don't know when Cliff Asess was doing it with AQR. I don't know when Ray Dalio was doing with Bridgewater but several people started to discover risk parity which is which is a really what people when people always thought about bond stock allocation they were thinking okay we have to sacrifice some of our investments in stocks to put them in bonds to make it safer. What the risk parity was really equivalence of theory of relativity for finance because suddenly people realize that you can have your stock portfolio and you could buy some bond futures on top of it. You can make it both more profitable and safer in the long run. And you don't have to sacrifice any of the upside because you actually don't need to sell sell any of your stocks to have a duration exposure
>> because you use leverage on the futures side.
>> Yes. But your portfolio actually because of this leverage becomes not more risky but safer and has positive income on both sides and they work in opposite phases. So typically so you have much smoother return profile. Risk parity was as I said like it was as important for finance I think as theor relativity for physics. It was a complete revolution but what I think risk parity thought of it is in a more narrow sense stocks and bonds uh and that is what I was thinking in 2002. So I was probably a little late arriving that the first pioneers of it, but I have no idea what other people were doing. And I did an internal presentation at JP Morgan proposing a volatility weighted portfolio of S&P 500 futures and Euro dollar futures. And if you look back at that presentation, it's like so spot-on risk parity. I had no idea like all of those stuff I just did completely independently. We're going to have a volatility weighted based on the implied volatility portfolio and uh of course it was a stellar trade for the next.
>> So when you were volatility waiting it that therefore you must have had a massive Euro dollar position because they're obviously much less volatile.
>> Well you scale it right everything could be scaled to the right size and again it's a question which contract to use. I don't know now they call it spoos and blues I think the term is
>> that's right
>> like there all sorts of all sorts of variations and like and tweaks on that but I think so I didn't so 2002 I arrived at that idea and the origin of this idea like this I'm I talk right now about kind of the theory but the origin of the idea is that in 2002 post the um post the uh 2001 uh recession, interest rates were low, like the spot interest rates went like close to 1%. Meanwhile, there was a moment when there was a bit of a recovery and the market was pricing fixed income rates to go back to four or 5% in the next couple of years. They projecting a tons of ted Fed tightening. Meanwhile, however, the stock market was still at a very very low levels. And what I realized that there is no way the Fed will be tightening until the stock market recovers. So the only way I could by being long fixed income buying your dollar futures not only they would have to tighten but they would have to tighten way more than projected which was already a lot and the only way they would do that if there was a boom in the stock market. Now the caveat there was no inflationary pressure at that time. That's why that trade did not work in the beginning of 2020s. But uh there was no uh back then there was no inflationary pressure. There was no reason to fed to tighten a lot unless there was a booming economy and booming stock market. So conversely if I'm long stock market it was already low. It have to be much much lower. And the only way I could lose money on stock market if interest rates when basically in the in environment where I would lose money in the stock market interest rates would go to zero. So I had two trades and if one of them were to fail another one had to take make a fortune and it was quite possible for both of them to make money. And in the book I in the later portions of my book the next perfect trade I kind of detail in the book I go through all the parameters which make a good trade and they include many other factors like trend carry uh alignment with global growth um uh historical patterns and several other things but in but I also add this kind of intermingled trade relationship which I call concurrent necessity which leads to the situation when basically two trades combined make what I call a perfect portfolio or a perfect trade. Now my thinking by 2014 has evolved to not think of it as just risk parity but think of it as a combination of any two asset classes which create the setup and 2014 gave us the same type of lab. Dollar was very weak. Euro was like trading like 140s and Mario Draghi who was the ECB chairman at the time blasted us with do whatever whatever it takes. US interest rates were sitting at zero but they were projected to rise very high. 10ear note was trading at 3% 30-year note was trading at 4%. So that created the setup that you could be long dollar and long US Treasury bonds and the and for if all of this tightening that was projected again were to happen and you didn't make money on Treasury bonds then you would surely make money on the dollar because it was very clear that ECB was not tightening and you would be just earning carry and conversely the only way you could possibly lose money on the on a long dollar position If if was the Fed was very easy and kept rates at zero which would eventually one way or another you would have to make money eventually on the long day the treasury bonds if rates are forever at zero. So uh this was a trade that and as as in the previous case the setup of all parameters for both trades was so perfect that actually both sides were very likely to make money and as we very well know they both did all the way up to Brexit from 2014 to 2016 we had a great bull market in treasuries and at the same time we had a bull market in dollar which went I think like till 2018.
And did you hold the just the one? I mean, you obviously do other trades, but did you hold the position for most of that time?
>> Yes.
>> And what did you look to be the case to take off the position? Cuz that's another thing people struggle with, putting it on, seeing a trade is good. You're making money. When do you take it off?
>> Well, you know what? If I knew when if I had a magic formula when to take off positions. I'm not saying I'm not successful. But I would have been much more successful if I had that magic formula.
>> It's hard, right? It's not easy.
>> It's hard in in fact like last year was kind of a very interesting year like this. Typic sometimes I set target levels for myself. So I just say like if that's not just specifically for that any trade I I I even talked about I think a little bit about in my in in the next perfect trade about this about setting up very clear parameters for the trade up front. I'm holding this for two years, good, bad, or ugly. Or I am holding it for till this price or until this exit level, till this price or the stop-loss. What I always argued is that it could be very muddy when people say, is this trade successful? Because you could like buy some stock, have it go down 80%, then go up 500% and say, see, I am successful. The reality is if you invested in something went down 80% there is no way you were successful because your capital vanished right you could have done so much more with this capital buying the stock 80% cheaper right
>> that's right
>> so clearly this was not a good trade unless your parameters was I'm just holding this for two years good bad or ugly and then when it's up in two years no matter what happened in the middle doesn't even doesn't even matter right so uh you can set set rigorous parameters and usually it works. However, I have a story from 2025 and the story is silver,
>> right?
>> And I had I had silver for years and I had a silver target of $60 for like a decade. But guess what? Where it went. So it's uh sometimes it's it's can be a little frustrating if you stick to your target prices and take off take profits and then you realize that thing keeps keeps running.
>> Yeah, I know. So then so then you've kind of updated the book with thoughts as you go. So talk us through what what's changed and what's the new book about?
>> So the so the new book is it's really the old book in some sense. I wanted to keep them uh I wanted to keep the integrity of my old writing. So I didn't want to like go back and rewrite and make it prettier or make rewrite it with a knowledge of what I have now. So what I did I left it mostly intact like with just cleaned up like made it better format better graphics but I cleaned up things and then I put in well delineated notes from 2025. So you can tell what is my old writing which is verbatim the same and what am I thinking and there are many points in which ask the question I think next time when this happens I will be able to do this and now I could say okay the question is answered I was able to do that or I could say you know what I put trends as the very first chapter of my book I put the importance of trends and guess what I screwed up on fighting the trends in X Y and Z over this last decade And then I could but I could say but you know what one of the things for one of the chapters in my book is about free lunch. Always take your free lunch if somebody offers you free lunch. And I like market almost never never offers you free lunch but sometimes it does. And when you does you really have to stuff your belly and I was actually able to do that in 2020 and take the free lunch
>> in when 2020.
>> Yeah.
>> Yeah.
>> Yeah.
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It reminds me a lot of the Soros book. Uh I think it was Soros and Soros. I can't remember which one it was. um where he kept a trading diary um of a whole period and his observations and you can look back and see where he was wrong, where he was right
>> and it was a fascinating time because it was the Plaza Accord,
>> right?
>> And how he kind of walked into that trade without kind of he didn't really quite see it and he was wrong at first.
>> He was the other way around. He flipped his idea. It was just it's a fascinating journey to see inside somebody's head of how to trade particularly in global macro I think because global macro is a much more 3D jigsaw puzzle of having to figure out you know is the perfect setup there.
>> Well you know you touch on a very interesting point here because kind of global macro usually like three or for three or four years it's business as usual. you're right about some things, wrong about some things and then something really big happens once in a few years
>> like COVID or even like bond market collapse in 2022 or it could be the war in Europe in more recent events. In the past, it could have been Brexit or European debt crisis or going back global financial crisis. Going back, it would be um September 11th. Going back, it would be Russian debt crisis, savings and loan crisis. I could keep whatever 1987 stock market crash. You can keep going back in time and see that once in a while something really big happens. And I think like unless you're just a purely premium buyer, like if you just have a hedging portfolio with just own options, you have kind of a 50/50 chance whether you're going to be caught by this crisis, right or wrong. Sometimes the crisis will hit you broadside wrong way around. It's very hard to be always right because if you could predict what the next crisis would be, that wouldn't be a crisis.
>> But I do find that people who are either in global macro or observers of global macro or people trying to learn global macro become obsessed by crisis when in fact you've made most of your money out of a crisis. the period coming out, you know, being long equities as opposed to being short. So many people look for the short trade, but the actual better setup is everything on fire cell discounts.
>> Yes, I would agree. Yes, I agree with this and this is kind of what this example was sorus that you gave kind of promotes this idea. Suppose a crisis did not come from the direction you expected. Suppose you were not first oriented right way in your portfolio. So you just take your lumps, you reconfigure and it might take in my case it might take two or three years to find the new kind of texture of the market to my to find your footing. What is the new regime and then you get in into this new regime and and understand like okay well things that I was trying to do before is not working. my portfolio did not work for this particular event but what are the what is a new set of opportunities. It is very important. I think that there is a very strong like kind of drive in m in micro markets. If if things go wrong, just cut everything, cut all the positions, get flat, uh get defensive. But I think the more important thing is I think that maxim about getting flat and getting defensive is more about clearing your mind and not being attached to your
>> It's not so much about that you have to get flat. It's about the fact that you need to clear your mind and see if today this morning was the first morning of my trading. If I'm just given like the cash, how would I put cash today? Now, in a regular life, you don't want to think about this like this every day because you're just going to keep like retrading your portfolio and churning and wasting money on um wasting money on transaction costs. But in the times of crisis when everything just blew up and your world changed, this is how you need to think. You need to think about, okay, good, bad or ugly, this trade is in the money, this trade is out of the money. This trade might have to go because look what what other opportunities are out there. You need to just totally reprogram. But the important thing is to see is there a way do I see a clear way to through that trees? Do I see a force behind the trees? Is there a way to deploy capital in the middle of this commotion?
>> Yeah, I mean, I've I remember very well when I was at GG running the macro fund. Um you know when things were going wrong and it's like none of my views are working, I would purposely just close every position, winners and losers. Close the book and go for a long walk in Hide Park and you know then not not work that day and maybe not the next day. then come back in with a clear mind cuz you need to ask yourself, you know, what are the biases I'm carrying now? Are they still applicable or are they not? Is my timing wrong or am I just wrong? And you'd have to see it clearly because if not, you just you're stuck with your biases still as well.
>> Yes, I think this is one approach. Honestly, my approach when when when there is when I'm confused first my first instinct is to do nothing and take a just a deep breath like for example like oh portfolio is down this much money margins this margins that I was like okay deep breath margins are not till tomorrow you know how like there's like a scene in the movie that they're like don't panic we still have 30 seconds So that is my motto in such commotions. So first first do nothing don't like rush to but then let's be methodic and and what I like to try to do is gain control of the situation. For example, position goes against me cut it at least some of the risk and that keeps you like kind of you know like when the boat is just like spinning down the water and uh rushing down the water your first goal is not necessarily to start like rowing against the water. you want to just start steering it a little bit. So you start being a little bit on the flow. So like the first thing what I try to do is just kind of get a little bit in the flow of the market. Get a little bit of a control of the situation. Because for example, even if you incrementally reduce your position, if you took 20% off and then it goes further against you, you're like, okay, I cushion my losses. I am in control. Just get that psychological sense of controlling the situation so you can think clearly. But I it is usually not my instinct. I don't think I've ever gone flat in the middle of crisis. I've traded aggressively but I don't think I ever like that's just my part. First of all, I usually have something illquid and a lot of positions and like some of them go against me, some of them for me in the port. So I just try to methodically go through things and see which things extraneous and can be cut which are core risks which are contributing to bad P&L and need to be I actually talk about this in my book about avoiding portfolio paralysis and the fact that you unfortunately when things go against you you have to cut in your kind of start killing your darlings and cut into your most preciously held deepest value positions because if you try to actually stick to those and cut other little things that are actually working. You're not helping yourself.
>> Mhm.
>> It's a very painful thing, but you're going to have to cut into some of your darlings to gain control of the situation. But I usually don't necessarily go flat. I just try to figure out what's going on. But that's just a matter of approach. Whatever whatever gets you to the psychologically balanced point. I call I have this term psychologically neutral positioning in my
>> Yeah, makes sense. Makes sense. or you know regret minimization is where I get to as well. It's like
>> yeah that's a good term too. Regret minimization is a good term too. I also think the world has changed somewhat that crises are not don't have the same left tail risk as they did but the right tail is it's more skewed so that it's not it's not a normal distribution anymore I think in um overall so a crisis because of debasement of currency whatever means that there's limited collateral collapse but the other side, you tend to get these long tail risks. So, I find the setups nowadays on the long side so much better. You know, like after 2022, it was an incredible opportunity because people's inflation expectations were insane. And so, you get the opportunity. It wasn't the the bond trade wasn't the great trade, but the equity trade was stunning or long duration equities were stunning at that point.
>> Yes, that's a good point. And I I will tell you honestly I'm of the two minds here. So I'm a little like in terms of assassing the future because you're right that the left tail looks differently because ever since especially since the 2020 crisis I think the methodology was put in place first versus global financial crisis but in a very tentative kind of sheepish way. They like oh yeah we're going to put a little bit of liquidity in the markets. Now fast forward to 2020, you will see like they thought they were doing like stimulus in 2008, right? That was nothing, right? That was like a drop in the bucket, right? Now we know what's what a stimulus is, right? And now that we kind of think like okay well in the past crisis meant typically deflationary shock bond market rallies people flee to the dollar stock market sells off we get shot uh kind of like a tightness of everything tightness of financial conditions and gradually the Fed kind of reluctantly relieves it. Now it's kind of like at a whiff of crisis there is an ocean of liquidity. Yeah.
>> Which makes think is like well can asset prices
>> even go?
>> I mean if if we didn't have co I'm not entirely sure we would have had a recession at all because of this management via liquidity.
>> Yes. So technically if you look at it uh from the from this perspective technically you could say like there can never be bare market because if you print like if the goal is to avoid any bare market whatever right you always can print enough dollars that at least in nominal terms there will be no bare market
>> that's right
>> uh so uh however what I'm afraid of here is a strap of thinking that like things are different this time. So I'm uh because who knows what the next because we don't know by definition what is the next shock will come from. No.
>> And is it possible in I think it is now people are adjusting to the view that like every new shock is actually negative for treasuries because imagine like there is a war breaks out. Imagine US goes to over China. Will people really buy US treasury bonds? No. They'll probably sell them eventually. At least they'll probably steep on the curve a lot, right? Will stock market goes down? No. Probably like defense stocks will rally this and that and before we know it everything is going up, right? like what kind of shock could actually cause the old kind of recession, the old style recession. But because we're so complacent, maybe it can happen.
>> Yeah. I'm I don't know if it can, but I know we can have different variations. Yeah.
>> So an idea I wanted to raise with you is is it is universally thought to be the truth that inflation is sticky that any stimulus even or tariffs are going to create inflation. The the curve tells you that um everything tells you that. But we have a shock coming down the pipe which is the maybe the largest economic shock of all time which is AI. Right
>> now, theoretically, it is probably the biggest disinflationary force mankind has ever dealt with.
>> Correct. I remember you even said it last time when we talked. It's like a deflationary nuclear bomb, right?
>> That's exactly right. And what what I'm and I'm not saying the timing is right or whatever, but I just play with this in my head is like we all believe it to be true that inflation is sticky and if they do anything if if the economy runs too hot, inflation is going to be the problem because this is this prior anchoring mindset a of 2022 and the 70s and the vulkar years and this kind of glorification of the inflation fighting machine. But when I look at it, if I were to come from Mars, I'd say, "Holy inflation is going to go negative and there's almost nothing you can do about it." You got an aging population and infinite intelligence and robots coming at a lower and lower cost every day.
>> Well, technically again, technically they can do right like you, no matter no matter how fast AI grow dropping the cost, Fed can print the money faster. Yeah, but that's not but will they? The question is will they? What?
>> But that's not necessarily inflation. Asset inflation and CPI inflation are two different things.
>> Yeah, it's different things. It's different things. But if the government starts uh basically the it's almost un we know we already know which it doesn't this is not a political point Democrat Republican. We know which way the wind is going to blow next time. If if is people are gonna start losing jobs massively, if labor is going to get absolid, we're going to go down the road of universal basic income. There is no way to avoid it. Like we already try, it's it's already the tried out playbook during COVID. It's going to happen again. It's going to like the amount of stimulus is going to keep increasing increasing. There will be no choice because indeed majority of people I already finding and will more and more find their labor not being marketable like the value of their labor will not be they will not be able to like majority of competent ablebodies adults will still not be able to trade their labor for the life which is considered to be like decent life by this society. Of course in this AI future even the poor people by some kind of very materialistic life standards will probably have better life standards than people of the in the previous century but that will not be acceptable to people because it will be so much worse than what is what will be the new normal for the society when if 70% of population do not have marketable skills or assets to trade their labor or or to use the assets to get lifestyle which is considered to be respectable by the society. It's not a socially stable situation, not in democracy at least, right? So in a democratic situation, it's going to result in inevitable uh some sort of equivalent of basic income or some sort of equivalent of negative taxation or stimulus or whatever. That's just again whatever your political views is, that's the road we're going down. The question is how fast and the question is what's going to be like leading the way. My guess is like yours that deflation will actually lead the way because u bec es especially because of the fears of inflation after 2020s. People will be reluctant to just be really really blatant about like sending stimulus checks right away. It'll take a while for this idea to take root again. And as you pointed out just a mere easing might not do the trick. It might pump the asset prices, but well, it's it's kind of obvious, right? If you ease, it's really like a supply side stimulus, right? It only leads to if you make money more easy, it only leads to more investment, innovation, and investment in innovation will just lead to more people being fired.
>> Yeah. I mean, this is um, you know, I've got to the point that I realized that this AI, robotics, nexus, all of this stuff is going to end up being a super massive black hole for capital because the more intelligence comes out, the more you can do, the more you can replace jobs, the more you can lower costs. It becomes this extraordinary flywheel because it's also, we're going to get to the point of self-recursive learning here. So, the flywheel gets faster over time. So you always have no choice but to put capital into it
>> as a way of I mean I think of it as hedging myself in the end because you know we're all replaceable by AI because we're knowledge workers you know that's purely what we do. Um and to think about that is how do you hedge yourself? You kind of have to be in the trade.
>> Correct. Yes. It's like well, it's it's the same argument that some people do for cryptocurrency right you need to allocate for cryptocurrency just on the off chance that that's the only thing that will be tradable in 50 years right if everything else will inflate away
>> maybe
>> yeah and I put I put them in the same bucket it's like that new technology stack of AI robotics blockchain technology these kind of things
>> it's like the inevitability of it all because they're kind of driven by network effects seems pretty clear and because the output is more intelligent money more intelligent capital markets more efficient capital markets more efficient intelligence more intelligence it's like what what else are you going to put your money in what I think is interesting thing about this AI black hole as you described that I think everybody is very focused on AI stimulating like double triple digit six-digit growth right million 10% annual growth whatever singularity card of scale one card of scale two whatever right
>> people are very focused on that
>> type of growth but what I see in the near horizon
>> I think I'm still would punt on the growth effects of AI on actually direct GDP effects because what AI does and this is hard for me to be very confident about because I'm not an economist yeah
>> but this is how I'm thinking about this in the past technology ological innovations like even when things got cheaper, it just became broad accessible or people just would buy better models like TV. Yes, TVs get like old TV would be really cheap now, but people just buy better and better TVs. So, it's not like there's a GDP hit from TVs getting cheaper,
>> right?
>> Or people like switch to other things like people invented cars, whatever. Carriages got out of style, but people started buying cars. Now what is interesting with LLMs that they make whole sectors of human activity no longer represent economic activity. So for example what used to be getting like going to a lawyer for a simple consultation or asking a lawyer to like help you write a document. It used to be an economic activity. It's no longer an economic activity. No,
>> getting second opinion from a doctor is no longer economic activity because a lot of people like myself get one opinion from a doctor and one opinion from LLM.
>> Yeah.
>> Uh unless it's a very severe case, right? But I always get sec so incrementally I I I replace second opinion or call to a doctor by of a routine issue to reaching out to LLM and same thing with legal stuff. Any kind of simple form, I don't go to lawyers. I just put in my information and I got spot out the legal document I wanted. Right? So I so but that is not a GDP at all. It's like there are parts of our life which are vibrant but are not represent economic activities like when you're just meeting with friends and going for a hike with a friend. There is no GDP effect of you going for a hike with a friend. So there is very little GDP effect of you asking and your friend maybe like might give you some advice right so you went to a friend and get some life advice from a friend it's actually meaningful but there is no GDP effect
>> now there are whole sectors of areas of people getting various advice and help which were huge portion of the GDP which is going away because people are finding this advice
>> but doesn't that just
>> increase into productivity So, you've become more productive because you don't have to email backwards and forwards with the lawyer. Even if the the economic cost of the lawyer in the past was, I don't know, $500 to get this bloody small document done, you now do it yourself. Your productivity increases dramatically because of the time spent and the slight saving in costs in doing it possibly. But I think it's like, do I actually do more because of that? What I'm going to do more trades because I didn't have to talk to a lawyer. It's almost like the time is almost the same. I could write a question to my lawyer or I could write a question to Chad GDP. The real difference is that there is $500 of economic activity that didn't happen.
>> I'm not so sure because you have to wait for the law to come back to you. You chase him up because lawyers never come back to you. You so you
>> so maybe I save some time but I could use that time to like play board games or go for the set hike, right? Or you could think more or you know do other productive activity that helps drive whatever you want to do whether it's hiking that's a productive activity in Alex universe right
>> yeah well it could be like for some people it could mean getting more productive but it also depends upon for of course like honestly okay if you're hedge fund manager possibly getting extra productive mean might be even more weight than not having to pay the lawyer for hedge fund manager managing large portfolio right Uh however for many people the big impact is that like taking out those $500 out what but what I'm basically telling you that I'm not sure if they won't be an incremental drag to the GDP from certain activities just not happening anymore.
>> Yeah. Yes. That probably makes sense because they become non-economic activities. So they drop out of the measurements.
>> They drop out they become so incremental it's just like the electricity that like whatever the 10 cents of electricity that is spent by asking this question. Right.
>> Yeah. And then we have to see and we don't neither of us know obviously is whether productivity then drives GDP because whether that translates into productivity i.e you can do more economic activity maybe
>> but the final demand right what what you're getting is what you're getting is like a lot of stuff taken out of GDP at the same time a lot of people taking out of workforce so sooner or later that has to affect the final demand.
>> Yeah. And so far the final demand is somehow magically holding up
>> well because of capex, right? Don't forget we we're going to go through one of the biggest capex cycles in history. I was looking uh with Julian today about um Taiwan semi Taiwan exports of the US have gone it's like completely like five standard deviations outside of normal thing because of this capex demand. And that
>> what's interesting is that why is Taiwanese currency weakening then? Who knows?
>> I mean, it went much stronger, but recently over the last year, it's been weakening.
>> I don't I don't know. But what is interesting is because now there is a a very defined capex cycle, which is you order the chips. You see the announcements from all these people. We're going to buy a billion. No, we're going to buy five billion. All of that stuff. Then the chips have to get shipped. Then they can build the factory. the the not the factories, the um you know the data centers and all of that stuff which need to be then built. So we're seeing kind of this I think a lead indicator to the size of the capex boom that's got to come and then we've got the energy side of that equation because we got to feed feed all this beast with energy somehow.
>> Yeah, there are some mysterious things going on because on one part we have uh on one part we have this Yeah, this I definitely agree with you. Kapax has to be the one making up for final demand. And there's a trickle down because there are all sorts of jobs. You build data centers, you create all sorts of jobs. But what is interesting is that oil prices have been going down despite the spiking energy demand for data centers. And that energy demand I only expect to be going up. In fact, I think when people talk about all those like beautiful singularity dreams, I I still do think that energy might prove to be the bottleneck for the singularity dream. We might not have enough energy to uh uh to power all of this forward, right? But what is interesting that I was actually thinking that oil would be going up. I cut out of I was even long deferred oil but I cut out of it somewhere in the middle of the year that fortunately because the trend was just not looking good.
>> I I think it's you know when I listen to Scott Bessant he basically and Trump they basically want oil suppressed in price because they understand that energy is the input and oil is complicated for inflation the economy and everything else. So this is the whole Venezuela idea, the whole, you know, kind of keep the oil price as low as possible, free up restrictions, let them pump as much oil as possible to keep the oil price down. Oil is too slow to scale for the speed these data centers need to be built. So it's going to be solar, it's going to be gas for the time being, and eventually nuclear. So I don't know if oil picks up, but oil picks up always when the economy does. Even building data centers is going to use oil, right, for everything.
>> It is. Well, I mean, I agree with all your points and probably I guess if if if that is so then they were successful as keep at suppressing the oil prices artificially or naturally who knows right but um there are some interesting conundrums there and I've heard some I'm hearing right now that people already beginning to get concerned over the over capacity of data center build up and how some of the projects are beginning to get cancelled. I'm beginning to see some numbers around that. What my concern is with all this data center buildup is that I don't really know the tech side of it very well, but given how quickly everything evolves, what if you build like data centers designed for some particular kind of technology and they're not even going to be compatible with technology 5 years from now at all and it'll just empty hulks because it'll be completely obsolete. Right. Not that we won't need something like that in the future, but we'll need something entirely different.
>> Yeah. Yeah. And I don't I don't disagree. But the one thing when I play through the data center thing now, so what we know is this technology is is so important, arguably the most important technology humans will ever invent and maybe the last technology we'll invent that everybody has to be in the race. So let's play through a scenario where anthropic goes under. They can't they can't compete or or open AI or whoever it is. you choose your your um large LLM, they give up and say, "That's it. We've run out of cash." What happens the following day? That's what really interests me because the following day, Microsoft or whoever it is will buy all of the chips, all of the data center, all of the power, and they will double their compute capacity overnight. Doubling of compute capacity is shown via scaling laws to have produced even more amounts of intelligence. So, they suddenly win the entire game. That's a really interesting game theory where if anybody goes bust, anybody who buys it ends up doubling their intelligence output. You know I was recently in this very debate and the debate is uh not so much in the debate
But we're discussing something because I don't have the strongest views whether in the future, uh, AI will be like a utility or it will be like a winner-take-all situation. Like, uh, with search, right? Originally, yeah, there were a few search engines, this and that, tried, and Google just won the whole game, right? Same thing with like Facebook won the social media game, and, uh, Amazon won their retail online game. So, will it be like what you're describing as a scenario in which one wins all, or will there be like multiple utility-like providers?
I think it would be the worst world in the world, but the worst thing to ever happen, if this technology ends up in the hands of one nation or one company. So, it has to be because of this game theory. Everybody has to scale at the same time. There's almost no way out of this. There's almost no way for them to go bust, really, in this scenario. From the very big LLMs, and we're still going to have open-source buildout because I think people are going to understand how important this is not to be in the hands of, of one company.
Well, people understand it, but what can they do about it? If in a scenario describing that one of them cannot compete and goes under and gets bought out, how can we stop that? I, yeah, now, whether it depends whether the government wants to stop that, whether these, it's too important to fail. Because if you suddenly say, "Oh, Microsoft buys it all in an auction," they pay 50% over price for it, right? And suddenly now Microsoft has all the compute. Is that agreeable to the government or not? Or is Microsoft now so powerful that even governments can't stop it? I don't know. It's just a really interesting, it's a very different world, this whole thing, right?
Yes, yeah. We're, we're, we live in a very different world. It's like, not the questions in some sense. Singularity is happening exactly on schedule. And I've been watching this for 20 years, and I was expecting it to happen in the '20s, and it is happening in the '20s. Like, I, like, what is happening in the '20s is exactly as outlined. Some things are happening a lot.
By Ray Kurzweil. Yeah.
Yeah, by way, it's basically, yeah, Ray Kurzweil's schedule is holding up very strongly. I think if anything, LLM came a little ahead of Ray Kurzweil's schedule, some other things might have been a little more delayed, but basically, it's only within like one or two-year range. Actually, his schedule is just since the '80s is holding up. And this is, this is what really convinced me of singularity because when I was introduced to Ray Kurzweil's schedule, which was 20 years ago, I was skeptical of it. I was captivated by the idea, so I was like, and I looked at the historical evidence, and I looked at the charts, and they all look convincing to me. But as always, in relation to something new, I was skeptical. I always noticed that like, say you introduce a new trade, some new asset. You can look at the history of this asset, but you will never really get a feel for this asset till you own it for a few years. You'll never like really know how to trade the asset until you traded it yourself, until you were the one picking up the phone and calling the brokers.
Yeah.
And you were the one stuck in like illiquid situations. You're the one watching the screen with it. That's when you get it. So, same thing with singularity. Over the last 20 years, I was actually okay. I was already introduced to the idea. I was able to watch the benchmarks and, and I was like, "Oh, wow. It's all falling into line. It has been falling into line." And when people say like, "Oh, no, it's not happening." Uh, and I, I think I talked about this. All these people were saying like, "This is bullshit." They were very dismissive of it. But people who were dismissive were not showing any math or any graphics, while the pros singularity people were showing the charts, the computations, and everything was going according to charts. But people just refused to believe where the charts lead. And even now, even I myself, like, I don't think any human, no human being alive is capable of really fully accepting where these charts lead. I, like, they talk as if they accept. We all can say like, "Oh yeah, but we don't really in our bones. We cannot accept it because it's completely crazy where the charts lead."
Yeah. Now, if we, if we went back four years and said, "Oh, by the way, somewhere around 2026, human intelligence is going to be replaced by new apex intelligence." Everyone would have said that's utter bullshit. And yet here we are.
It's.
Yeah. But, but also at the same time, if we look at the charts at any of these years, that's exactly when it is supposed to happen.
Exactly. But the.
By 2030, that was the timeline.
Yeah. Even with this short period of time, four years, we can't. We misforecast exponentiality. We just can't do it.
Yes. And I think like what is also within with with this captivation and LLMs, I feel like so many other things suddenly went vertical too, and it's not even noticeable. But so many, for a while, I, I feel like we had almost like 80 years or maybe even longer of stuck technology. Like fundamental ways of living were not changing. Like we had airplanes, we like since we went to the moon, like we had everything basically. We had computers, we had lasers, we had cars, we had airplanes, spaceships, and we didn't even go to the moon since '69, right? But the fact that we could go to the moon in '69 and we in '69 barely can do it now, it just kind of stuck. Things are just getting a little bit mature, miniaturized. And the only thing that was really progressing is information technology. And then suddenly I'm hearing all this shifts in robotics, right? Robotics, like people writing about robotics, science fiction about robotics for over a century. The word robot now is more than 100 years old. Uh, it came from, um, a novel by Karel Čapek, R.U.R. He invented, like, Czech writer invented the word robot. And then, uh, I forgot what year it is, but it's early 20th century. Uh, now we actually have robots. Now suddenly they're like all over the place, and they seem to be doing, we're actually getting them. Even flying cars. Flying cars were like for decades, people asking for flying cars. And guess what? Like flying cars, okay? That technologically exists now, and they're beginning to get used. And so many other things.
But Alex, nobody's prepared for the fact that we're probably in the AGI year this year. Whatever, however you want to define AGI, we're pretty damn close to it. And we're going to put that into a humanoid robot.
Yes. I mean, people are not ready because people are thinking the robots are like a controlled thing, but they're not thinking they're going to have super intelligence and they're going to be around us. I mean, I don't think people, society is not prepared for this. Not in any way.
That's right. Yeah.
So, when you look at, um, what's going on now, do you see any interesting trades? Any interesting opportunities? What are you looking at? Well, a lot of it is, uh, I think duration is a good trade, given what we discussed. I think interest rates have space to go much lower because I feel like the whole tariff bump is kind of dissolving, and with the loss of, with the labor market slowing down, I think duration is becoming a great trade.
And nobody believes that trade at all, right?
Well, I, I'm in it. So, we'll see. I think duration is a great trade. I think, uh, in a precious metal space, obviously, like I mentioned, that silver run beyond my wildest dreams, but there are, I think like platinum still has a lot of space to run because precious metals go on very long cycles, are sometimes not synced. And like, you could see gold like was way ahead of silver, and people like, "When will silver go? When will silver go?" Now silver is going, and platinum is only beginning to wake up. So, when silver gets stuck, it's probably platinum will start going. So, I think like playing this catch-up game, I think it's an interesting game. There are a lot of interesting currency dislocations which could be taken advantage of in the long run. I think like extreme weakness of Yen probably will not persist. Everything is against Yen, like everything is for Swiss Franc, everything against Yen, and all the stories are going that way, but at some point, location wins. So, I think you have to look for locations.
Yep.
Versus stories sometimes. And sometimes you have to work for continuations of stories. Yeah.
So I see kind of both location and story.
And any, anything else? What about, what, what do you do with the equity market here, or is it too late in the trade? You either.
I think you shrug with the equity market because again, history shows that at some point you'll buy it cheaper.
Yeah. I mean, you could, I'm not saying that that's the top, but I'm also, history shows that no matter how much it runs, how impregnable it seems, at some point you'll buy it cheaper for whatever reason. I don't know, but I think odds are overwhelming that in the next few years, there'll be a chance to get in an equities market at a better level. Yeah, because I, you know, for the, for me, this year would be a year I would be peeling off the equity trades I've had on since 2022 and then waiting for whatever the cyclical downturn is, whatever the shock is, whatever happens to then re-enter that trade. And so, is the book out?
So, the book is coming out next week, early next week. This is, I have this, this is my advanced copy. So, I'm inviting everyone to, uh, get their hands on it. I think it'll be available for sale already. Not pre-sale, but real sale next Tuesday.
Next Monday. It will be available for sale.
So, please write reviews.
What?
It's on Kindle as well. It's on.
It'll be on Kindle as well. There will be ebook and, and physical book available. And I think the useful point of it, even if you read the first version of the book, would be just kind of to go back to that and see how did the principles play out over the next 10 years. And this is going back to that idea. If you introduce to something retroactively, it only makes that much impact. But this book already has been there in the world working for 10 years. And now we can see how it has been working. And I promise you, I'm not just tooting my horn. There is plenty of places where I show I screwed up, that I didn't do this right, I didn't do this. So, like, uh, this is why this was the idea. My other book, The Trades of March 2020, where they did full transcripts of trading in the March of 2020. The idea to show things as they are, with all the, with all the screw-ups, all the lacks of discipline, all the mess-ups that happened. Just.
Show the world, uh, things as they are.
Yeah. And I think it's very important for people who are trying to learn their skills. Your books are really helpful for it because again, as I said, it gives you a framework. You test your own framework. You show where they go wrong. You know, the, the, the, the one about the pandemic was very human as well, you know, the, there was fear, there was all of the things that, you know, robot Alex, the trader, also was human looking at this, thinking, "Oh my god, what, what is going on?" You know, they're really good books and super helpful. So, I haven't read it yet, but I, I've, uh, um, I've got a copy on its way and I'll be reading the digital version as, um, and urge other people to do the same.
Excellent. Thank you very much, Alex. Fabulous to see you as ever, and I'll see you next.
Pleasure as ever. Always nice to chat, and it's nice to have a good two-way conversation. Thank you.
Always. All right, my friend. So, you obviously like this video enough that you've got to the end. That's quite a big task. But listen, do me a favor, hit the like and subscribe button, and also check out what videos next, 'cause I think you'll love it. But if you want even more, and when I'm talking more, I'm talking about member-generated ideas, incredible alpha research, everything there to help you in your journey, just head to realton.com/join for the best financial intelligence out there and the pure alpha that's within the platform.