November 15, 2025 • 39 mins
According to Dirk Willer, the Global Head of Macro Strategy at Citigroup, we are definitely in bubble territory. Per his research, the stock market has been in a bubble since May. Unlike many people, whose definitions of bubbles are a bit more vague or a bit more based on sentiment, Dirk's work focuses on precise timing and price indicators that distinguish bubbles from mere booms. Furthermore, he argues that when the bubble first forms, the correct move historically is to buy into it and then just accept that you'll never nail the top perfectly. On this episode, we talk about his overall approach as well as the signs of when the bubble has come to an end. We also talk about current parallels to the dotcom bubble, why gold has had such a monster year, and the signs from the Treasury market that make the US look increasingly like an emerging market.
Read more:
Stock Bounce Wanes on Fed Angst as Bitcoin Plunges: Markets Wrap
Gold ‘Trading Like a Meme Stock’ Sets Up Miners as Levered Bet
Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots
Join the conversation: discord.gg/oddlots
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of The Odd Lots Podcast.
Speaker 3 (00:21):
I'm Jill Wisenthal and I'm Tracy Alloway.
Speaker 2 (00:24):
Tracy, Market's getting interesting again.
Speaker 3 (00:26):
I love interesting markets.
Speaker 4 (00:28):
We do.
Speaker 2 (00:28):
We always say we're long volatility. That's right here at
the Odd Lots Podcast. All financial journalists are long volatility.
Speaker 3 (00:35):
I guess yes. I mean you can actually see it
in the listeners and readership numbers. Our traffic follows the.
Speaker 2 (00:41):
Vin there's some bad incentives. Yeah, perhaps perhaps, but if
it bleeds at leads. I mean they've been saying this
about the news forever.
Speaker 4 (00:49):
Yeah.
Speaker 3 (00:49):
So at the moment, we are recording this on Friday, November.
Speaker 2 (00:53):
Fourteenth, at ten oh seven am.
Speaker 3 (00:55):
Yeah, we have to say that we have to be
very specific because things are changing so fast. At the moment,
the S and P five hundred is down like zero
point seven percent, but it was down more than one
percent earlier, and then yesterday it fell, you know, one
point eight percent. So this is a pretty substantial slide.
And of course it comes at a time when people
were already worried about things like tech valuations and the
(01:18):
possibility of an AI bubble.
Speaker 2 (01:20):
Totally. The US DOC market has had a phenomenal year,
and this is all kind of minor in the grand
scheme of things, but some of the moves haven't been
that minor for some big things. It is some of
the most volatile period since April. Really, I mean, it's
kind of been a smooth rite up since the end
of April or the middle of April, whenever that bottom.
There's just a lot going on questions about the FED.
(01:43):
Gold interestingly had a massive year, and it also is
selling off, so that sort of raises the question about
what's been driving gold Bitcoin getting absolutely clobbered. Of course,
you know, it's sort of a glorified tech stock and
the way it trades, so many interesting things, so many
market winners fading a little bit.
Speaker 3 (02:01):
You know, it was really interesting this morning. For a second,
bonds weren't really doing anything. They weren't rallying, And so
if you can't go into gold, if you can't go
into bonds, if everything's selling off at the same time,
that seems kind of worried.
Speaker 2 (02:12):
Well, this is really interesting and probably needs to be
discussed more. But you're absolutely right. I think yields on
the tenure were actually up yesterday, November thirteenth. In the
last week I was looking at the work function on
the Bloomberg terminal. Odds of a December rate cut have
come in quite a bit. It's closer to a coin flip.
A week ago is sixty six percent. There have been
some speeches from some of the FMC members talking about
(02:36):
you know, they're uncertain, and part of the reason were
uncertain because we've had so little data. I guess we're
going to start getting data again now that.
Speaker 3 (02:42):
The although it's still going to be messy.
Speaker 2 (02:44):
It's still going to be super messy. You know, Understanding
the economy in real time is hard in the best
of times. It's really hard when there's no data, and
then it's really hard when the data that does come
out is going to be driven by the lack of
government employment, which then make the data even more ambiguos.
So a million questions, very interesting moment in a very
interesting year for markets. We sort of got to get
(03:05):
a better understanding of what's going on.
Speaker 3 (03:06):
Can I say one more thing before we get to
our guest, which is I think part of the discussion
at the FED. We're kind of getting very circular here
because I suspect what's happening is, yes, the FED is
worried about inflation, so some FOMC members are getting a
little bit more hawkish in their speech. I think they're
worried about AI bubble possibilities and valuations as well. And
the longer they heat right slow, the longer this goes on,
(03:29):
and then maybe the mess is even bigger when they
eventually have to clean it up totally.
Speaker 2 (03:34):
All kinds of crosswinds, yea to speak well. Anyway, I'm
very excited to say that we do indeed have the
perfect guest, someone we've never had on the show before,
but very excited to talk to him. We're going to
be speaking with Dirk Villa. He is the head of
Global macro strategy at City. He brought us a book
to that he co authored, Trading Fixed Income and FX
and Emerging Markets.
Speaker 3 (03:53):
It's going to be useful in the US, I know.
Speaker 2 (03:55):
That's the thing. It's like suddenly all these em veterans like,
let's tell you how some of these things really works. So, Derek,
thank you so much for coming on the podcast.
Speaker 5 (04:04):
Great to be here. Thanks for the invite to ask.
Speaker 2 (04:06):
You a question. If you went back, say a month
ago or a month and a half ago, you're talking
to clients, et cetera. Did you ever encounter a single bear?
Speaker 4 (04:15):
I mean, I'm trafficking more among the macro people than
the equity folks, sure, and the macro guys always half
class empty, right, So that you did find some bears,
and I would say, actually only a few weeks ago
that disappeared because there was a really strong buying into
the center, really right, So meaning November and December have
exceptionally positive seasonality always, and they've even better seasonality risk
(04:39):
and risk and exactly. So I think the bears that
we found disappeared over the last few weeks. So maybe
just at the wrong time you value, but that's how
it goes.
Speaker 3 (04:49):
Right, Yeah, How do you officially measure sentiment in this market?
I'm always curious because obviously everyone has different methodologies, but
sentiment seems quite key. When you're talking about a ball
run that's really driven by tech stocks and this AI narrative,
the story becomes so important.
Speaker 4 (05:07):
It's actually really key to this because if you were
to say, listen, this is the top of a bubble
or something, you'd have to see really really into the
ztic sentiment and we never quite saw that. My favorite
indicator is because the polls indicated stands for positioning and
various other things, and that is something that we put
out and that worked really really well this year and
(05:28):
actually the last five years for that matter, and that
never went into territory that really told us to be cautious.
We do a bunch of surveys, so we survey all
the big asset allocators worth the futrillion in asset under management,
and they never got as bullish on US equities because
after April there was a big move outside of US equities,
(05:50):
as you know, and they never really fully jumped into
the US equity market as much as they went outside
of the US. So we always thought, you know what,
there are certain stories here that definitely remind us of
two thousand of a bubble, and on our definition, actually
it is a bubble, but it's not close to the
end of it. And one missing component was really the
(06:12):
sentiment that never got as extreme on our measures.
Speaker 3 (06:15):
We're definitely going to get more into the bubbles, especially
the two thousands. But before that, I want to ask,
how do you square I guess non frenzied sentiment with
the amount of announcements that we're getting from companies. We're
joking on the podcast that every day while we're recording
this in studio, we get a new headline that, you know,
Anthropic is going to spend fifty billion on data centers,
(06:37):
or someone else is going to spend one hundred billion.
It just goes on and on.
Speaker 5 (06:41):
Yes, that is, It's very true.
Speaker 4 (06:42):
I mean, I think the market is starting to question
those numbers a little bit. Right when the Oracle deal
came out, for example, the stock jumped. Guess what, We're
back to where we were before the deal was announced.
So I think there is a certain sense of skepticism
a party because some people think they've seen all that before, right,
and people bullish. I'm not telling you they're bearish.
Speaker 5 (07:01):
I'm just telling you they're not as excited as you
might have expected.
Speaker 4 (07:05):
Just watching the price action, I think that is more
than us here and the actually none of the indicators
suggests that. I mean you, I'm sure everyone has their
own favorite, but it's really very rare to find one
that tells you, you know what, this is in line with
what you've seen at other market tops.
Speaker 2 (07:21):
You know what, since we've never had you on the
podcast before and you know, the author of a book
on and you have a great job global head of
macro Strategy City. What do you give us the sixty
second background of what you do and how you got here,
like what's your job? And yeah, okay, how'd you land here?
Speaker 5 (07:36):
Yeah?
Speaker 4 (07:36):
I came over to the US in ninety nine. Essentially
it's joining a macro hedg fund. We traded back then
and again right now. Actually, I think it's all about
the bubble. That's the single biggest call. Everything else will
fall into place. Whenever the bubble bursts, the dollar weekends,
the FED rates will go to zero on maybe not
quite to zero, but you could AGGRESSI effect. So everything
(07:56):
that's what you have to focus on.
Speaker 5 (07:58):
And so even though I joined.
Speaker 4 (08:00):
The hedge fund back then as an em specialist, very
quickly I looked into companies because we really had to
figure out when is this dot com bubble over? And
then we you know, we traded very successfully actually the
run up and the run down, although I would say
it's way very hard to trade a beer market because
these bear market valies are really quite vicious, and so
in the end, all the money was made being long
(08:21):
fixed in come rather than being short equities, but broady speaking,
that was me shifting from emerging markets to global macro,
if you like.
Speaker 5 (08:29):
But then I went back.
Speaker 4 (08:29):
To the buyside party because you know, the particular hedge
fund never became as poolish again on the bull market,
having been successful bearish for a long time.
Speaker 2 (08:37):
So people are cursed by good luck getting bear markets
right and then ver rare haunted by that for the
rest of their career.
Speaker 5 (08:45):
Very rare, very rare.
Speaker 4 (08:47):
But yeah, So at Citybank, I covered emerging markets for
a long long time and switched back to global macro
a few years ago. And and as you can imagine,
it's mostly speaking to hedge fund clients, to some money clients,
some corporates. What we do a bit differently is that
I have a big quant team, So essentially we back
(09:07):
test everything under the sun, at least to get your
price right. Things are always lightly different, but I think
it's very important to have the right prize, and that's
what the back tests give you. So we have a
big quant effort, be a very trade sort of aggressive
and putting a lot of trades out and Martin carefully
and and I have a bigger major market angle than most,
which I still think is extremely helpful in this environment.
Speaker 3 (09:29):
So since you've been around for a while, let's talk
about the two thousands dot com bubble or nineteen ninety
nine two thousand dot com bubble. Obviously people are using
that as an analogy for this period of time. But
we had someone in our discord actually shout out to
Burflyer asking, yeah, asking whether or not people were talking
about dot com stocks tech stocks being in a bubble
(09:52):
the way people are talking about AI stocks tech stocks
being in a bubble. Now, what's your experience? You know
more than twenty years ago.
Speaker 4 (10:01):
Back then it was even clearer than now. I mean,
if you remember NaSTA when the fifty percent.
Speaker 2 (10:06):
In Q four, Yeah, and.
Speaker 4 (10:10):
I remember some stories and we had some analyst pictures
all the time. So there was an analyst for Nokia
who said, don't worry that we need more than one
hundred percent cell phone penetration in the world because Petsville
were cell phone like.
Speaker 5 (10:24):
It wasn't wrong, but.
Speaker 4 (10:27):
So you get My favorite pitch was for Akamai, where
when analyst said, you know what, the reason why the
company will do well is the only three people who
understand the formula. That's that's basically at the base of it,
and all three works for akama So I don't worry and.
Speaker 3 (10:44):
No worry about it. We knew it.
Speaker 2 (10:46):
It's literally there's just no one who could ever replicate
this technology because only three people who could build it,
and they got it right.
Speaker 4 (10:54):
These type of things happened back then, and of course
not to pick on Akamai, but it know it. It
went up from I don't know thirty to three hundred
after the IPO and back to one.
Speaker 5 (11:05):
You know this is yah. Yeah, these type of things happened, which.
Speaker 2 (11:07):
That was one of the more legit companies.
Speaker 5 (11:09):
Yeah you know that exists.
Speaker 4 (11:10):
Yeah I don't Yeah, I'm not covering them or anything,
so I don't comment.
Speaker 5 (11:14):
But yeah, yeah, yeah.
Speaker 3 (11:15):
This reminds me of what you always say, Joe, things
can always get crazier, right, Yeah.
Speaker 2 (11:20):
Yeah, it really does feel like you see some event,
you know, like there was that you know what I
was thinking about when Jensen wan I think it was
about a year ago now, maybe nine months ago. Remember
he signed a woman's brat, right, remember, and everyone's like, oh,
this has got to be the top, right, because that's
just one of those things. A semiconductor top signed, that's right.
(11:41):
You know, it's like why a CEO of semiconductor company
getting like legit rock star treatment and how much is
in video up since then? Setting aside some of the
recent wobbles, there is no point where you can definitively say, oh,
this is the people, right, There's always it could always
get weirder.
Speaker 4 (11:57):
Yeah. You know what gives me sleepless nights is actually
that the two thousand episode is not the right benchmark, right,
because if you use two thousand, you could say.
Speaker 2 (12:04):
Everything's fine, Yeah, everything fine, very bad.
Speaker 4 (12:06):
But of course not every bubble has to get as
crazy as the two thousand one, you know. I mean
it wasn't extreme even by bubble standards, so that is
a bit of a risk if you focus too much
on that one.
Speaker 3 (12:17):
Do you have a preferred historical analogy for our current period?
Speaker 4 (12:21):
And I do think two thousand is probably the closest,
just because it was also very tech heavy and it
had a big CAPEX built out attached to it, so
that makes it good.
Speaker 5 (12:30):
I mean, the nineteen twenty nine mines.
Speaker 4 (12:31):
Of All the Mother of All Bubbles, if you like,
and that was about you know, like cars and electrification
and consumer gadgets and appliances rather, so you could use that,
and that is actually the one that people used in
two thousands. So you always go one bubble back if
you like to make your case and to argue maybe
why things can go very crazy. But I think here
(12:53):
the many things at rhyme.
Speaker 2 (13:10):
So one thing that Tracy brought up in the intro,
which is very important, is that rates in the recent
days haven't come down that much. Today they're down a
little bit, but by and large it's not like treasuries
have been this great life preserver when the rest of
your portfolio isn't working. In fact, actually right now and
doing time stamps again, we're back at four point one one.
(13:32):
We were down at four point h six earlier round nine.
So even that once again we don't see this bid
into treasuries. Rates are sort of down overall for the
year a little bit, but there's not this desire to
grab them talk to us about what's going on in
that space.
Speaker 4 (13:45):
I think the reason is that a lot of the
bullishness of the last three weeks was based on one
simple statement is saying, listen, we're building a bubble and
the FED is cutting into that. That never happened before it, right,
And obviously in two thousand the hike behind the seventy
five bass points, they hiked fifty basis points after the
bubble had already beaked. So I mean, you know, they
(14:05):
and they had inflation that it was not.
Speaker 5 (14:06):
Without any reason.
Speaker 4 (14:07):
But for sure, it's very unusual for the FED to
cut into a bubble, and that was a great both thesis.
And so now we're doubting that a little bit, right,
I mean, so they are basically having a feed that
might be more hawkish.
Speaker 5 (14:19):
December went to fifty to fifty essentially, and so if.
Speaker 4 (14:22):
You remove that plank of the argument, value should be
all in inequity, it has consequences, right, And so we
warbled a little bit for that reason. But I mean
I would also remember, I mean, the hiked one hundred
and seventy five basis points before the bubble peaked in
two thousand, right, So will it be the end of
the equitiable market if the FED doesn't go I mean,
I doubt it.
Speaker 2 (14:42):
Talk to us a little bit about these doubts that
are creeping in for December. I mean, we're truly in
a fog for multiple reasons. Because even if we had
government data. I'm sure the conditions plenty of different crosswinds.
We don't have the government data, but like one thing
we do seem to know is that hiring has been
very weak and so fourth and several of the months
almost certainly that would be the case for October and
(15:03):
November if we had clear indications on it. What is
the reluctance right now? Why is it a coin flip?
Speaker 5 (15:09):
Yeah?
Speaker 4 (15:09):
I mean well, I think the single biggest thing is,
of course, all the comments were getting out of the
FED right, and we had you know that, the tweet
earlier this week, and so in the end, if you
try to forecast the FAT, you better listen to what
you're saying.
Speaker 2 (15:22):
They were exactly given the weakness, so that I think
the question is of course all about the job right.
Speaker 5 (15:28):
The reason is a job market inflation.
Speaker 4 (15:30):
You can argue maybe tele inflation were not tr up
so far it has been way benign. Some FAT members
believe it's s throwing up, some others don't. But I
think the main crux of the question is the job market.
Speaker 5 (15:40):
How week is it now?
Speaker 4 (15:41):
The Dalla's FAT put a paper out arguing that if
you get slightly negative net migration. The break even NFP
is thirty k. If you get slightly positive net migration
sixty k, so that that is somewhere the range where
these days and FP should come in without there being
a problem. Right, So if you if, then if p
press and of course September we know is somewhat artificially strong. October,
(16:05):
if we get it, would be artificially weak due to
the government buyouts. November is a really interesting one that
might have a bit of an impact from the shutdown
and so forth, so that may really clean one. Maybe
we have to dad even longer. But let's say we
take November is as good as it gets for now.
So if that is below thirty, there'll be a cut, right,
If it's below sixty, there'll be probably no cut. It's
(16:27):
somewhere in between. They'll find it out. But without that data,
it's just hard to you know, reassure the market yes.
Speaker 5 (16:34):
There'll be a cut, or no, there won't be.
Speaker 4 (16:36):
So the job market data will be very, very important.
We've got a lot of alternative data sources. Of course,
in the meantime, by be wading, they were a bit
on the weakish side. So that's why the city call
is actually for a cut, I mean the noises out
of there from seever certainly a little bit all over
the place, so it's not that obvious.
Speaker 3 (16:54):
Yeah, and a lot can still change between now and
the meeting. Okay, so if everyone I mean I realized,
not everyone agrees it's a bubble. But for the sake
of this argument, let's say we all know it's a bubble.
It seems like one of the things that happened, especially
since the financial crisis, is people stopped running away from
bubbles and started running into them, right, and so everyone
(17:15):
wants to make money very very quickly. So if you
see the line continuously going up, you just join the party,
and everyone assumes that they are smart enough to time
the top of the bubble and get out at the
right point. What's your take on how long this is
actually going to go on for and what are you
looking at in terms of actually spotting that top other
(17:36):
than sentiment, which we spoke a bit about.
Speaker 4 (17:38):
Yeah, it's a big question actually even inside city USC strategists.
Speaker 5 (17:42):
It's the cost believe me that it's a bubble.
Speaker 4 (17:45):
But we have a definition, so'll you know, we cannet
do something. So the definition for us is it's a
little bit like the GMO one, which is essentially saying
something goes up more than two standard deviations against the
long term trend. In real terms, we call it a bubble, right,
and then whenever you have a big sell off, you
restart the clock, because when you have a big sell of,
you essentially the sentiment goes to zero, and so you
(18:06):
have to rebuild it.
Speaker 5 (18:07):
And on that.
Speaker 4 (18:08):
Framework we end up bubble territory sort of, I guess
in May June of this year. And when you do that,
the interesting thing about it is, as you point out,
it goes up. So once you end up oup the territory,
you're supposed.
Speaker 5 (18:20):
To buy it.
Speaker 4 (18:21):
And the only time and that didn't happen was nineteen
twenty nine.
Speaker 5 (18:24):
It went straight down.
Speaker 4 (18:26):
And I think the reason for that is a little
bit that the way people define water bubble is the
use nine is twenty nine, right, and so and we
did that too, and so therefore that's the only on
all the other episodes, you.
Speaker 5 (18:37):
Go straight up, so you buy it when you enter.
Speaker 4 (18:39):
But the interesting thing is, and clients ask me, well,
if that is true, what's the difference beween the bullmark
and the bubble you tell me it's going up. And
the difference is that if you buy it when it
enders a bubble, you will give it back eventually most
of it. Most of the in bubble gains will be
given back, so it will lar badly, right, And so
that I mean, you don't necessarily give back everything all
the time, but in most episodes give back most of it,
(19:01):
And so that makes it an important definition. Now, Unfortunately,
when you study that, it's not like clear how long
they last. I mean, the on average, I can tell
you the two years of above average returns followed by
below average returns, and on a ten year time horizon
your below average return. But it can vary a fair amount,
(19:22):
and so that makes it hard. I would say, if
you look at two thousand again as a template, if
it'll certainly not help you to look at fundamentals, right,
I mean, so what happened was Nastik broke in March
and everything still figher two thousands, okay, So and when
that happened, fundamentals road over in September, so that there
(19:44):
was a six to seven month period where fundamentals still
look just the way that you had looked before.
Speaker 3 (19:49):
I guess because everyone was spending so much money on capex,
and like takes a while for that to roll on.
Speaker 5 (19:54):
Yes, exactly, And of course it's highly circular.
Speaker 4 (19:56):
But people spend on capex while the equity is going up,
so actually stops going up. They start to reconsider what
do we do next, So then everything wills over exactly.
So so if you look at an immensive, probably not
capture it, which means it will be a highly technical
thing if you want to call the top.
Speaker 5 (20:15):
And it would be helpful if you get a blow
off top.
Speaker 4 (20:18):
Like you know, if you get to the fifty percent
in one quarter, you know you probably have a bigger
chance to get it right. But I think it's really
quite dangerous to be early in this thing because well
you will not hit it precisely on the day your
eyes earlier either or you're late, right, And I think
if you're late, you can control a little bit more
how much money you don't make in a sense.
Speaker 5 (20:39):
Right.
Speaker 4 (20:40):
And so one framework that we have we call it
the general's framework, because what happens in this bubble generals
the general because it becomes very narrow, and that's a
feature of the bubble, it's not an exception, right, And
so this, this narrowness means that if the leaders start
to break down, it's a real warning sign. And so
what we look at and we just at the top
(21:00):
seven leaders because people are excited about max seven, but
it could be ten or basically on our numbers, if
three of the top seven breakdown, meaning they fall below
the twenty moving average, that's a really dangerous sign.
Speaker 2 (21:13):
Twenty day moving day.
Speaker 4 (21:15):
Okay, it will not be early, right because by the
time it triggers, the market is obviously down from the peak.
But I think following that has saved us a lot
of money on the downside when these things happen. So
that is something you can use because it will be technical,
it will not be fundamentally this happened and get.
Speaker 2 (21:30):
Out this is fantastic. So let's just sort of like
just to sort of summarize this because that was actullent.
So the bubble condition has emerged when the games are
what is the timeframe we're talking about, So you say
two standard deviations above the real long term?
Speaker 5 (21:44):
Yeah, exactly.
Speaker 4 (21:45):
So I mean they measure the long and performance. It's
actually rolling windows. It shows every year and it's just
the linear trend that you that you put through it,
and then you can see how.
Speaker 2 (21:56):
How much you go to standard deviations and trend in
real terms.
Speaker 4 (22:01):
So we deflate it because in the seventies a lot happened, right,
you're in a bear market.
Speaker 2 (22:04):
But the two standard deviations in like a certain period
of time or like.
Speaker 5 (22:09):
How do yeah, yes, it's the yearly returns.
Speaker 2 (22:11):
It, okay, and then the warning sign So in your view,
you know, if you think about sort of profit maximization
or risk minimization or whatever, the thing to look for
is when three of the seven leaders break down or
why is that?
Speaker 4 (22:27):
Like yeah, yeah, I mean just in a sense, we
just back testa right, we just we realized, Okay, there's
something special about these bubbles where the leaders carry the
weight for a long time, right, And so you have
to find out, well, when the leaders break, what is.
Speaker 5 (22:43):
A danger signal that actually works?
Speaker 4 (22:45):
And it's always a trade off between giving you too
many signals you leave money on the table, and to
a few signals where you you take part in the
downside that you want to avoid. And so what we
found is if you use that rule for two thousands
or for others that we have in the sample, you know,
once three of them break it's becoming the odds are
not in your favor anymore.
Speaker 2 (23:06):
Can you apply this framework to gold? So this is
the interesting thing, which is that we don't typically associate
booming stock markets with booming gold, especially because gold is
associated with fear and pessimism, et cetera. Talk a little
bit about what's going on.
Speaker 4 (23:21):
Gold is just very very interesting. I mean, the first
leg up was essentially this whole central bank story, right
if if you think about it, all started really with
the crimea issue and put in making innocent three bets.
When he diversified away from the dollar, right, he bought
euro he bought CNY, and he bought gold, and Europe
(23:42):
was not a particular promising bed. In the end, CNY
was a good bed for him. But obviously China cannot
bet on the CNHY and that is gold for China.
And so the I think in the very very big
picture central banks that are very important for the gold market.
Speaker 5 (23:57):
That gold market boughtoned.
Speaker 4 (23:58):
In the nineties seven the Bank of England was done
selling gold, and it will probably peak when the PBOC
is done buying gold, and they still could buy a lot.
So that I have no issue with as a structural story,
long term story. What happened this year was not the
central bank buying, at least not as far as we
can help from the official data. It was much more
(24:19):
this whole debasement fears that trapped into gold. And the
first leg was very easy for micro guys to understand
and participate in. That was just you know, the Fed
is going to cut, and whenever the Fed cuts, you know,
the dollars sold off into the first cut, rates fell
into the first cut, and gold went up.
Speaker 5 (24:35):
So that is as it should be.
Speaker 4 (24:37):
Now, then what happened if you remember after the first cut,
rates went up, the dollar went up and gold cut
going up, right, And that was roughly the time and
Stephen Marin talked about the third mandate for the Fed
and things like that, and so the debasement fears became
more acute and that propelled go higher. Now, the interesting
issue is that it was really not that much the
(24:59):
institution investors right, because all the other debasement trades didn't work.
I mean, the curve did not steepen, break evens did
not rise, the dollar did not fall. So it was
a retail driven debasement fear, and you saw people lining
around the RBA in Australia trying to get physically gold
out of the vault. Right, so it was it became
(25:19):
a memestog almost for a while. And so while it
hasn't actually triggered our bubble levels, if we apply the
same methodology, it certainly I think became too dangerous. And
so we actually got out of gold a little while ago. Now,
the debasement story is an interesting story. It could come back, right.
(25:40):
You saw gold consolidated for a while and then when
Trump discussed two thousand dollars for everyone, then gold started
to take off again because people start to think, well,
maybe that we have to trade the basement again.
Speaker 5 (25:51):
And that's a very big call.
Speaker 4 (25:53):
And personally I think the new AFMC will be more
domash than the old one, right, I mean, we don't.
Speaker 5 (26:00):
Know quite yet who will be the head of the FMC.
Speaker 4 (26:04):
It's likely to happen, and so the debasement story could
come back, but you have to time it fairly well
because you have a lot of retail in it and
it already moved a lot. Right, So in the debasement feres,
I think it might be next year's story run this
year's story. The central bank story will come back eventually,
but it's I mean, China loves to buy pullbacks rather
(26:27):
than the high, so I'm not quite sure how that
then they will come back. But structure, I think gold
is likely still okay. In the short term, we're a
bit more cautious.
Speaker 3 (26:37):
Well, if gold is off the table for now, and bonds,
no one really knows what they're going to do. How
are people actually hedging and what are you recommending?
Speaker 5 (26:46):
Yeah, very good question.
Speaker 4 (26:48):
What people typically do, which is actually dangerous in a bubble,
is that just buy some put spread in the SMP. Now,
the issue is in a bubble, if you first go
up another thirty percent, the strikes so far out of
the money that it will just not help you.
Speaker 3 (27:02):
And we saw Michael Burry who was like the poster
boy for calling the AI bubble closes fun this week.
Speaker 4 (27:08):
So yeah, so I think so the obvious thing actually
became harder to do in a bubble. The other issue
is can you use currencies? And that is also very interesting,
right because the correlation between the dollar and there s
MP changed somewhat, and it changed in April. It used
to be the case when there's some pieces off, the
dollar goes up that correlation flipped on us in April,
(27:30):
and while there's a lot of debate whether the correlation
will move back to positive or stay negative, I think
if we are talking about a bursting bubble, that would
be done a negative, right.
Speaker 5 (27:42):
So there are structures that allow you.
Speaker 4 (27:45):
Cheap adges if you're fitting to bed on SMP lower
and at the same time dollar weeker, right, so that
might work. What we have actually recommended is to do
something in credit because the way I see it, I mean, either,
you know, the AI bubble continues to move higher and
then credit will not benefit very much from it, and
there's no you know, there's not that much a I
(28:06):
related credit in the indsease, and in any case, people
start to worry about credit on the I front and
spreads e extreme tight. Of course, on the other hand,
if the US has a bigger problem than we're thinking
and the labor market falls through trapdoor, and then you know,
to credible to protect you really well, So so credit
is something to look at.
Speaker 2 (28:43):
Let's talk about your em background. This is one of
those things that I think, I don't know, maybe it
started as a joke. It's like, you know, people are
joking the US is becoming an em and then it
sort of gets a little more oh haha, oh oh,
and then suddenly it feels less and less not funny. Yeah,
it's not really funny anymore. A do you like buy
(29:03):
this premise that you know there is something about em governance,
et cetera that is applicable to thinking about the US
right now, I.
Speaker 4 (29:11):
Think people made the case in its first of all
the questions, how you defined in them is actually a
harder question, you think, because traditionally people do it just
looking at GDP per ahead and then obviously right, it's.
Speaker 3 (29:22):
A MSCI gets paid a lot of money to do this,
that's right.
Speaker 4 (29:26):
And so by putting that aside, I mean I think
for trading the right definition is a little bit whether
your bonds rally that's when the VICS goes up or
they don't. Right, And on that definition, which is the
trading centric definition of emergent markets, you actually find China
is not emergent market because CGB is rally when there
(29:48):
is a risk off, and and Korea is an emergent market.
So it's a much more sensible definition for traders than
the definition right.
Speaker 5 (29:56):
And so in the this.
Speaker 2 (29:57):
Is uncomfortable because we're about to get to what the
US A bond have been doing during this volatility exactly so.
Speaker 4 (30:04):
And of course the initial headline was for the UK
right when the list trust issue happened and the pound
sort of and then Gill sold off, and so people said, oh, yeah,
the UK is moving in that direction.
Speaker 5 (30:18):
And for the US again you can argue a little bit.
Speaker 4 (30:22):
I would say though, that what will likely happen is
that if that should become a problem. So if you
see US rates selling off during risk a version, maybe
because of fiscal voice or something like that, I do
think the FED will come in and hammer rates back down.
And I think they can do that as instance, they're
(30:43):
physically able to do it.
Speaker 5 (30:44):
I bet they could. The Treasure could phase out the
twenty year.
Speaker 4 (30:47):
Bond if they wanted to, They could do more buybacks,
and yes, it will beaken the dollar for you, But
it's not that they run out of rope in the
way merger market would when these things happen, right, because
in the sense of it happens in Brazil, it's not
that the government can control or that the Center Bank
is able to keep the bond yield at a certain level.
(31:07):
The US has many tools that they have at these
post that they could use.
Speaker 3 (31:11):
I think, since you're in the trading space, or you
pay very close attention to it, are you seeing anything
in terms of positioning that could make a sell off
either more extreme or unexpected or volatile in the current setting.
And the reason I ask is, you know, we had
a few episodes about the dispersion trade and people selling volatility,
(31:32):
and I was having lunch with someone in the market
yesterday and they were very clear that a lot of
people are still doing the dispersion trade, which kind of
surprised me.
Speaker 5 (31:42):
Yeah, no, it's true.
Speaker 4 (31:42):
I mean that many crowded trades. I would say again,
broadly speaking, we never found us acquity position all that heavy,
but it certainly and people own it.
Speaker 5 (31:53):
Right.
Speaker 4 (31:53):
Gold was on our survey of these as that okay,
this gold was for a long time to stand out.
Speaker 5 (32:00):
It came back a little bit.
Speaker 4 (32:02):
One other trade that people really quite like is the
emcry trade, and that is a bit link to the
volatility trade because it works levant volatility is low, right,
and so that is a very heavily owned trade. It's
very hard to forecast volatility spikes. I told you I'd
have a quantitum, and we back test a lot of
(32:22):
potential strategies that we think are credible, and we did
not find a good rule to say volatility is low
enough by volatility or volatility has been low enough for
extremely long time by volatility. On average, you're obviously meant
to sell volatility because implies are higher than realized and yes,
they're unpleasantly low right now, I would say, but on average,
(32:43):
it's just not right to.
Speaker 5 (32:44):
Buy volatility in these circumstances. So what do you do
about it?
Speaker 4 (32:48):
I think what you can do is you can find
rules that essentially tell you, well, volatility has started to
move up by x, and it's probably a good idea
to get out because when it's it's positive recoridated, right,
So if it starts to move, it can move a lot.
So we have one particular volatility index that is actually
the sort of maximum Z score, if you like, of
(33:10):
all the various different volatilities publicare about the move index,
VIX index, two, ten, implied wall INDEXAM implied wall index,
and high it spreads.
Speaker 5 (33:19):
And but we take the maximum.
Speaker 4 (33:21):
Of that, not the average, which is a bit different
than than other people do. And the reason is that
no matter what goes wrong, EMFX will not like it. Right,
So if the stress comes from US rates and the
move index, it will not like it. If it comes
from VIX, and there's some people also not like it.
So and and that volatility indicator so far is still
relatively well behaved. And again I'm glad you you keep
(33:43):
mentioning when exactly recording this, because it could could.
Speaker 5 (33:48):
And if we have constructed I mean.
Speaker 2 (33:52):
We'll look for it in your in your report. All right.
I just have one last question, So I actually I
really like this definite This is very useful mission of EM.
Do your government bonds rally and a volatility spike? I
guess what that implies is are your bonds safe havens
or are they credits?
Speaker 3 (34:08):
Right?
Speaker 2 (34:09):
So you have this experience in them, et cetera. Are
there any other bitter lessons if all sort of US
investors are to some extent increasingly a little bit more
trading in an EM space, you have any lessons for
them from the EM world that we should all know about.
Speaker 4 (34:24):
The strong lesson used to be that don't assume you
get these sort of fairly well behaved politics that you
get in the US and other countries.
Speaker 5 (34:32):
But that less of course noticed somewhat on my mind.
But you know, the.
Speaker 4 (34:36):
Main issue is really politically risk and we have a
lot of elections coming up, especially in that time right
if we have Chile, we have Columbia with brazila and
so these things can really make a I used to say,
much much bigger difference than in the US, although that
is more debatable at this stage.
Speaker 2 (34:51):
That's interesting, all right, Dirk Villa, thank you so much
for coming on odd large, thank you for bringing us
this book, and I'll have to have you back sometimes.
It's fantastic.
Speaker 5 (34:58):
The new book is coming soon.
Speaker 3 (35:00):
Okay, so what's the new book on.
Speaker 4 (35:02):
It's the same idea about the global macrowat well, we'll
read it.
Speaker 2 (35:06):
Thank you so much, Thank you, Tracy. I like getting
a sort of mathematical, precise definition of what a bubble is.
Speaker 1 (35:25):
I find it.
Speaker 5 (35:26):
Look.
Speaker 2 (35:26):
I mean, obviously there are aspects of bubbles that are
very sentiment driven, and I think pop culture driven. Just
how much people talk about extra y and these are
useful things to discuss, but it's also nice to think about. Okay,
let's just come up with some rules that tell us
when these things, what constitutes a bubble? And when it's over,
precision is good.
Speaker 3 (35:46):
I hope Derk will tell.
Speaker 2 (35:47):
Us he's got to send us.
Speaker 3 (35:50):
In the email, at least tell his clients, and we'll
see the note.
Speaker 2 (35:53):
Hopefully we'll see the note.
Speaker 3 (35:54):
I mean, I do think the message. It's a very
realistic message in some respects because the problem with bubbles
is you can't sit them out. If you're a money manager,
or even if you want to make more money, right,
your clients are going to be really really angry if
the S and P five hundred is going up twenty
percent and you've been bearished for two years. And again
(36:14):
Michael Burry has turned into a really good example of this.
But on the other hand, everyone wants to get out
precisely at the top because we want to maximize our
profits as much as possible. And I think when Dirk
says like, well, you know, you kind of have to
ride the bubble and then you kind of have to
wait a little bit for it to start popping, and
you just have to kind of figure out how much
(36:35):
money or loss you are willing to take.
Speaker 2 (36:38):
Except that you're not going to time the top.
Speaker 3 (36:41):
Perfectly right exactly, and that reality, Yeah.
Speaker 2 (36:44):
I think that's sort of an interesting approach to the
bubble problem, and so just don't worry about nailing the time,
but come up with some rules. And it is interesting
these consistent patterns of the leadership narrows, et cetera. You know,
one thing I've been thinking about. Ask about this, but
one thing I've been wondering about. You know, people look
back at those two thousand analogies all the time, and
(37:07):
one of the things that people say is that, well,
this isn't a bubble like that, because you know, we
don't have the pets dot com. We don't have like
this proliferation of non profitable tech companies soaring. And I
guess that's true. But I think one of the problems
I have with these analogies is private markets are so
much bigger now, and so you look at these megavaluations
(37:28):
that private companies are raising at and you know, it
feels like there's like momentum trading almost going on in
private markets, et cetera. Yeah, and it would be nice.
You know, you can't really get an apples to apples
comparison because so much of the bubbly activity appears to
be happening away from this S and P five hundred
or away from the Nasdag. And so these charts about
what percentage of companies are or aren't making money that
(37:50):
only look at public markets, I think are a little
bit unsatisfying.
Speaker 5 (37:54):
Right.
Speaker 3 (37:54):
Well, I would add on to that that, you know,
the companies themselves might be profitable, but the business itself
is as yet not generating positive cash flows and everyone
just expects it to.
Speaker 2 (38:05):
Yeah at one point, right or the spending is simply
not sustainable, and that's another fact. Anyway, super interesting conversation.
We've had them on Karthvik Center. And also likes that
definition of em which is are your government bonds credits
or are they save havens? And they don't love how
in this recent volatility we haven't seen more of a
(38:25):
bid into treasures. I don't love that.
Speaker 3 (38:27):
Nope, not a good sign on that happy note. Shall
we leave it there?
Speaker 2 (38:31):
Let's leave it there, all right.
Speaker 3 (38:32):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (38:37):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our producers Carmen Rodriguez at Carman Arman, Dashel Bennett
at dashbod and Keilbrooks at Keilbrooks. More odd Lots content,
go to Bloomberg dot com slash odd Lots with the
daily newsletter and all of our episodes, and you can
chat about all of these topics twenty four to seven
with fellow listeners in our discord Discord dot gg slash.
Speaker 3 (38:58):
Out Lots And if you enjoy all Lots, if you
like it when we talk about whether or not AI
is in a bubble, then please leave us a positive
review on your favorite podcast platform. And remember, if you
are a Bloomberg subscriber, you can listen to all of
our episodes absolutely ad free. All you need to do
is find the Bloomberg channel on Apple Podcasts and follow
the instructions there. Thanks for listening.
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of The Odd Lots Podcast.
Speaker 3 (00:21):
I'm Jill Wisenthal and I'm Tracy Alloway.
Speaker 2 (00:24):
Tracy, Market's getting interesting again.
Speaker 3 (00:26):
I love interesting markets.
Speaker 4 (00:28):
We do.
Speaker 2 (00:28):
We always say we're long volatility. That's right here at
the Odd Lots Podcast. All financial journalists are long volatility.
Speaker 3 (00:35):
I guess yes. I mean you can actually see it
in the listeners and readership numbers. Our traffic follows the.
Speaker 2 (00:41):
Vin there's some bad incentives. Yeah, perhaps perhaps, but if
it bleeds at leads. I mean they've been saying this
about the news forever.
Speaker 4 (00:49):
Yeah.
Speaker 3 (00:49):
So at the moment, we are recording this on Friday, November.
Speaker 2 (00:53):
Fourteenth, at ten oh seven am.
Speaker 3 (00:55):
Yeah, we have to say that we have to be
very specific because things are changing so fast. At the moment,
the S and P five hundred is down like zero
point seven percent, but it was down more than one
percent earlier, and then yesterday it fell, you know, one
point eight percent. So this is a pretty substantial slide.
And of course it comes at a time when people
were already worried about things like tech valuations and the
(01:18):
possibility of an AI bubble.
Speaker 2 (01:20):
Totally. The US DOC market has had a phenomenal year,
and this is all kind of minor in the grand
scheme of things, but some of the moves haven't been
that minor for some big things. It is some of
the most volatile period since April. Really, I mean, it's
kind of been a smooth rite up since the end
of April or the middle of April, whenever that bottom.
There's just a lot going on questions about the FED.
(01:43):
Gold interestingly had a massive year, and it also is
selling off, so that sort of raises the question about
what's been driving gold Bitcoin getting absolutely clobbered. Of course,
you know, it's sort of a glorified tech stock and
the way it trades, so many interesting things, so many
market winners fading a little bit.
Speaker 3 (02:01):
You know, it was really interesting this morning. For a second,
bonds weren't really doing anything. They weren't rallying, And so
if you can't go into gold, if you can't go
into bonds, if everything's selling off at the same time,
that seems kind of worried.
Speaker 2 (02:12):
Well, this is really interesting and probably needs to be
discussed more. But you're absolutely right. I think yields on
the tenure were actually up yesterday, November thirteenth. In the
last week I was looking at the work function on
the Bloomberg terminal. Odds of a December rate cut have
come in quite a bit. It's closer to a coin flip.
A week ago is sixty six percent. There have been
some speeches from some of the FMC members talking about
(02:36):
you know, they're uncertain, and part of the reason were
uncertain because we've had so little data. I guess we're
going to start getting data again now that.
Speaker 3 (02:42):
The although it's still going to be messy.
Speaker 2 (02:44):
It's still going to be super messy. You know, Understanding
the economy in real time is hard in the best
of times. It's really hard when there's no data, and
then it's really hard when the data that does come
out is going to be driven by the lack of
government employment, which then make the data even more ambiguos.
So a million questions, very interesting moment in a very
interesting year for markets. We sort of got to get
(03:05):
a better understanding of what's going on.
Speaker 3 (03:06):
Can I say one more thing before we get to
our guest, which is I think part of the discussion
at the FED. We're kind of getting very circular here
because I suspect what's happening is, yes, the FED is
worried about inflation, so some FOMC members are getting a
little bit more hawkish in their speech. I think they're
worried about AI bubble possibilities and valuations as well. And
the longer they heat right slow, the longer this goes on,
(03:29):
and then maybe the mess is even bigger when they
eventually have to clean it up totally.
Speaker 2 (03:34):
All kinds of crosswinds, yea to speak well. Anyway, I'm
very excited to say that we do indeed have the
perfect guest, someone we've never had on the show before,
but very excited to talk to him. We're going to
be speaking with Dirk Villa. He is the head of
Global macro strategy at City. He brought us a book
to that he co authored, Trading Fixed Income and FX
and Emerging Markets.
Speaker 3 (03:53):
It's going to be useful in the US, I know.
Speaker 2 (03:55):
That's the thing. It's like suddenly all these em veterans like,
let's tell you how some of these things really works. So, Derek,
thank you so much for coming on the podcast.
Speaker 5 (04:04):
Great to be here. Thanks for the invite to ask.
Speaker 2 (04:06):
You a question. If you went back, say a month
ago or a month and a half ago, you're talking
to clients, et cetera. Did you ever encounter a single bear?
Speaker 4 (04:15):
I mean, I'm trafficking more among the macro people than
the equity folks, sure, and the macro guys always half
class empty, right, So that you did find some bears,
and I would say, actually only a few weeks ago
that disappeared because there was a really strong buying into
the center, really right, So meaning November and December have
exceptionally positive seasonality always, and they've even better seasonality risk
(04:39):
and risk and exactly. So I think the bears that
we found disappeared over the last few weeks. So maybe
just at the wrong time you value, but that's how
it goes.
Speaker 3 (04:49):
Right, Yeah, How do you officially measure sentiment in this market?
I'm always curious because obviously everyone has different methodologies, but
sentiment seems quite key. When you're talking about a ball
run that's really driven by tech stocks and this AI narrative,
the story becomes so important.
Speaker 4 (05:07):
It's actually really key to this because if you were
to say, listen, this is the top of a bubble
or something, you'd have to see really really into the
ztic sentiment and we never quite saw that. My favorite
indicator is because the polls indicated stands for positioning and
various other things, and that is something that we put
out and that worked really really well this year and
(05:28):
actually the last five years for that matter, and that
never went into territory that really told us to be cautious.
We do a bunch of surveys, so we survey all
the big asset allocators worth the futrillion in asset under management,
and they never got as bullish on US equities because
after April there was a big move outside of US equities,
(05:50):
as you know, and they never really fully jumped into
the US equity market as much as they went outside
of the US. So we always thought, you know what,
there are certain stories here that definitely remind us of
two thousand of a bubble, and on our definition, actually
it is a bubble, but it's not close to the
end of it. And one missing component was really the
(06:12):
sentiment that never got as extreme on our measures.
Speaker 3 (06:15):
We're definitely going to get more into the bubbles, especially
the two thousands. But before that, I want to ask,
how do you square I guess non frenzied sentiment with
the amount of announcements that we're getting from companies. We're
joking on the podcast that every day while we're recording
this in studio, we get a new headline that, you know,
Anthropic is going to spend fifty billion on data centers,
(06:37):
or someone else is going to spend one hundred billion.
It just goes on and on.
Speaker 5 (06:41):
Yes, that is, It's very true.
Speaker 4 (06:42):
I mean, I think the market is starting to question
those numbers a little bit. Right when the Oracle deal
came out, for example, the stock jumped. Guess what, We're
back to where we were before the deal was announced.
So I think there is a certain sense of skepticism
a party because some people think they've seen all that before, right,
and people bullish. I'm not telling you they're bearish.
Speaker 5 (07:01):
I'm just telling you they're not as excited as you
might have expected.
Speaker 4 (07:05):
Just watching the price action, I think that is more
than us here and the actually none of the indicators
suggests that. I mean you, I'm sure everyone has their
own favorite, but it's really very rare to find one
that tells you, you know what, this is in line with
what you've seen at other market tops.
Speaker 2 (07:21):
You know what, since we've never had you on the
podcast before and you know, the author of a book
on and you have a great job global head of
macro Strategy City. What do you give us the sixty
second background of what you do and how you got here,
like what's your job? And yeah, okay, how'd you land here?
Speaker 5 (07:36):
Yeah?
Speaker 4 (07:36):
I came over to the US in ninety nine. Essentially
it's joining a macro hedg fund. We traded back then
and again right now. Actually, I think it's all about
the bubble. That's the single biggest call. Everything else will
fall into place. Whenever the bubble bursts, the dollar weekends,
the FED rates will go to zero on maybe not
quite to zero, but you could AGGRESSI effect. So everything
(07:56):
that's what you have to focus on.
Speaker 5 (07:58):
And so even though I joined.
Speaker 4 (08:00):
The hedge fund back then as an em specialist, very
quickly I looked into companies because we really had to
figure out when is this dot com bubble over? And
then we you know, we traded very successfully actually the
run up and the run down, although I would say
it's way very hard to trade a beer market because
these bear market valies are really quite vicious, and so
in the end, all the money was made being long
(08:21):
fixed in come rather than being short equities, but broady speaking,
that was me shifting from emerging markets to global macro,
if you like.
Speaker 5 (08:29):
But then I went back.
Speaker 4 (08:29):
To the buyside party because you know, the particular hedge
fund never became as poolish again on the bull market,
having been successful bearish for a long time.
Speaker 2 (08:37):
So people are cursed by good luck getting bear markets
right and then ver rare haunted by that for the
rest of their career.
Speaker 5 (08:45):
Very rare, very rare.
Speaker 4 (08:47):
But yeah, So at Citybank, I covered emerging markets for
a long long time and switched back to global macro
a few years ago. And and as you can imagine,
it's mostly speaking to hedge fund clients, to some money clients,
some corporates. What we do a bit differently is that
I have a big quant team, So essentially we back
(09:07):
test everything under the sun, at least to get your
price right. Things are always lightly different, but I think
it's very important to have the right prize, and that's
what the back tests give you. So we have a
big quant effort, be a very trade sort of aggressive
and putting a lot of trades out and Martin carefully
and and I have a bigger major market angle than most,
which I still think is extremely helpful in this environment.
Speaker 3 (09:29):
So since you've been around for a while, let's talk
about the two thousands dot com bubble or nineteen ninety
nine two thousand dot com bubble. Obviously people are using
that as an analogy for this period of time. But
we had someone in our discord actually shout out to
Burflyer asking, yeah, asking whether or not people were talking
about dot com stocks tech stocks being in a bubble
(09:52):
the way people are talking about AI stocks tech stocks
being in a bubble. Now, what's your experience? You know
more than twenty years ago.
Speaker 4 (10:01):
Back then it was even clearer than now. I mean,
if you remember NaSTA when the fifty percent.
Speaker 2 (10:06):
In Q four, Yeah, and.
Speaker 4 (10:10):
I remember some stories and we had some analyst pictures
all the time. So there was an analyst for Nokia
who said, don't worry that we need more than one
hundred percent cell phone penetration in the world because Petsville
were cell phone like.
Speaker 5 (10:24):
It wasn't wrong, but.
Speaker 4 (10:27):
So you get My favorite pitch was for Akamai, where
when analyst said, you know what, the reason why the
company will do well is the only three people who
understand the formula. That's that's basically at the base of it,
and all three works for akama So I don't worry and.
Speaker 3 (10:44):
No worry about it. We knew it.
Speaker 2 (10:46):
It's literally there's just no one who could ever replicate
this technology because only three people who could build it,
and they got it right.
Speaker 4 (10:54):
These type of things happened back then, and of course
not to pick on Akamai, but it know it. It
went up from I don't know thirty to three hundred
after the IPO and back to one.
Speaker 5 (11:05):
You know this is yah. Yeah, these type of things happened, which.
Speaker 2 (11:07):
That was one of the more legit companies.
Speaker 5 (11:09):
Yeah you know that exists.
Speaker 4 (11:10):
Yeah I don't Yeah, I'm not covering them or anything,
so I don't comment.
Speaker 5 (11:14):
But yeah, yeah, yeah.
Speaker 3 (11:15):
This reminds me of what you always say, Joe, things
can always get crazier, right, Yeah.
Speaker 2 (11:20):
Yeah, it really does feel like you see some event,
you know, like there was that you know what I
was thinking about when Jensen wan I think it was
about a year ago now, maybe nine months ago. Remember
he signed a woman's brat, right, remember, and everyone's like, oh,
this has got to be the top, right, because that's
just one of those things. A semiconductor top signed, that's right.
(11:41):
You know, it's like why a CEO of semiconductor company
getting like legit rock star treatment and how much is
in video up since then? Setting aside some of the
recent wobbles, there is no point where you can definitively say, oh,
this is the people, right, There's always it could always
get weirder.
Speaker 4 (11:57):
Yeah. You know what gives me sleepless nights is actually
that the two thousand episode is not the right benchmark, right,
because if you use two thousand, you could say.
Speaker 2 (12:04):
Everything's fine, Yeah, everything fine, very bad.
Speaker 4 (12:06):
But of course not every bubble has to get as
crazy as the two thousand one, you know. I mean
it wasn't extreme even by bubble standards, so that is
a bit of a risk if you focus too much
on that one.
Speaker 3 (12:17):
Do you have a preferred historical analogy for our current period?
Speaker 4 (12:21):
And I do think two thousand is probably the closest,
just because it was also very tech heavy and it
had a big CAPEX built out attached to it, so
that makes it good.
Speaker 5 (12:30):
I mean, the nineteen twenty nine mines.
Speaker 4 (12:31):
Of All the Mother of All Bubbles, if you like,
and that was about you know, like cars and electrification
and consumer gadgets and appliances rather, so you could use that,
and that is actually the one that people used in
two thousands. So you always go one bubble back if
you like to make your case and to argue maybe
why things can go very crazy. But I think here
(12:53):
the many things at rhyme.
Speaker 2 (13:10):
So one thing that Tracy brought up in the intro,
which is very important, is that rates in the recent
days haven't come down that much. Today they're down a
little bit, but by and large it's not like treasuries
have been this great life preserver when the rest of
your portfolio isn't working. In fact, actually right now and
doing time stamps again, we're back at four point one one.
(13:32):
We were down at four point h six earlier round nine.
So even that once again we don't see this bid
into treasuries. Rates are sort of down overall for the
year a little bit, but there's not this desire to
grab them talk to us about what's going on in
that space.
Speaker 4 (13:45):
I think the reason is that a lot of the
bullishness of the last three weeks was based on one
simple statement is saying, listen, we're building a bubble and
the FED is cutting into that. That never happened before it, right,
And obviously in two thousand the hike behind the seventy
five bass points, they hiked fifty basis points after the
bubble had already beaked. So I mean, you know, they
(14:05):
and they had inflation that it was not.
Speaker 5 (14:06):
Without any reason.
Speaker 4 (14:07):
But for sure, it's very unusual for the FED to
cut into a bubble, and that was a great both thesis.
And so now we're doubting that a little bit, right,
I mean, so they are basically having a feed that
might be more hawkish.
Speaker 5 (14:19):
December went to fifty to fifty essentially, and so if.
Speaker 4 (14:22):
You remove that plank of the argument, value should be
all in inequity, it has consequences, right, And so we
warbled a little bit for that reason. But I mean
I would also remember, I mean, the hiked one hundred
and seventy five basis points before the bubble peaked in
two thousand, right, So will it be the end of
the equitiable market if the FED doesn't go I mean,
I doubt it.
Speaker 2 (14:42):
Talk to us a little bit about these doubts that
are creeping in for December. I mean, we're truly in
a fog for multiple reasons. Because even if we had
government data. I'm sure the conditions plenty of different crosswinds.
We don't have the government data, but like one thing
we do seem to know is that hiring has been
very weak and so fourth and several of the months
almost certainly that would be the case for October and
(15:03):
November if we had clear indications on it. What is
the reluctance right now? Why is it a coin flip?
Speaker 5 (15:09):
Yeah?
Speaker 4 (15:09):
I mean well, I think the single biggest thing is,
of course, all the comments were getting out of the
FED right, and we had you know that, the tweet
earlier this week, and so in the end, if you
try to forecast the FAT, you better listen to what
you're saying.
Speaker 2 (15:22):
They were exactly given the weakness, so that I think
the question is of course all about the job right.
Speaker 5 (15:28):
The reason is a job market inflation.
Speaker 4 (15:30):
You can argue maybe tele inflation were not tr up
so far it has been way benign. Some FAT members
believe it's s throwing up, some others don't. But I
think the main crux of the question is the job market.
Speaker 5 (15:40):
How week is it now?
Speaker 4 (15:41):
The Dalla's FAT put a paper out arguing that if
you get slightly negative net migration. The break even NFP
is thirty k. If you get slightly positive net migration
sixty k, so that that is somewhere the range where
these days and FP should come in without there being
a problem. Right, So if you if, then if p
press and of course September we know is somewhat artificially strong. October,
(16:05):
if we get it, would be artificially weak due to
the government buyouts. November is a really interesting one that
might have a bit of an impact from the shutdown
and so forth, so that may really clean one. Maybe
we have to dad even longer. But let's say we
take November is as good as it gets for now.
So if that is below thirty, there'll be a cut, right,
If it's below sixty, there'll be probably no cut. It's
(16:27):
somewhere in between. They'll find it out. But without that data,
it's just hard to you know, reassure the market yes.
Speaker 5 (16:34):
There'll be a cut, or no, there won't be.
Speaker 4 (16:36):
So the job market data will be very, very important.
We've got a lot of alternative data sources. Of course,
in the meantime, by be wading, they were a bit
on the weakish side. So that's why the city call
is actually for a cut, I mean the noises out
of there from seever certainly a little bit all over
the place, so it's not that obvious.
Speaker 3 (16:54):
Yeah, and a lot can still change between now and
the meeting. Okay, so if everyone I mean I realized,
not everyone agrees it's a bubble. But for the sake
of this argument, let's say we all know it's a bubble.
It seems like one of the things that happened, especially
since the financial crisis, is people stopped running away from
bubbles and started running into them, right, and so everyone
(17:15):
wants to make money very very quickly. So if you
see the line continuously going up, you just join the party,
and everyone assumes that they are smart enough to time
the top of the bubble and get out at the
right point. What's your take on how long this is
actually going to go on for and what are you
looking at in terms of actually spotting that top other
(17:36):
than sentiment, which we spoke a bit about.
Speaker 4 (17:38):
Yeah, it's a big question actually even inside city USC strategists.
Speaker 5 (17:42):
It's the cost believe me that it's a bubble.
Speaker 4 (17:45):
But we have a definition, so'll you know, we cannet
do something. So the definition for us is it's a
little bit like the GMO one, which is essentially saying
something goes up more than two standard deviations against the
long term trend. In real terms, we call it a bubble, right,
and then whenever you have a big sell off, you
restart the clock, because when you have a big sell of,
you essentially the sentiment goes to zero, and so you
(18:06):
have to rebuild it.
Speaker 5 (18:07):
And on that.
Speaker 4 (18:08):
Framework we end up bubble territory sort of, I guess
in May June of this year. And when you do that,
the interesting thing about it is, as you point out,
it goes up. So once you end up oup the territory,
you're supposed.
Speaker 5 (18:20):
To buy it.
Speaker 4 (18:21):
And the only time and that didn't happen was nineteen
twenty nine.
Speaker 5 (18:24):
It went straight down.
Speaker 4 (18:26):
And I think the reason for that is a little
bit that the way people define water bubble is the
use nine is twenty nine, right, and so and we
did that too, and so therefore that's the only on
all the other episodes, you.
Speaker 5 (18:37):
Go straight up, so you buy it when you enter.
Speaker 4 (18:39):
But the interesting thing is, and clients ask me, well,
if that is true, what's the difference beween the bullmark
and the bubble you tell me it's going up. And
the difference is that if you buy it when it
enders a bubble, you will give it back eventually most
of it. Most of the in bubble gains will be
given back, so it will lar badly, right, And so
that I mean, you don't necessarily give back everything all
the time, but in most episodes give back most of it,
(19:01):
And so that makes it an important definition. Now, Unfortunately,
when you study that, it's not like clear how long
they last. I mean, the on average, I can tell
you the two years of above average returns followed by
below average returns, and on a ten year time horizon
your below average return. But it can vary a fair amount,
(19:22):
and so that makes it hard. I would say, if
you look at two thousand again as a template, if
it'll certainly not help you to look at fundamentals, right,
I mean, so what happened was Nastik broke in March
and everything still figher two thousands, okay, So and when
that happened, fundamentals road over in September, so that there
(19:44):
was a six to seven month period where fundamentals still
look just the way that you had looked before.
Speaker 3 (19:49):
I guess because everyone was spending so much money on capex,
and like takes a while for that to roll on.
Speaker 5 (19:54):
Yes, exactly, And of course it's highly circular.
Speaker 4 (19:56):
But people spend on capex while the equity is going up,
so actually stops going up. They start to reconsider what
do we do next, So then everything wills over exactly.
So so if you look at an immensive, probably not
capture it, which means it will be a highly technical
thing if you want to call the top.
Speaker 5 (20:15):
And it would be helpful if you get a blow
off top.
Speaker 4 (20:18):
Like you know, if you get to the fifty percent
in one quarter, you know you probably have a bigger
chance to get it right. But I think it's really
quite dangerous to be early in this thing because well
you will not hit it precisely on the day your
eyes earlier either or you're late, right, And I think
if you're late, you can control a little bit more
how much money you don't make in a sense.
Speaker 5 (20:39):
Right.
Speaker 4 (20:40):
And so one framework that we have we call it
the general's framework, because what happens in this bubble generals
the general because it becomes very narrow, and that's a
feature of the bubble, it's not an exception, right, And
so this, this narrowness means that if the leaders start
to break down, it's a real warning sign. And so
what we look at and we just at the top
(21:00):
seven leaders because people are excited about max seven, but
it could be ten or basically on our numbers, if
three of the top seven breakdown, meaning they fall below
the twenty moving average, that's a really dangerous sign.
Speaker 2 (21:13):
Twenty day moving day.
Speaker 4 (21:15):
Okay, it will not be early, right because by the
time it triggers, the market is obviously down from the peak.
But I think following that has saved us a lot
of money on the downside when these things happen. So
that is something you can use because it will be technical,
it will not be fundamentally this happened and get.
Speaker 2 (21:30):
Out this is fantastic. So let's just sort of like
just to sort of summarize this because that was actullent.
So the bubble condition has emerged when the games are
what is the timeframe we're talking about, So you say
two standard deviations above the real long term?
Speaker 5 (21:44):
Yeah, exactly.
Speaker 4 (21:45):
So I mean they measure the long and performance. It's
actually rolling windows. It shows every year and it's just
the linear trend that you that you put through it,
and then you can see how.
Speaker 2 (21:56):
How much you go to standard deviations and trend in
real terms.
Speaker 4 (22:01):
So we deflate it because in the seventies a lot happened, right,
you're in a bear market.
Speaker 2 (22:04):
But the two standard deviations in like a certain period
of time or like.
Speaker 5 (22:09):
How do yeah, yes, it's the yearly returns.
Speaker 2 (22:11):
It, okay, and then the warning sign So in your view,
you know, if you think about sort of profit maximization
or risk minimization or whatever, the thing to look for
is when three of the seven leaders break down or
why is that?
Speaker 4 (22:27):
Like yeah, yeah, I mean just in a sense, we
just back testa right, we just we realized, Okay, there's
something special about these bubbles where the leaders carry the
weight for a long time, right, And so you have
to find out, well, when the leaders break, what is.
Speaker 5 (22:43):
A danger signal that actually works?
Speaker 4 (22:45):
And it's always a trade off between giving you too
many signals you leave money on the table, and to
a few signals where you you take part in the
downside that you want to avoid. And so what we
found is if you use that rule for two thousands
or for others that we have in the sample, you know,
once three of them break it's becoming the odds are
not in your favor anymore.
Speaker 2 (23:06):
Can you apply this framework to gold? So this is
the interesting thing, which is that we don't typically associate
booming stock markets with booming gold, especially because gold is
associated with fear and pessimism, et cetera. Talk a little
bit about what's going on.
Speaker 4 (23:21):
Gold is just very very interesting. I mean, the first
leg up was essentially this whole central bank story, right
if if you think about it, all started really with
the crimea issue and put in making innocent three bets.
When he diversified away from the dollar, right, he bought
euro he bought CNY, and he bought gold, and Europe
(23:42):
was not a particular promising bed. In the end, CNY
was a good bed for him. But obviously China cannot
bet on the CNHY and that is gold for China.
And so the I think in the very very big
picture central banks that are very important for the gold market.
Speaker 5 (23:57):
That gold market boughtoned.
Speaker 4 (23:58):
In the nineties seven the Bank of England was done
selling gold, and it will probably peak when the PBOC
is done buying gold, and they still could buy a lot.
So that I have no issue with as a structural story,
long term story. What happened this year was not the
central bank buying, at least not as far as we
can help from the official data. It was much more
(24:19):
this whole debasement fears that trapped into gold. And the
first leg was very easy for micro guys to understand
and participate in. That was just you know, the Fed
is going to cut, and whenever the Fed cuts, you know,
the dollars sold off into the first cut, rates fell
into the first cut, and gold went up.
Speaker 5 (24:35):
So that is as it should be.
Speaker 4 (24:37):
Now, then what happened if you remember after the first cut,
rates went up, the dollar went up and gold cut
going up, right, And that was roughly the time and
Stephen Marin talked about the third mandate for the Fed
and things like that, and so the debasement fears became
more acute and that propelled go higher. Now, the interesting
issue is that it was really not that much the
(24:59):
institution investors right, because all the other debasement trades didn't work.
I mean, the curve did not steepen, break evens did
not rise, the dollar did not fall. So it was
a retail driven debasement fear, and you saw people lining
around the RBA in Australia trying to get physically gold
out of the vault. Right, so it was it became
(25:19):
a memestog almost for a while. And so while it
hasn't actually triggered our bubble levels, if we apply the
same methodology, it certainly I think became too dangerous. And
so we actually got out of gold a little while ago. Now,
the debasement story is an interesting story. It could come back, right.
(25:40):
You saw gold consolidated for a while and then when
Trump discussed two thousand dollars for everyone, then gold started
to take off again because people start to think, well,
maybe that we have to trade the basement again.
Speaker 5 (25:51):
And that's a very big call.
Speaker 4 (25:53):
And personally I think the new AFMC will be more
domash than the old one, right, I mean, we don't.
Speaker 5 (26:00):
Know quite yet who will be the head of the FMC.
Speaker 4 (26:04):
It's likely to happen, and so the debasement story could
come back, but you have to time it fairly well
because you have a lot of retail in it and
it already moved a lot. Right, So in the debasement feres,
I think it might be next year's story run this
year's story. The central bank story will come back eventually,
but it's I mean, China loves to buy pullbacks rather
(26:27):
than the high, so I'm not quite sure how that
then they will come back. But structure, I think gold
is likely still okay. In the short term, we're a
bit more cautious.
Speaker 3 (26:37):
Well, if gold is off the table for now, and bonds,
no one really knows what they're going to do. How
are people actually hedging and what are you recommending?
Speaker 5 (26:46):
Yeah, very good question.
Speaker 4 (26:48):
What people typically do, which is actually dangerous in a bubble,
is that just buy some put spread in the SMP. Now,
the issue is in a bubble, if you first go
up another thirty percent, the strikes so far out of
the money that it will just not help you.
Speaker 3 (27:02):
And we saw Michael Burry who was like the poster
boy for calling the AI bubble closes fun this week.
Speaker 4 (27:08):
So yeah, so I think so the obvious thing actually
became harder to do in a bubble. The other issue
is can you use currencies? And that is also very interesting,
right because the correlation between the dollar and there s
MP changed somewhat, and it changed in April. It used
to be the case when there's some pieces off, the
dollar goes up that correlation flipped on us in April,
(27:30):
and while there's a lot of debate whether the correlation
will move back to positive or stay negative, I think
if we are talking about a bursting bubble, that would
be done a negative, right.
Speaker 5 (27:42):
So there are structures that allow you.
Speaker 4 (27:45):
Cheap adges if you're fitting to bed on SMP lower
and at the same time dollar weeker, right, so that
might work. What we have actually recommended is to do
something in credit because the way I see it, I mean, either,
you know, the AI bubble continues to move higher and
then credit will not benefit very much from it, and
there's no you know, there's not that much a I
(28:06):
related credit in the indsease, and in any case, people
start to worry about credit on the I front and
spreads e extreme tight. Of course, on the other hand,
if the US has a bigger problem than we're thinking
and the labor market falls through trapdoor, and then you know,
to credible to protect you really well, So so credit
is something to look at.
Speaker 2 (28:43):
Let's talk about your em background. This is one of
those things that I think, I don't know, maybe it
started as a joke. It's like, you know, people are
joking the US is becoming an em and then it
sort of gets a little more oh haha, oh oh,
and then suddenly it feels less and less not funny. Yeah,
it's not really funny anymore. A do you like buy
(29:03):
this premise that you know there is something about em governance,
et cetera that is applicable to thinking about the US
right now, I.
Speaker 4 (29:11):
Think people made the case in its first of all
the questions, how you defined in them is actually a
harder question, you think, because traditionally people do it just
looking at GDP per ahead and then obviously right, it's.
Speaker 3 (29:22):
A MSCI gets paid a lot of money to do this,
that's right.
Speaker 4 (29:26):
And so by putting that aside, I mean I think
for trading the right definition is a little bit whether
your bonds rally that's when the VICS goes up or
they don't. Right, And on that definition, which is the
trading centric definition of emergent markets, you actually find China
is not emergent market because CGB is rally when there
(29:48):
is a risk off, and and Korea is an emergent market.
So it's a much more sensible definition for traders than
the definition right.
Speaker 5 (29:56):
And so in the this.
Speaker 2 (29:57):
Is uncomfortable because we're about to get to what the
US A bond have been doing during this volatility exactly so.
Speaker 4 (30:04):
And of course the initial headline was for the UK
right when the list trust issue happened and the pound
sort of and then Gill sold off, and so people said, oh, yeah,
the UK is moving in that direction.
Speaker 5 (30:18):
And for the US again you can argue a little bit.
Speaker 4 (30:22):
I would say though, that what will likely happen is
that if that should become a problem. So if you
see US rates selling off during risk a version, maybe
because of fiscal voice or something like that, I do
think the FED will come in and hammer rates back down.
And I think they can do that as instance, they're
(30:43):
physically able to do it.
Speaker 5 (30:44):
I bet they could. The Treasure could phase out the
twenty year.
Speaker 4 (30:47):
Bond if they wanted to, They could do more buybacks,
and yes, it will beaken the dollar for you, But
it's not that they run out of rope in the
way merger market would when these things happen, right, because
in the sense of it happens in Brazil, it's not
that the government can control or that the Center Bank
is able to keep the bond yield at a certain level.
(31:07):
The US has many tools that they have at these
post that they could use.
Speaker 3 (31:11):
I think, since you're in the trading space, or you
pay very close attention to it, are you seeing anything
in terms of positioning that could make a sell off
either more extreme or unexpected or volatile in the current setting.
And the reason I ask is, you know, we had
a few episodes about the dispersion trade and people selling volatility,
(31:32):
and I was having lunch with someone in the market
yesterday and they were very clear that a lot of
people are still doing the dispersion trade, which kind of
surprised me.
Speaker 5 (31:42):
Yeah, no, it's true.
Speaker 4 (31:42):
I mean that many crowded trades. I would say again,
broadly speaking, we never found us acquity position all that heavy,
but it certainly and people own it.
Speaker 5 (31:53):
Right.
Speaker 4 (31:53):
Gold was on our survey of these as that okay,
this gold was for a long time to stand out.
Speaker 5 (32:00):
It came back a little bit.
Speaker 4 (32:02):
One other trade that people really quite like is the
emcry trade, and that is a bit link to the
volatility trade because it works levant volatility is low, right,
and so that is a very heavily owned trade. It's
very hard to forecast volatility spikes. I told you I'd
have a quantitum, and we back test a lot of
(32:22):
potential strategies that we think are credible, and we did
not find a good rule to say volatility is low
enough by volatility or volatility has been low enough for
extremely long time by volatility. On average, you're obviously meant
to sell volatility because implies are higher than realized and yes,
they're unpleasantly low right now, I would say, but on average,
(32:43):
it's just not right to.
Speaker 5 (32:44):
Buy volatility in these circumstances. So what do you do
about it?
Speaker 4 (32:48):
I think what you can do is you can find
rules that essentially tell you, well, volatility has started to
move up by x, and it's probably a good idea
to get out because when it's it's positive recoridated, right,
So if it starts to move, it can move a lot.
So we have one particular volatility index that is actually
the sort of maximum Z score, if you like, of
(33:10):
all the various different volatilities publicare about the move index,
VIX index, two, ten, implied wall INDEXAM implied wall index,
and high it spreads.
Speaker 5 (33:19):
And but we take the maximum.
Speaker 4 (33:21):
Of that, not the average, which is a bit different
than than other people do. And the reason is that
no matter what goes wrong, EMFX will not like it. Right,
So if the stress comes from US rates and the
move index, it will not like it. If it comes
from VIX, and there's some people also not like it.
So and and that volatility indicator so far is still
relatively well behaved. And again I'm glad you you keep
(33:43):
mentioning when exactly recording this, because it could could.
Speaker 5 (33:48):
And if we have constructed I mean.
Speaker 2 (33:52):
We'll look for it in your in your report. All right.
I just have one last question, So I actually I
really like this definite This is very useful mission of EM.
Do your government bonds rally and a volatility spike? I
guess what that implies is are your bonds safe havens
or are they credits?
Speaker 3 (34:08):
Right?
Speaker 2 (34:09):
So you have this experience in them, et cetera. Are
there any other bitter lessons if all sort of US
investors are to some extent increasingly a little bit more
trading in an EM space, you have any lessons for
them from the EM world that we should all know about.
Speaker 4 (34:24):
The strong lesson used to be that don't assume you
get these sort of fairly well behaved politics that you
get in the US and other countries.
Speaker 5 (34:32):
But that less of course noticed somewhat on my mind.
But you know, the.
Speaker 4 (34:36):
Main issue is really politically risk and we have a
lot of elections coming up, especially in that time right
if we have Chile, we have Columbia with brazila and
so these things can really make a I used to say,
much much bigger difference than in the US, although that
is more debatable at this stage.
Speaker 2 (34:51):
That's interesting, all right, Dirk Villa, thank you so much
for coming on odd large, thank you for bringing us
this book, and I'll have to have you back sometimes.
It's fantastic.
Speaker 5 (34:58):
The new book is coming soon.
Speaker 3 (35:00):
Okay, so what's the new book on.
Speaker 4 (35:02):
It's the same idea about the global macrowat well, we'll
read it.
Speaker 2 (35:06):
Thank you so much, Thank you, Tracy. I like getting
a sort of mathematical, precise definition of what a bubble is.
Speaker 1 (35:25):
I find it.
Speaker 5 (35:26):
Look.
Speaker 2 (35:26):
I mean, obviously there are aspects of bubbles that are
very sentiment driven, and I think pop culture driven. Just
how much people talk about extra y and these are
useful things to discuss, but it's also nice to think about. Okay,
let's just come up with some rules that tell us
when these things, what constitutes a bubble? And when it's over,
precision is good.
Speaker 3 (35:46):
I hope Derk will tell.
Speaker 2 (35:47):
Us he's got to send us.
Speaker 3 (35:50):
In the email, at least tell his clients, and we'll
see the note.
Speaker 2 (35:53):
Hopefully we'll see the note.
Speaker 3 (35:54):
I mean, I do think the message. It's a very
realistic message in some respects because the problem with bubbles
is you can't sit them out. If you're a money manager,
or even if you want to make more money, right,
your clients are going to be really really angry if
the S and P five hundred is going up twenty
percent and you've been bearished for two years. And again
(36:14):
Michael Burry has turned into a really good example of this.
But on the other hand, everyone wants to get out
precisely at the top because we want to maximize our
profits as much as possible. And I think when Dirk
says like, well, you know, you kind of have to
ride the bubble and then you kind of have to
wait a little bit for it to start popping, and
you just have to kind of figure out how much
(36:35):
money or loss you are willing to take.
Speaker 2 (36:38):
Except that you're not going to time the top.
Speaker 3 (36:41):
Perfectly right exactly, and that reality, Yeah.
Speaker 2 (36:44):
I think that's sort of an interesting approach to the
bubble problem, and so just don't worry about nailing the time,
but come up with some rules. And it is interesting
these consistent patterns of the leadership narrows, et cetera. You know,
one thing I've been thinking about. Ask about this, but
one thing I've been wondering about. You know, people look
back at those two thousand analogies all the time, and
(37:07):
one of the things that people say is that, well,
this isn't a bubble like that, because you know, we
don't have the pets dot com. We don't have like
this proliferation of non profitable tech companies soaring. And I
guess that's true. But I think one of the problems
I have with these analogies is private markets are so
much bigger now, and so you look at these megavaluations
(37:28):
that private companies are raising at and you know, it
feels like there's like momentum trading almost going on in
private markets, et cetera. Yeah, and it would be nice.
You know, you can't really get an apples to apples
comparison because so much of the bubbly activity appears to
be happening away from this S and P five hundred
or away from the Nasdag. And so these charts about
what percentage of companies are or aren't making money that
(37:50):
only look at public markets, I think are a little
bit unsatisfying.
Speaker 5 (37:54):
Right.
Speaker 3 (37:54):
Well, I would add on to that that, you know,
the companies themselves might be profitable, but the business itself
is as yet not generating positive cash flows and everyone
just expects it to.
Speaker 2 (38:05):
Yeah at one point, right or the spending is simply
not sustainable, and that's another fact. Anyway, super interesting conversation.
We've had them on Karthvik Center. And also likes that
definition of em which is are your government bonds credits
or are they save havens? And they don't love how
in this recent volatility we haven't seen more of a
(38:25):
bid into treasures. I don't love that.
Speaker 3 (38:27):
Nope, not a good sign on that happy note. Shall
we leave it there?
Speaker 2 (38:31):
Let's leave it there, all right.
Speaker 3 (38:32):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (38:37):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our producers Carmen Rodriguez at Carman Arman, Dashel Bennett
at dashbod and Keilbrooks at Keilbrooks. More odd Lots content,
go to Bloomberg dot com slash odd Lots with the
daily newsletter and all of our episodes, and you can
chat about all of these topics twenty four to seven
with fellow listeners in our discord Discord dot gg slash.
Speaker 3 (38:58):
Out Lots And if you enjoy all Lots, if you
like it when we talk about whether or not AI
is in a bubble, then please leave us a positive
review on your favorite podcast platform. And remember, if you
are a Bloomberg subscriber, you can listen to all of
our episodes absolutely ad free. All you need to do
is find the Bloomberg channel on Apple Podcasts and follow
the instructions there. Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
Popular Podcasts
Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.