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July 2, 2025 69 mins

In this episode, Moritz Seibert speaks with Asim Ghaffar, the founder and CIO of AG Capital, a Boston-based macro hedge fund. Asim explains why he believes insourcing rather than outsourcing the organizational processes of running a hedge fund business is critical and how it can add long-term value to the business. He also describes why sales and branding are key components to a successful investment management business, and how AG Capital connects with clients and prospective investors. In the second part of the conversation, Asam and Moritz speak about AG Capital’s style of trading, how they position size, why they take concentrated positions, how their methods differ from those of systematic trend following funds, and what their current long-term and short-term investment themes are, touching on gold, Bitcoin, copper, natural gas, and some other markets.

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Episode TimeStamps:

02:13 - Introduction to Asim Ghaffar and AG Capital

06:48 - What defines a great hedge fund?

12:13 - How do you find clients as a hedge fund?

18:32 - Creating world class in-house operations

25:32 - Ghaffar's framework for building portfolios

35:05 - How Ghaffar differs from a classical trend follower

39:16 - Why Ghaffar enforces a  fixed number of positions

41:40 - What is so cool about stocks?

46:16 - Why Ghaffar sometimes decreases an exposure

51:36 - How Ghaffar approaches gold

54:05 - Why AG Capital stays away from Bitcoin

01:01:54 - Is China actually more democratic than the US?

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Transcript

Episode Transcript

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(00:00):
Fundamentally I'm stillbearish. I think we're at the end
of a long 16, 17 year secularbull market in equities where ‘buy
the dip’ has become ingrainedin both the professional and retail

(00:25):
community. We haven't had aproper recession, a cyclical bear
market in, again, 16 years,since the ’07, ‘09 episode. So,these
things don't happen veryoften, but you know when they do
happen you have to have youreyes open. And that's what I'm looking
for with equities is a classicold school bear market which, again,
we have not had in 17 years.So, people have really forgotten
how equities trade during truebear markets.
Imagine spending an hour withthe world's greatest traders. Imagine

(00:51):
learning from theirexperiences, their successes and
their failures. Imagine nomore. Welcome to Top Traders Unplugged,
the place where you can learnfrom the best hedge fund managers

(01:16):
in the world so you can takeyour manager due diligence or investment
career to the next level.Beforewe begin today's conversation,
remember to keep two things inmind. All the discussion we'll have
about investment performanceis about the past and past performance
does not guarantee or eveninfer anything about future performance.
Also understand that there's asignificant risk of financial loss
with all investment strategiesand you need to request and understand
the specific risks from theinvestment manager about their products
before you make investmentdecisions. Here'syour host, veteran
hedge fund manager Niels Kaastrup-Larsen.

(01:37):
Welcome to another episode inthe Open Interest series on Top Traders
Unplugged, hosted by MoritzSeibert. In life as well as in trading,
maintaining a spirit ofcuriosity and open mindedness is

(02:01):
key and this is precisely whatthe Open Interest series is all about.
JoinMoritz as he engages incandid conversations with seasoned
professionals from around theglobe to uncover their insights,
successes and failures,offering you a unique perspective
on the investment landscape.So, with no further ado, please enjoy
the conversation.
Hello everyone and welcome toepisode number 17 of the Open Interest

(02:39):
Series on Top TradersUnplugged. Today I'll be speaking
with Asim Ghaffar, who theFounder and Chief Investment Officer

(03:19):
of AG Capital. AG Capital is aBoston based macro hedge fund which

(03:47):
Asim started in 2014. Asimhasmore than 20 years of experience
trading across a variety ofasset classes and prior to forming
AG Capital, he served as aSenior Consultant at Cambridge Associates
and as a Principal at PartnersCapital where he managed an internal
portfolio of absolute returnhedge fund investments. He started
his career at Bain & Co. andCharles River Associates and holds
a BA in Economics fromDartmouth College and an MBA from
the MIT Sloan School ofManagement. Now,prefacing this conversation,
let me say that I'm reallyexcited to have Asim on the Open
Interest series today becausehis performance, at times, can be
very similar and positivelycorrelate to systematic trend following
funds, which are usually thefunds that we're speaking about on
this series. But also, attimes, he'll be very, very different
and much more concentratedthan a systematic trend following
fund would ever be. Andin ourprep call, Asim mentioned that he
has a sometimes 30 year, letme repeat this 30 year view on how
to structure his investments.He has some very interesting perspectives
on China and the potential endof our current monetary order and
the probable birth of a newone. So, all of these are very interesting
topics, something new,something that we haven't touched
on this series and I thinkthis is a good time to get started,
Asim. It'sreally great tohave you here. Thank you for joining
me today. I hope we'll have agreat conversation.
Thanks Moritz. I'm happy to be here.
Excellent. Nowwe had alittle bit of a prep call, and also
looking at the materials whichyou sent me, Asim, it mentions that
you draw inspiration from someof the macro pioneers in our space.

(04:11):
So, if you could, I mean, whattriggered the formation of AG Capital
and, maybe, if there are somenames or some heroes that you have
that you were or maybe stillare looking up to that inspired you
to create the firm. Give ussome background on that.
So back in 2001, I was 25years old, you know, a long, long

(04:55):
time ago. We're talking about25 years ago. And I was in my first

(05:21):
year of grad school. I hadworked in consulting for a few years

(05:45):
in the late 1990s. I graduatedfrom undergrad from university in

(06:06):
1998. And so, my experiencewas, well, I'll probably go into

(06:26):
consulting again or maybe I'llgo to industry or something else.
Andthen completely randomly afriend of mine, not an MBA classmate,
but just a random friend ofmine, handed me a book. And this
story will be familiar to alot of people who began trading futures
and other derivatives. Butitwas Market Wizards, the classic book
by Jack Schwager where heinterviews 20 or 25 different traders.
And the first book, the bookthat I read was the one that came
out in 1988. So, it came out ayear after the stock market crash
of ‘87. So,it was verytimely. The people he interviewed
were completely unknown. Theidea of a hedge fund wasn't something
that people talked about backthen. It wasn't an asset class that
people were familiar with. Andso, these were people managing $100
million, maybe $3, $4, $500million was a lot of money back then,
so, unknown traders who mighthave a two or three person team with
them. And I read all theinterviews and I just fell in love
with the macro, the top-downmacro traders. Partof it was that
I had, in high school and incollege, a liberal arts background.
That was sort of my sort ofchildhood training, call it. And
so, yes, I graduated with aneconomics degree, but I took a lot
of courses in history,philosophy, psychology. And my initial
look at macro was this is ablend of a little bit of math and
economics with a lot ofhistory, psychology, philosophy attached
to it. So, that was where sortof the genesis or the spark for trading,
and what would ultimatelybecome Ag Capital, came from. So,the
traders in there that I reallydrew inspiration from were probably
Bruce Kovner who foundedCaxton, Paul Tudor Jones. The second
book (this isn't the firstbook), the second book had Stan Druckenmiller,
and it became clear that themacro top-down traders, that was
what I wanted to do. It wasjust clear to me. It wasn't as though
I had any question about it. Ireallydidn't have as much of an
interest in the bottom-upstock picking, or the credit managers.
And I really gravitatedtowards those legendary sort of macro
traders in that philosophy.

(06:48):
Great, thanks for thebackground. We'llget into some of
the specifics and the way thatyou're trading in a bit, but I'd
like to stay with the businessmanagement side for just a second

(07:08):
longer and how you started thebusiness. In our prep call, I found
it very interesting that yousaid that in order to be successful
as a hedge fund, you need tohave a good live trading record.

(07:34):
Okay, fine. I mean that is Iguess the most important thing, otherwise
people leave. Butyou alsosaid that you need to have great
operations, great marketing,great branding, and that you also
find it very important to havethese functions in house and not
outsource everything in theage of software as a service solutions
and all that type of stuff,and that you'd rather have people
on the payroll and kind oflike build your business organically,
intrinsically from the insideas opposed to attaching services
from the outside.
So, there are a number ofdifferent threads here. This will

(09:43):
take some time, but let's getinto this. This is actually an important

(12:02):
topic. Thefirst piece aboutbasically having a love for operations,
sales, marketing, branding, Ican't stress this enough that I think
the majority of people thatwant to start a hedge fund love trading.
They love the markets. Theycome from a math or a finance background,
and they know they have to dothe operations, they know they have
to go out there and raisecapital. But they almost say, you
know what, I'll spend enoughtime to get that done. And they almost
bury it in their subconsciousknowing they'll have to deal with
it. But they don't sort ofphysically really think about it
and bring it to life and say,this is something that if I don't
love, the business will fail.Andso maybe they're 90% interested
in the trading and 10% oftheir mind is on building a team,
and middle office software,and then going out and doing the
sales and marketing. My viewis it's really a three legged stool.
It's 1/3 sales marketing, 1/3the portfolio, and 1/3 operations.
Andif you don't, as thefounder of the business, if you don't
actually love the sales andmarketing piece or the operations
piece, the business will fail.So let me get into why that is. Let'sjust
talk about the sales andmarketing first, you know, and I'm
going to speak from personalexperience. I started my business
when I was 38 years old, butwhen I was 25, when I first read
Market Wizards and said, okay,I want to do this, I want to eventually
become a trader and run ahedge fund, I thought it was all
about having a great 3 or 4year track record and the money would
just come. The outside worldwould find you, you would show it
to the Internet, put it onsome platforms, and the money would
just roll in. Andit's one ofthose things where, in hindsight,
it sounds so stupid to thinkthat's the way the world works. But
that was the stereotype I hadas a 25, 26 years old. And I can't
help but think that that'salso the stereotype that many people
have. Theythink that they'llgo out there and either use their
prior track record from aprior fund they worked at, or they'll
launch a fund and build anawesome 2, 3, 4, 5 year track record,
and the money will just come.And nothing could be further from
the truth. That's not the wayour industry works. The industry
works on inertia. So,ingeneral, money doesn't have to move.
The money that is invested ina Vanguard tracker or a cheap just
long-only fund, or the moneythat's in a private equity fund like
a Blackstone or even at adifferent large blue chip hedge fund,
by inertia it just sits thereand it doesn't have to move. Yes,
there's new wealth beingcreated, but in general you have
to give people a reason toactually move their money. Andthe
way you do that is by taking avery long-term view on the sales
cycle. It's, what I call, athree to ten year sales cycle, not
a two month or a two yearsales cycle. And you actively have
to love the process of gettingon an airplane, meeting people in
person, flying all over theworld. And if that's something you
dread or it doesn't sound likesomething you want to allocate a
third of your time to, thingsaren't going to work. So,just to
break that down a littlefurther, the way that works is most
people think you're going tofail when you start a hedge fund.
Because most hedge funds fail.There's a very high attrition rate.
People don't end up building20, 30, 40 year track records. So,
the intelligent allocator willtry to outwait you. And this is the
right approach for anallocator to take because of the
failure rate and the careerrisk involved in just allocating
capital to a manager that'sgoing to disappear in year 7. Andso,
it takes a long time for themto realize you're going to stick
around and then a longer timeto realize that your process is repeatable
and that you're not goinganywhere. So, it's incumbent upon
you, the manager, to literallybe willing to go to conferences,
these are expensiveconferences often. Or to get on an
airplane and fly out toSingapore, Asia, all over the US,
if you're based in the US, toEurope, and meet people. And you
need to meet the sameallocator sometimes 10, 11, 12, 13
times over the course of 6, 7,8 years to build that rapport, to
show that you're not goinganywhere. Andthen, even then, you
don't expect them to drop aticket or to give you capital. Your
expectation should be, if theygive it, great, if they don't, that's
fine too. But enough peoplewill, I think (if you do your job
correctly), be open to you -that it works out over time. So,the
sales and marketing mentalityhas to be a very long game. And you
have to love that process ofgetting out, meeting people, and
doing meetings over and overagain all over the world.
Let me stop you there, on themarketing piece, because I think
we also want to speak aboutthe operations, which I find equally

(12:25):
interesting. And by the way, Ido agree with your view on sales
and marketing. We operate inthe same way. If you don't like speaking
to your prospective clients,you're in the wrong seat, you have
the wrong job. Because, at theend of the day, that is your job

(12:50):
as the owner of the businessto do that. But my question is, how
do you initially reach thesepeople? Like,you know, this isn't
a trivial thing becausesometimes they just come to you because
they find you on the Internetor they hear you now on a podcast.
This is a good opportunity. Ordo you put stuff out on LinkedIn?
Do you put out researchpieces? I mean, do you go to conferences?
What do you do in order to getthe initial contact with investors?
You know, I can only speakfrom my experience. I think the story

(13:41):
will be different for mostpeople. I started the business on

(14:15):
a shoestring with $500,000 onday one. So, I really bootstrapped

(14:49):
the business. And I started mybusiness before podcasts were a big

(15:26):
thing, before social mediareally had built up to where it is

(16:03):
today. So,the concept ofbuilding a brand on LinkedIn or on
Twitter, or X, or even throughpodcasts, it didn't really exist
the way it does today, back in2013, 2014 when I started. And so,
my mindset was that I have tomeet people in person and I have
to find a way to meet peoplewho are in the industry. Youknow,
sometimes you need a certainamount of luck and timing in life,
and everybody will tell youthat when they start a business.
You need to put the effort in.You have to have the right strategy.
But then timing is important.So, here's where, at least for me,
for my story, the timingworked out. Ifyou go back in time
to that, again, 2014 when Istarted, there was a conference that
catered to emerging commoditytrading advisors, CTAs. So, the conference
was basically designed and setup to help very small macro oriented
managers who were managingseparate accounts, which I was at
the time. I didn't have themoney on day one to actually spend
a hundred thousand dollars tolaunch a fund. So,I only had separate
accounts for the first handfulof years of our track record. And
there just happened to be aconference that I came across when
I was doing a Google search.That conference was called CTA Expo.
Itoffered events in Chicago,New York, and I think they did a
couple in Miami that I went toas well. But I would go to that event
two to three times a year. Andover the course of four years, I
probably went to 12 or 13 ofthose conferences. Ibuiltrelationships
with potential end clients.These were basically high net worth
investors, let's call it,small business owners, doctors, dentists,
that sort of crowd, as well asbrokers. So, introducing brokers
who had a Series 3 license tosell a futures product. Andit took
years in the beginning, youknow, people looked at the year and
a half track record I had andsaid, well, you know, interesting,
but he's probably not going tomake it. And then, you know, 2 years
later, 3 years later, somesmall accounts came in and it just
took 3, 4 years to reallybuild the assets up to the, call
it the $5 to $10 millionlevel. I think it took a good 4 years
to get to $10 million and thenit took 5 years to get to $20, $25
million. Sotook a long time.That conference happened to be there.
If that conference had notexisted, I don't know how I would
have done it. I would havemaybe tried a different angle, but
I don't actually have ananswer to how I would have done it.
Today,if the question is, amI giving advice to somebody else
who's starting from scratch?That conference went away after Covid.
When Covid hit it justdisbanded and that conference sort
of went defunct. I think it'scoming back now, potentially, but
it was gone for a good 5years. So, maybe a young guy today,
or a young woman today needsto use the podcast world or social
media to build a brand and apresence. Idon'treally have an
angle on that. That's not theway I did it. But for me, you know,
things worked out. The luckand the timing and the hard work
all kind of came together andthat was how I did it.
Like you say, there is noblueprint. It's probably a different
solution for different firmsat different times, you know, when
they start. I guess now thatyou're beyond the point of escape
velocity, as far as AUM isconcerned, is it now more word of
mouth or you're more in theinstitutional space? Do people just

(16:26):
started to recognize you morebecause you've been around for 11
years, something like that,now? It probably has changed, right?
It's definitely changed. Youknow, the irony is, from the actual

(16:54):
broader institutional world,and this goes back to the fact that

(17:14):
my prior career was as aconsultant. I was on the allocator

(17:37):
side for a very long time, for7, 8 years as an investment consultant.
You'reconsidered an emergingmanager if you have under a billion
dollars of AUM. That soundslike a very large amount of money,
and it used to be, but it'sthe nature of our industry where,
you know, a manager with a fewhundred million dollars is very much
an emerging manager. So, westill fall in that bucket, but we're
no longer, you know, tiny - atiny, tiny startup. We have a team
and so we’re in the driver'sseat now. So,I have a marketing
budget. We attend what I wouldcall the flagship conferences that
are out there where allocatorscome and look at hedge funds and
private equity - sort of thealts world. Andthen separately I'll
do trips on my own todifferent places all over the world
to basically meet clients –roadshows, in essence, and get our
name out there. So, it's a mixof things. You have to still continually
be in the driver's seat andget out there and push your name

(18:00):
out there. Yes,some people,some dollars will trickle in just
through the word of mouth andjust through, say, the monthly letter
that you write, that we writeevery month. But that's not the right
approach to sort of bet onthat as your long-term strategy.
You still have to have thementality of getting out there and
physically traveling andmeeting people and building that
brand and then ultimately therelationships then come together
over time.
I think the personalrelationships are very important.
I mean just the way we do itis we know each and every single
one of our investors inperson. We either have teams, calls,
and most of them we actuallydo meet in physical reality to have

(18:26):
a chat about our way oftrading, about the risk, and all
that type of stuff. And wethink that's very important to create
that alignment and speak aboutthe risks involved, make sure that
people understand what they'redoing. Soyeah, now the other piece,
and you said it's going to bea longer answer, is operations -
world class, in house, or inhouse operations. Give us a little
bit more background on that please.
So, this is again one of thoseparts where it’s a three legged stool

(20:04):
and you, as the owner of ahedge fund, and I think this is the

(21:28):
piece that people willstruggle with the most. You have

(22:25):
to love the fact that you'rebuilding a business and operations

(23:27):
are 1/3 of those three leggedstools - the sales, marketing, the

(24:34):
portfolio and then operations.Andthis is where I think the temptation
is, especially today where youhave so many software options, you
can outsource to emergingmarkets like India, the Philippines,
Eastern Europe. For middleoffice, you could just use SaaS software
and plug in whatever you want.So,there's this temptation, I think,
when you start a hedge fund tosay, listen, let me find a good partner
and the two of us can go outthere and raise a few hundred million
dollars. And we can keep theoverhead very low. And we can start
to make good money andreplicate what we were making on
Wall Street before veryquickly, and not really add a ton
of overhead. And that's, Ithink, the absolute wrong thing to
do. And let me explain why.Ifyou're thinking about building
a business and really havingit last over 30, 40 years and even
hand it over to the nextgeneration and have a hedge fund
or a financial servicesbusiness that's going to last outside
of your lifetime, you have tounderstand, from the outside world's
perspective, how they feel andwhat they look at you and how they
sort of have confidence inyou. So, there are two different
things here that I want totalk about. The first is human nature
and our subconscious.Whenyou're asking somebody for money
for an endowment to give you$50 million, or for a high-net-worth
family office to give you acheck for $10 million, they want
to know that that money issafe. The first thing you need to
think about is, you know, isthis money going to just disappear?
I'mwriting a check, sending avery big wire, and at the end of
the day, we're animals. Andwhen you see that there's a set of
people sitting in an officetogether, there's a subconscious
sense that this company willbe around, that there's a safety
there. That 500 person firm inNew York City, that firm has been
around for a while. They'llprobably be there in 20 years. But
the one person firm, the twoperson firm that's using technology,
maybe they'll be there, maybethey won't. AndI think subconsciously,
when we, on the allocatorside, look at managers having a team
that has experience, that'sworked together, and that has bodies
in seats sitting together, itmakes a difference. It gives you
that, again, that unconsciousthought that these guys will be around
for decades and they're notjust going to disappear. Sothat's
thread number one. And thatgets a bit philosophical, a bit metaphysical,
but I actually think it'simportant from just a pure human
nature perspective. Thesecondpiece is a little more strategic.
And this is where, yes, youcan use off-the-shelf software tools
to build your business. Youcan probably outsource a lot of the
operations to either cheaperlabor jurisdictions, or you can use
technology. And if you were tohire somebody in the US on a W2,
pay them on payroll, there's alot of expense. So,let's just use
some math. And I'm makingthese numbers up, but they're directionally
correct. Let's say you have tooffer somebody a salary of $100,000
in the US to get somebody inan operation seat in whatever the
role is. On top of that you'regoing to pay taxes. They're called
payroll taxes. So, add another$20,000 so that person costs you,
as the owner of the business,$120,000. Nowin Europe or Asia those
taxes might be lower or evenhigher, but in the US $100k for the
salary, $20,000 in in taxes.So $120k for that human being to
be on your team. Ifyou lookat what they're doing when you first
hire them, for that first yearor even first two years, you could
have used either outsourcedlabor in again, India, the Philippines,
wherever, or some kind ofsoftware solution and maybe that
would have cost you only$30,000 to do that. So, you're paying
four times as much money toput that person in a seat in your
office. AndI'm trying toargue that that's actually the rational
decision to take to pay allthat extra money. And the reason
is, over time you are notgoing to get the benefits of all
the learning that that personbrings to the table. So, on a 1 to
2 year horizon, you aredefinitely hurting. You're spending
way more money. Ifyou hirethe right person, over a 5 to 10
year horizon, the insightsthey bring, believe it or not, they
should be able to createenough value to more than overcome
that huge 4x delta that youhad in year one. So, it could be
as simple as a new processthey put in place. It could be the
way that they reorganize someof the interactions you have. It'samazing
what you can do. And I've seenthis in my own team over the last
six, seven years. It's amazingthe ideas that come from the other
people on your team if youhire good people. You, yourself,
can only go so far. No matterhow smart you are, what schools you
went to. And it's the peoplearound you that really help you build
the company. So,these hugepayoffs come over 5, 10, 15, 20 years
when you add labor. And it's avery poor decision financially in
the beginning because you, theowner of the business, don't make
any money. In fact, you mightrun the business for break-even,
without any profit, for 5 oreven, in my case, 10 years. But you're
reinvesting and thinking overa 20, 30, 40 year timeframe. It just
makes a huge difference and itcompounds then. So,then you get
into the idea of, weunderstand compounding of money because
we're all, you know, on WallStreet. You're compounding capital
at whatever it is, 5%, 10%,15%, 20%. You understand that geometric
process. It's the same thingwith people. Andif you outsource
everything to Silicon Valleyor to a call center somewhere, you're
not going to get those peopleto help improve your processes and
to build your business withyou. And so, I'm not trying to argue
you should basically add laborjust for the sake of it, but whenever
you have that question mark inyour head, what should I do? Which
way should I go? And if youthink, well, I have a 3 person team,
I can really scale this to$500 million, or I could make it
a 6 person team and have muchlower profitability, but that's potentially
better over a 15 year horizon.I would argue go for the 6 person
team, be smart about how youdo it. But that's the way that I've
built my business and that'sthe mentality that we have.

(24:58):
Very interesting. You viewhuman resources as an investment,
essentially.
I think you have to, yeah, yeah.
Now, super interesting. Thishas been a topic that we've never
really touched on in thisseries. So, we're kind of like 25

(25:19):
minutes in and we haven't yetspoken about anything that has to
do with investment and how youform your investment thesis. But
I think that was veryinteresting and very important to
chat about because yeah, it'sjust not spoken about regularly,

(25:42):
or not at all, but it is animportant component of how we build
our businesses. Nowlet's getinto the nitty gritty and some of
the portfolio details andmaybe we can start with your investment
thesis and the framework andhow you built this, how you come
up with ideas, what triggersthese ideas and how you then implement
them in the portfolio.
Yeah, what I'll do is let meback up and start philosophically,

(27:42):
I think this is a trickytopic. I think it's important to

(29:33):
almost back up and really lookat it from a top-down perspective.
Tradingis difficult,especially for a boutique firm where
there's a single PM, singlestrategy. When you look at trading
futures, whether it'scurrencies, commodities, you can
go on a good run. You can putsome short-term trades together on
a discretionary basis. I'llbuy something, sell It a week later,

(30:21):
short something, it goes down,I close the trade 5 weeks later.
Mysupposition is that if youattempt to build a track record for
30 or 40 years with theseshort-term, multi week, or even 1
or 2 month type trades,eventually you will fail. You might
go on a good 3, 4 year run,but eventually you will either blow
up or you'll just hit a patchwhere you can't make money, you'll
lose your confidence, andit'll go away from you. The business

(30:59):
will be taken away from you.So,I strongly believe, and there's
probably some great tradersout there who will prove me wrong,
but, in general, I actuallydon't think it's possible to build
a long-term, multi decadetrack record as a discretionary trader
with any kind of a veryshort-term process. So, whether you're
using technical, orfundamentals, anything on a short-term
horizon, I think the marketshave changed. They become very difficult
with all the algorithms thatgo off the changing structure of
the markets. And I thinkyou'll fail. So,one of the things
that I thought about before Ilaunched the business, and I had
a good 12 years of tradingexperience on my own, self-taught,
I never worked on Wall Street,but I traded 40, 50 hours a week,
nights and weekends for 12, 13years before starting the business.
And years before I started theofficial track record for AG Capital,
I thought look, if you startto go to med school or dental school,
you become a dentist or evenif you start a small landscaping
business, as long as you keepyour head straight and you really
build the infrastructure, youcan project out 30, 40 years and
say look, I have a career, andthen I'll retire someday. And it's
very hard to argue that youwon't have a multi-degree career.
Thisis the only business,hedge funds in particular, liquid
markets, where it's very hardto have that confidence. Most people
who start these businesses,and I saw this as a consultant at
Cambridge Associates, you canhave a great pedigree, you went to
an Ivy League school, youworked at Goldman Sachs, you launched
with a great 4 person team,you start with $500 million, 6 years
later you write that letter toyour investors saying sorry, we're
in a drawdown, didn't foreseethe markets changing the way they've
changed, we're closing shop.And that just happens time and again.
It'sthe only business where Ithink, on a weighted average, the
lifespan across the industrymust be 5 to 7 years for the average
hedge fund launch. And I saidto myself. I don't want that to happen
to me. I don't want to go outthere on a shoestring and then just
pray that I somehow outlasteverybody else. Because I think,
again, that would beirrational. How can I think about
this on more of a 30, 40, 50year horizon? Andso, the one thing
that I've done differently andthe one thing that I think my mentality
in our business is a littlebit different, we're a little longer-term
than pretty much every otherdiscretionary or even systematic
manager. So, we think abouttrades that are almost investments.
So, 1/2 to 2/3s of what we'redoing is more of a 3 to 7 year timeframe.
So, you could call that aninvestment. And then the other 1/2
of what we're doing are, whatI call, short-term ideas. And those
might last for 6, 7, 8, 9months. So, under a year, but still
longer than the typical 1 to 3month timeframe that I think a lot
of macro folks try to operateon. Andagain, the reason for this
is I think there's so muchnoise in the way the markets have
changed over the last 20, 30years. The underlying market makers,
everything about the markets,the algorithms from big CTAs, the
entire order book gets sweptover the course of 2 days to 3 weeks
when an algo fires off.Looking at patterns with your eyeballs,
you deceive yourself. Andso,the only edge you have, I think that
works on a multi decadehorizon, is getting longer-term than
the multi day, multi weeknoise, so to speak. So, what hasn't
changed and why do I thinkthis works? Ithinksecular themes
and even cyclical themes thatare going to last for 3, 4, 5 years,
that hasn't changed. Ifthere's a big imbalance in the copper
market and there's going to bea bull market, that's going to happen,
that's going to play out.Copper will go from whatever, $1
to $5, and it'll take 5, 6years. And that's a move that you
can stay with. You manage theexposure, but you can stay with that
move and that's part of theedge right there. Onthe short-term
there are contrarian tradesyou can find where the large CTA
crowd is fully on one side ofthe boat. The trend is extended,
the fundamentals are shiftingand you can find nice risk/reward
trades in the short-term that,again, are longer than most people
would think about for ashort-term trade. But again, I like
that 5 to 9 month timeframe,call it, for the short-term ideas.
So,the thought process Ialways had was to be very long-term
and almost have a multi decadeview and then put together a rough
blueprint for where I thinksome of these big macro markets will
trade. So, when I started thebusiness, I had that rough blueprint.
It hasn't always gone exactlyaccording to plan. The timing has
been off, as it always can be.But broadly speaking, the blueprint
is playing out. And I think Ilike that I have a blueprint for
the next, call it, 15, 20years as well, that I hope will play

(31:21):
out.
Speaking about that blueprint,like what is it? What interests you
and why and how did you find it?
So, a lot of this is notsecret, it's stuff that a lot of

(32:04):
other smart people are talkingabout. But I think the edge here,

(32:30):
or the difference, is thepsychological ability to stick with

(32:52):
an idea for years that'salmost too long if you have a short-term

(33:20):
horizon for either pain or forperformance reasons. So, in our industry,

(33:46):
the monthly returns, if you'reworking at a large fund, the need

(34:11):
to keep your drawdowns really,really shallow and to consistently

(34:33):
have a smoothed out trackrecord forces people into closing

(34:54):
trades after 2, 3 months.Inmy case, as the owner of the business,
I can take that longer viewand I can have a little more volatility
and hold those trades throughthat blueprint. So let me talk about
the blueprint because I'lltake the question you asked directly.
Essentiallyit gets down tothe idea of trade-offs in secular
regimes. So, you'll go througha secular bull market in equities,
and we've had 2 or 3 of theseregimes in the past 80 years, and
then a secular regime whereeither commodities or precious metals
will then take sort of thetorch and carry performance for the
ensuing 10 year period. And ontop of that you can layer currencies
where there's more of a 5 to10 year cycle in the dollar. Nothing
to do with the reservecurrency status but just for other
reasons. And the drivers arealways slightly different. Butthe
dollar has tended to gothrough 5 to 10 year cycles ever
since currencies floatedstarting in 1973. And lastly, there's
a very long-term interest ratecycle where the bond market goes
through these 20 to 40 yearcycles of interest rates going down
and then rates going up. Mostpeople don't want to sort of operate
on these timeframes becauseit's just too long. Andthe trick
is sort of to understand thatyour timing can be off. So, I'll
try a trade using theseblueprints. And I might be off by
a year or two, take a smallloss, gets to our risk point, try
it again a year later, I'llstill be wrong, and then try it again
7 months later. So, it's thatthird attempt, after 1.5 or 2 years,
where the trade starts towork. And now I'm still sticking
to my long-term blueprint. Ithinkthis market will be in a bull
market for the next 4 yearsand my job is to just dial up and
down the exposure according tothe roadmap we already have. We have
preset ad points, a presetexit point, and just carefully manage
the exposure throughout that 4year window. Butthe trick part here
is that there's nothing newunder the sun. I'm reading the same
things that a lot of otherfolks are, doing my own homework.
But the blueprint I'm usingis, I think, grounded in common sense.
It's grounded in fundamentalsthat eventually do play out. But
it's possible that I'm 1 year,2, even 3 years early. Wecan go
through some examples, butthis is, I think, the place where
it's tough for some people inour industry to stick with a theme.
You can't be 3 years early.And you can, if you have sort of
my style where I'm not goingto walk away from it. I can keep
it in the back of my head. Butpeople tend to want to jump around
from theme to theme and onlytry to find what's hot in the next
2 months. Andagain, that'swhere I think you get into trouble
because you'll be chasing yourtail, you'll get chopped up, you'll
get whipsawed and eventuallyyou'll look back after 10, 20 years
and realize that you walkedaway from many, many big picture
themes that you could havestuck with but it was just psychologically
difficult to stay withsomething that you might be early
to the theme for a couple ofyears and then to actually stay with
it for the next 4 years isalso tough. So, that's sort of the
rationale behind how we operate.
You mentioned that, I thinkfrom what I took away is your position

(35:16):
sizing is kind of like similarto what some of the like trend following
funds would do. You have arisk budget. You risk a certain amount
of your bankroll on any giventrade. I think you mentioned that

(35:43):
you're adding to trades,probably trades that work. You're
not adding to losing trades,you're adding to winning positions.
Butyour entry timing is goingto be not necessarily different to
that of a trend following fundbut it could be very different to
that of a trend following fundbecause you're formulating your thesis
at different points in time.You might have this maybe 30 year
view or very long-term view onrising yields and therefore be short
some bonds. I don't know,maybe short the long end of the bond
curve and maybe a trendfollowing fund would, at that point
in time, have no position inthe bonds or be slightly long, be
slightly short, I don't know.But you would have that short position
and hold it.
I think that's exactly right.We're going to be in some of the

(36:31):
same trades as a trendfollower. The key difference between

(36:58):
us and a classical long-termtrend follower, somebody who's using,

(37:25):
say, just a moving averagecrossover system, they'll be in 60

(37:54):
or 70 or 80 trades at anygiven time. We'll only be in 6. So,

(38:34):
we have 1/10th of the numberof trades. We're very concentrated.
So,I'm going to miss a lot ofthe trends that a trend follower
will capture and I'll be insome of the same trends that they're
in. But I won't have a lot ofthe little losses that the trend
follower is getting by beingwhipsawed. I'll also miss out on
some of the big gains thatthey get by being out of the trades
that they're in. And thenseparately, even for the trades that
we overlap on, my entries Itry to be contrarian with. So,if
I want to get long copper, I'mlooking for some kind of a pullback
so that I can risk manage theposition and hang a stop. And they're
probably going to get in usingprice action that's heading in the
direction of the trend. So,the entries, the add points, and
the exit points, for me, willbe different but there will be overlap
with the trend follower.Allthat being said, I think, philosophically,
I am probably, when I thinkabout the math behind a 40 year track
record, I'm probably more insync with the trend follower or the
systematic manager than I amwith some of my discretionary peers,
especially folks on the equityor credit side. I think too many
people spend all their timethinking about the stocks they have,
or the types of commodities,or what they have in their portfolio
when the ideas you have, overa 40 year period, your ideas might
only account for 5% or 10% ofyour track record's performance.
90% of your performance comesdown to how much you risk per trade,
where you add, where you exit.So, it's the math behind how you
handle the actual tradeexecution and implementation. So,
you know, how much do yourisk? Where do you take the trade
off, how often do you try itagain? When you try it again and
it works, where do you add?Where are those add points? And where's

(39:00):
the profit target? So,themath behind the trade structuring
will literally account for 90%of your track record's performance
over a multi decade period.And the ideas you have are just not
as interesting. They'll onlyaccount for 5% or 10% of your performance.
Nowthe irony is I spend halfof my day reading, generating the
ideas, but I'm aware that whenwe structure our trades, that's what's
going to account for ourperformance. So, then you ask why
am I wasting my time readingso much? Because if I didn't read
all day long, and didn't havethe conviction in the longer-term
multi year concepts, Iwouldn't be able to stay with an
idea for 3, 4, 5 years. Iwould give up and just walk away
from it after losing money onit 1 or 2 times. Andthen you look
back again, after 10 years,and say, oh my God, that market went
up, you know, 400% over a 4year period. I had that idea, why
didn't I stick with it? It'sbecause you didn't have the conviction,
you didn't do your homework.So,it's ironic, but I have to spend
all day reading even though Iknow that the math behind a track
record, a multi decade trackrecord, really the driver is the
trade implementation and howdo you handle losses? Where do you
add? Where do you exit?
You mentioned that you haveprofit targets, which is another
difference to a systematictrend following fund because they
would usually not have profittargets. They would get out on a,

(39:30):
you know, give back on opentrade equity. But let's leave that
aside. WhatI found veryinteresting, from what you just mentioned,
is the concentration to size.I think you mentioned 6 positions.
Is this strictly enforced? Whydo you do that? Why would you not
allow yourself to have 12positions, or 24, or 36, to get more
diversification? Why 6?
Well, it's anywhere from 2 to10. On average it will have 5 or

(40:13):
6, but we'll never have morethan 10. We've never had more than

(40:43):
10 in our 11 year history. Thereason is we're trading roughly 40

(41:13):
to 50 of the most liquid NorthAmerican futures market. So,it's
25 or so commodity markets,the energies, agricultural markets,
the soft commodities likecocoa, coffee, sugar, metals, and
then 7 or 8 currency marketsagainst the dollar, 4 or 5 interest
rate markets, the US yieldcurve, and then another 4 or 5 equity
index futures markets. So,it's a map of 45 or so markets. Onceyou
start putting trades on, yourealize that there's correlation
here. So, if I'm already longsoybeans, you don't want to then
add a long corn or a longwheat position. Yes, they're different
but there's a 0.7 or 0.8correlation between these two markets
quite often. Similarly,ifyou're long the British pound and
you then go and buy the euro,that's the same trade, 0.9 correlation.
And so once you get up to 8, 9positions, you just look across and
unless it's a very uniqueinstrument like live cattle or like
cocoa, it just doesn't makesense to get up to 15 or 20 trades.
If you have 20 trades on youlook across that portfolio, you might
as well get rid of a good halfof them because of the embedded correlation.
So that's the real reason.Youknow, I don't know as much about
the exact portfolioconstruction for a long-term trend
follower. I'm sure they havesome issues here, but they probably
have a global portfolio wherethey could argue that they're just
looking for really big movesin certain markets and they want
to make sure they have theentire global map. WhereasI, as
a human being, even though I'mreading a lot, I'm doing my research,
I'm writing things down, Ican't keep track of 30 trades in
my head. And if I can't keeptrack of the portfolio in my head,
it's probably the wrongportfolio and I should get rid of
all the detritus and justfocus on the core ideas that I have
a conviction on.

(41:41):
I think you're also tradingstocks and that I presume is something
that you've only added laterto your portfolio after the SMAs.
I might be wrong there, butwhy did you add the stocks? Because
you already have a lot of thelike themes or thematic implementation
options through the futuresmarkets that you've mentioned. What

(42:02):
is so cool about the stocksfor you?
So, we have a two-personinvestment team, and this goes back

(42:31):
to the idea of making sure youinvest in human capital and not just

(43:04):
outsource everything. But Iput a lot of time into the right

(43:33):
team, and one of my teammembers really focuses on the single

(44:01):
name equities, on ourtwo-person investment team. And between

(44:22):
the two of us we do so muchhomework and so much research on

(44:55):
our core long-term macrothemes that inevitably we were turning

(45:19):
up equity names alongside someof the futures themes. And we did

(45:47):
enough research, enoughhomework to really have conviction
on a few themes. So,ingeneral, our equities tend to back
up our longer-term commoditythemes. So, we're not buying healthcare
stocks, we're not buyingartificial intelligence stocks or
tech stocks. They're all inthe materials sector or the energy

(46:09):
sector. So,just to touch onsome of the highlights, I do think
that we're in a structuralbull market in gold. This is, you
know, depending upon how youlook at it, potentially a contrarian
concept. But I think we're inthe very early days, year 2 of what
could be an 8 or 9 year, 10year bull market in gold. Andso
given that view, we basicallybroke apart the two leading ETFs,
GDX, GDXJ and even some of thejunior mining stocks and recognize
that the vast majority of thesmaller gold miners, there's either
a fraudulent component orthere's no chance that those earnings
will come to life over time.The very, very large cap gold miners
have terrible balance sheetsand quite frankly very poor management.
Butthere are a few names inthe mid cap space that are very well
run, have unhedged forwardlooking books where they don't have
hedges on, short gold futureshedges like they did 20 years ago.
And they're well run andthey're in good jurisdictions. So
we put together a very smallbasket of a couple of gold miners
to get that operatingleverage. And now we have a theme.
Wecan be long gold futureswhere we'll dial up and down the
exposure over the next 6, 7, 8years for the duration of the bull
market. And then we'll carrythe two gold miners and almost have
a mini theme there in the goldkind of basket. Same thing we'll
do in copper, we'll do thesame thing in the energy sector for
natural gas, crude oil. Andso, we have just a mix of equities.
Andthen there's anotherreason, the second reason we have
the single name equity isthere are certain areas where you
just don't have liquidity inthe futures market. So, this will
be a very consensus thing I'mabout to say. There's nothing contrarian
about this, but a lot of folksbelieve, as do we, that uranium is
in a secular bull market.We've had a good leg up over the
past few years. We had a bigcorrection over the last 12 months
and we could be setting thestage for a bit of a grind and then
a second leg, in this bullmarket, over the next 3, 4 years.
So, you just don't have anyliquidity with uranium futures. I
think there's a contractlisted on the CME. It just doesn't
trade. Maybe there's somethingyou can do over the counter. But
we thought the better way tohandle this would be to look at either
a large cap, well-knownuranium miner or just the physical
trust. Sothose are thereasons that we got into single name
equities. It's a small part ofour business. It's less than 10%
of our funds exposure or AUM,but it's meaningful enough and we
do enough homework there thatwe can add some value. So, we added
that as part of the strategy.Andthen the last thing I'd say is
it actually does line up with.When you go back in time to the 1980s
and think about the way that Ifell in love with this business and
wanted to almost recreate thatclassic 1980s style of classic macro.
Back then the concept was youwould have a core group of equities
that you would hold in yourportfolio where there was a theme,
a very concentrated set ofequities. And then you would almost
layer on top your currencytrades or your bond trades using
futures. And maybe you wouldlayer on top some commodity futures
trades as well in crude oil orelsewhere. Butit was almost a three-dimensional
portfolio where there wasalways a core equity holding that
a lot of those managers heldwith half their cash and then they'd
use the other half of the cashto put on the futures positions.
Now we're not doing that,we're far more futures oriented.
But you know, it does line upwith that classic ‘80s style macro
theme that we're trying to, insome ways, bring back to life and
put our own spin on.
You mentioned dialing up anddown exposure as you are in the trade.
What do you mean by that? Whywould you dial up and down the exposure?
If you're sitting on a bigwinning trade, you know, you were
long cocoa or, you've justmentioned, use gold as an example.

(46:32):
You say we're in a long-termstructural bull market for gold,
why would you be dialing downyour exposure?
With rare exceptions, thereare some, what I would call, very

(47:13):
classic trend followers whohave not changed their computer code

(47:44):
since the 1990s. You know, I'mnot going to name names, but there's

(48:24):
some great managers out therethat are hewing to that very classic

(49:02):
approach of trend following.Ifyou look at their performance,
they have great performance inthe past 4 years. But there are drawdowns
that are 30%, 40%. Andsometimes those drawdowns are caused
by a single trade. Because theissue is, and we tend to build up
some chunky exposures likeclassic trend following. We'll put
on some meaningful size if wehave conviction on an idea. We'll
start the trade, we'll riskmaybe 100 basis points on a core
theme. WhatI mean by that is,if we're wrong on that trade and
it goes from the entry pointdown to our exit risk point or stop
loss point, we've lost 100basis points or 1% of the fund's
equity. That's consideredpunchy, that's more aggressive than
a lot of the lower volsystematic managers. Andthen we
have ad points where we add tothe exposure a couple of times, maybe
2, 3 times. When you thinkabout that, once you've fully loaded
that trade and you might evenhave 100% of your cash exposure in
that one position and youbuilt up additional trades so you
have 300% gross exposure. Thatone trade, if you leave it alone
and you don't have a profittarget or you don't dial the exposure
down when it gets very, veryoverbought after say 5, 6, 7 months,
you could easily have a 15%,18%, 20% drawdown just from that
one trade. Andthis is whereyou're running a business. You're
not running your own personalaccount at home where only you see
the statements or only yourwife, you know, can yell at you if
you have a big drawdown. Youcannot build a long-term track record
in this day and age and have30%, 40%, 50% drawdowns. Yes,there
are some brand name hedgefunds that have it, but in general,
you're going to scare theallocator community. You're going
to lose your own confidence asa discretionary trader. If you're
down 50%, you just have tomake too much money to come back.
You have to make 100% to getback, to break even. So, one of my
rules of thumb on the riskside is to try to keep the multi
month drawdown to under 20%.And that's across all the trades
in the portfolio. And so, wereally try to dial the exposure down
when a market gets veryoverbought. That's why we have a
profit target. Theprofittarget is just a reasonable best
guess as to how far thismarket should go based on the technical
price action for thisparticular 5, 6 month leg of what
might be a 7 year bull market.And we take the trade off or we just
cut it down tremendously.Sometimes you're wrong and the market
keeps going. That's part of life.
It could be… Sorry tointerrupt, but it could be a good

(49:22):
example if we stay with thegold theme, because gold has rallied
quite strongly, I think up to$3,500. And maybe this is kind of
like the area. I mean, I'm noanalyst in that space and I don't

(49:43):
have anything of value to say.Butyou know, when you look at this,
it could be like at $3,500,we're running out of some steam,
and maybe it goes back to$3,000 and then it goes back up to
$4,000, $5,000, $6,000. So, itsounds like these are the trigger
points where you might bereducing your risk and taking some
of the profits off.
Exactly. Let's just use thatexact example just for the sake of
argument. We were long goldfor a while. We had a lower profit

(50:17):
target. So, we got out of thetrend in the high $2000s. That was
our profit target from thebreakout back in early 2024. Let's

(50:47):
say we'd held it to $3,500 andthen it corrects down to $3,000.
That $500 is going to be ameaningful hit to our P&L. Probably

(51:19):
too much. And so, you don'twant to just sit there. We'renot
putting on a small, tiny 1%position as a mutual fund and holding
a diversified portfolio forthe next 10 years. We're trying to
really add alpha with thetrade expression. The dialing up
and dialing down of theexposure is partly how you perform.
Andso, it's important for usto then either close the trade or
reduce the exposure, knowingthat you're not going to get the
timing perfect. It'll keepgoing. Sometimes you get the timing
close and then you hope torebuild the exposure on some kind
of a correction or a drawdown.Evenif the market goes sideways,
that's a signal. That'stelling you that there's a lot of
buying coming in on every dip.And that 4 or 5 month consolidation
can give you the confidence totry the trade for the next leg. But
it prevented you from having,again, an 18% drawdown on the single
trade, which you just, youcan't do that to your investors.
And I, you know,psychologically, again, it's very
important for me to not losemy confidence because, to go back
to that one earlier point Imade, I think the main reason that
hedge funds will shut downwith great pedigrees and great seed
investors, after a 7 yeartrack record, is the manager loses
his or her confidence in theirdeepest drawdown. And then an allocator
pulls, and then it's a spiral,and they write the letter to the
investor saying, sorry, we'velost our confidence, we're going
to give you all your moneyback and we're going to go off and
do something else with our lives.
The emotional damage andparalysis that you do to yourself…
Staying with gold, I mean isthis now a position where you're
back on the long side or areyou still kind of like in waiting

(51:42):
mode? And it's kind of likeah, it's still kind of like wobbling
around?
Back on the long side with avery small starter position. So,

(52:15):
as I mentioned, we closed thattrade in the high $2000s late last

(52:46):
year. I was expecting a biggercorrection back down to, I don't

(53:15):
know, $2,500 or so. It neverhappened. This market is actually

(53:42):
very interesting in how strongthe trend has been. Yourtypical
hedge fund that wants to buygold is looking at the chart and
saying, God, there's just noway to get in. It's gone straight
up from $2,100 to $3,400. It'skind of barely corrected. It's going
sideways for the last two anda half months. But I want to buy
it at (I'm just hypotheticallytalking about XYZ hedge fund guy),
I want to buy it if it goesdown to $2,600. Give me that 20%
correction. I want to get inand buy and it's not giving the world
that opportunity. Sothatright there is a signal. So, I looked
at this. I wanted that bigdeep correction as well so I could
rebuild my position. It's notgiving that opportunity. It's gone
sideways for two and a halfmonths. Iputa starter position
back on, and if it were to gosideways for another couple months
and break out, I think it'sgoing to leave people behind and
continue to move higher and dosomething that, again, it has not
done in the last 12, 13 years.It's almost trading, it's trading
differently than it did duringthe 2001-2011 bull market. So,gold
has really only had two majorsecular bull markets in the past
75 years. So, we only have twodata points. We have the 1970s and
then we have the 2001-2011bull market where gold went up 8x.
In that bull market, from ‘01to ‘11, that was really the China
commodity build out bullmarket. Gold was almost a secondary
market. Copper and oil werethe leaders and gold kind of chugged
along but it had a lot of bigpullbacks. Itwould move up for 6
months, then have a big, bigpullback. It gave you a lot of chances
to get in and it never justwent up, and up, and up, in a straight
line. In the 70s, however, itdid have these moves where it just
went up and did not let youin. So,it's interesting to me that
this gold bull market istrading a little more with the power
of sort of the 1970s templatewhere there's just, you know, there's
some very, very powerfulbuying from very large allocators
(central banks, let's justcall them who they are), that are
driving this current leg. Andit's just, it's an interesting signal.

(54:05):
I think you mentioned copperand Nat gas. Sounds like you have
a structural long view on thatas well. But maybe speak about some
of the things that are moreenthusiastically sometimes debated
on Twitter and stuff, which isbitcoin and the S&P 500. I mean,
what's your view on equitiesand bitcoin as well? Because I noted
that you have bitcoin in your portfolio.

(54:28):
So, I'll talk about bitcoinfirst. I'm not an expert on bitcoin.

(56:05):
I only traded it a few times.I think we traded it three times

(57:59):
back in 2021 and we have nottraded it in the past four years.

(59:52):
So yes, it's in our marketingpresentation, but we have actually

(01:01:21):
not traded bitcoin futures.Weonly trade the futures. We don't
trade any physicalcryptocurrencies. So, let me talk
about the tactics around whywe have not traded it and then I'll
give you my almost layman'sview on bitcoin longer-term. Whywe
have not traded it? So,bitcoin is actually a very difficult
market to trade for a macrohedge fund if you're trading the
futures contract. The marginthat you have to post, at least this
was the case a few years ago,is 70% or 80% because of the volatility
and because of the gap riskwith the futures. Bitcoin itself,
the underlying trades 24 hoursa day. It doesn't respect Saturday,
it doesn't respect Christmas,it doesn't take any time off. So,
when the futures markets closeFriday at 5pm, and then they reopen
Sunday at 6pm, you have almosta 48 hour gap. And if you were a
hedge fund, and you were shortbitcoin futures, and bitcoin goes
up 50% over those two days,there's a huge gap. Andso, the exchanges
and the futures commissionmerchants, the brokers out there,
they have just put the marginfor a typical futures contract might
be 5%, 10%, 12% of the facevalue of the exposure. Bitcoin had
70%, 80% margin. So, it'salmost a cash instrument where you
have to put up almost theentire cash value to trade it. So,
it's extremely inefficient totrade. It ties up a huge amount of
capital. And then, as Imentioned, that gap risk is a real

(01:01:48):
thing. So,if you're short thebitcoin futures contract, you think
it's in a bearish trend or abear market, you're just taking on
a huge amount of risk. Youhave to size it down so much to deal
with that gap risk that it'salmost not worth trading in some
ways from a technicalperspective, from a tactics perspective.
So that's one point.Thesecond point is for those first
7, 8 years of its life, itreally was its own animal. Nobody
knew what it was, and it wasjust doing its own thing. For the
last 5 years people havenoticed (and I'm not the only one
to say this) that it's becomevery correlated with equities. So,
you could almost call it atriple levered NASDAQ. That might
be breaking down. Thatcorrelation might be breaking down.
Ilikethe fact that Bitcoinheld its own during the March/April
slide, during the Trump tariffslide, Bitcoin actually performed
better than I expected it to.So, if that correlation starts to
break down, I'll become moreinterested in Bitcoin. But I really
want to see it trade as astore of value. Iwantit to be uncorrelated
to gold and uncorrelated to USequities. And so far, I think the
jury's out a little bit. Butthat's what I would want to see,
to trade it. Andthe lastpoint I'll make, just to give you
again my perspective onBitcoin. I was actually fundamentally
bearish. I thought that thiswas a technology as opposed to a
store of value or a currencyand that it was old legacy code,
that the code was written along time ago and it would eventually
become obsolete. Peoplewouldwalk away from it. Whether it's quantum
computing, something wouldcome out to change the market's perspective
on it and it wouldfundamentally just slowly drift down
to a much lower price leveland then just kind of die. And I
think I've been proven wrong,to a certain extent, over the last
handful of years. So,gun tomy head, I'm actually bullish on
bitcoin's price over time. Ithink part of the reason though is
that we've entered this worldnow where the rule of law is breaking
down, particularly in the USas a lot of commentators have noticed.
Currencies are being debased -a lot of the reason that I’m bullish
on gold. And I think bitcoinis another release valve. Idon'tthink
there's another fiat currencyto take over from the dollar. You
can't go from the Dutchgilder, to the British pound, to
the dollar. There's no nextfiat currency to take over in the
next 50 or 100 years that Ican sort of see. But a mix of migrating
out of the dollar into gold,bitcoin, the euro, whatever else
is out there. And so, bitcoinis just one more release file. So,I
think I am bullish on it on a5 to 10 year horizon. We're probably
not going to trade it verymuch. So, that's my take on bitcoin.
OnUS Equities, I have a very,I call it, very bearish mindset right
now. But I've been wrong. Youknow, I tried shorting the S&P a
couple of years ago and as Ioften am, I'm a couple years early
to the theme, got stopped outfor a small loss, tried it again,
had a short position on as ofJanuary, February, made some good
money in the Trump tariff movedown in March and April. I took half
of that trade off because itgot very oversold. So again, managing
the exposure left half on. AndI just actually got stopped out recently
on the piece that I kept onbecause again, this market now it's
just trading in a way where itdoesn't make sense to hold a short
position if it's threateningto break out to all-time highs. FundamentallyI'm
still bearish. I think we'reat the end of a long 16, 17 year
secular bull market inequities where ‘buy the dip’ has
become ingrained in both theprofessional and retail community.
We haven't had a properrecession, a cyclical bear market
in, again, 16 years, since the’07, ‘09 episode. And yes, there's
a lot of fiscal spending thathappened post Covid that really kept
the economy humming. Andyes,AI has been another reason to stay
long tech stocks in the pastfew years, but at the end of the
day, the labor market is, forme, the key litmus test. And I think
it's held up much longer thanI thought it would. But it's finally
starting to show signs ofcracks. Not the initial claims, but
the continuing claims in theUS are finally starting to tick up
and stay high. AndI justthink we're finally potentially going
to have that classic oldschool cycle like you had in 1991,
like you had in 2001, and likeyou had in ‘08. And maybe it's a
milder recession, but becauseof the valuation for equities, because
of how high margins are andmultiples are, you could have a serious
drawdown. But what I wouldwant to see, and this is why I had
the bearish view on equities,I hate it when you have these mini
crashes and V shaped rebound.That's not what I want. I'm not trying
to trade a one-month crash.WhatI'm looking for is the typical
15 month, 18 month, 19 monthslow bleed where the VIX never spikes,
but you just have a very slowbleed and you're down 35%, 40% in
the S&P when you wake up twoyears later. And that's what we had
in ‘01. Yeah,you had somemoves up, you had 9/11, but broadly
speaking, the ‘01 to ’02, ‘03year bear market wasn't a VIX bear
market, it wasn't a VIX spikeoriented bear market. It was just
a slow cyclical bleed. ‘07 to’09, If people focus on Lehman for
the two months where you hadthe big crisis in August, September
of ‘08. But you had a 12 monthperiod before that where equities
topped in October of ‘07 andthey were bleeding out for 12 months.
We were heading into a classiccyclical bear market anyway. And
the same thing happened in1969-‘70, the same thing happened
in ‘73, ‘74. So,these thingsdon't happen very often, but you
know when they do happen youhave to have your eyes open. And
that's what I'm looking forwith equities is a classic old school
bear market which, again, wehave not had in 17 years. So, people
have really forgotten howequities trade during true bear markets.
Right. Oneof the things, Imean as we're rounding this up, one
of the things you mentionedwhen we spoke earlier is that you
believe that China is in manyways more capitalistic and also more
democratic than the UnitedStates. I found that interesting

(01:02:09):
and maybe we can use this as aclosing point to our chat today.
Yeah, this is partly one ofthose things you say with a little

(01:03:44):
bit of hyperbole just foreffect, but I think there's some

(01:04:59):
truth to it. And so, the claimitself that I made is probably exaggerated.

(01:06:34):
But let me break it down andalmost explain why. Onthe capitalism
side it's so easy to just fallinto the quick stereotype and say
communist China, andcapitalist United States, and capitalist
west in general. And this isjust false in so many ways. The Chinese
historically have very much abusiness oriented capitalist culture.
Just at a personal level. Theyreally do, as a people. And when
you look at the ChineseCommunist Party, yes, they will provide
some directive that they wantto move towards EVs or green tech,
but it's the underlyingChinese people and the companies

(01:06:59):
that launch. And it's far morecapitalistic than what you see in

(01:07:37):
the US. You'llhave 100 EVcompanies launch, in the US you'll
never have that manycompetitors enter. And the Chinese
government sits back. Theydon't just shower the industry with
subsidies right off the bat.They wait, and wait, and see what
happens. And that naturalprocess of competition and almost
capitalism, the market itselfsort of dictates and decides which
of these cars the consumerwants, which they don't want. Andover
time, we know the names now ofBYD and the other names, but then,
later on, the government comesin and assists with capital and incentives
and assists some of thewinning companies. But they don't,
in the beginning, they reallyallow, I think, a thousand flowers
to bloom. Andin many ways,when you look at the US and what
we've evolved into over thepast 40 years, it's become an oligopolistic
market. Every industry,healthcare, has 3 insurers. There
are 4 airlines. There are 5big banks. And there's a big tale
of a thousand smaller banksthat you really can't do business
with if you're running abusiness like we have. It’s every
single industry, and thepublic knows this in their hearts,
they figure this out. Andit'sjust those incumbents get the subsidies.
They get picked up in ‘08 whenthere's a crisis and when you want
to see capitalism work and youwant to see some business failures,
you don't get it. Andit'sstrange, to me, that we have the
stereotype that China iscommunist and there's this communist
threat when, in many ways,they behave. And both as a people
and as an entity, they're morecapitalistic in their behavior than
we are here in the West. So,that's point number one. Onthe democracy
side, I'll probably get myselfin some trouble by saying this, but
in the US, you know, and I cansay this because I'm a US citizen,
I was born here. This is mycountry. Yes, we have this notion
that you can go every 4 yearsto vote. And yes, it makes a difference.
Youcould argue that theelection of Trump or the election
that just happened in NewYork, these are monumental elections
when people are changing theorder that's happened over the last
40, 50 years, but within oneof these regimes, when you're in
a regime and you're not havinga monumental change oriented election,
it's really just money thatreally buys votes in the US. Andso,
the super PACs and thelobbying groups and the donors that
have the money, they get tovote. And when you go to the ballot
box, in a typical election,and cast a vote for president or
for a congressperson, for themost part, when you look back at
US history, these votes don'treally count the way that money counts.
Andthen when you talk aboutChina, you know, my read and from
doing a lot of research onChina, is that the party is actually
more responsive to the averagecitizen in many ways than our leadership
or our towns and jurisdictionsare in the US. There are a thousand
plus mini protestations,people protesting, and revolting
against something. And viaapps and social media, the party
is responsive. Ifpeoplecomplain in China about XYZ, change
happens at the local level anda lot of changes get made very quickly
in response to public commentsand protests and what not. And you
read in US newspapers, and Ithink there's a propaganda element
to this, about how certainprotests happen and the people are
just locked up and whiskedaway and they're never seen from
again. And I think that's theminority. Ithinkin many cases the
party is very responsive tothe citizenry and it's partly because
they know that's where theyneed to provide economic growth and
they need to maintain thepeople's trust in what they've done
over the last 40, 50, 60years. So, in many ways you could
argue that's not democratic.No one's voting. But this gets philosophical.
What is a democracy? What doesit mean to be in a democracy? I think
the Chinese system has allowedfor the average person to have somewhat
of a voice and they getlistened to. Andin the US, you can
make the case that the averageperson has very little voice. And
it's really not the sort ofdemocracy you think it is. It's a
democracy where if you haveaccess to the lobbyists, if you have
the money, if you're organizedand have networks of wealth and power,
then you have a voice.Otherwise, you don't. Truthis always
somewhere in the middle. But Ijust thought that the stereotypes
we have of the US and Chinaare, they're just bonkers. And you're
seeing more and more sort ofxenophobia from US politicians. I
don't like it personally, butit seems that's the way the world
is going. It's just splintering.
Well, very interesting. Thankyou so much, Asim. I think this is
a good way to end theconversation or a good end to the
conversation. And I want tothank you again for coming onto the

(01:07:58):
open interest series on TopTraders Unplugged today. I really
enjoyed it. I thought it wasfascinating to chat with you, and
I hope that our listeners willfind it interesting and valuable
also. As usual, for listenerswe'll include the most important
points of today's conversationin our show notes. And should you
have a question or comment,please send an email to info@toptradersunplugged.com.
Thanksagain, everybody, forlistening. And until next time on
Top Traders Unplugged.

(01:08:21):
Thanks for listening to TopTraders Unplugged. If you if you
feel you learned something ofvalue from today's episode, the best
way to stay updated is to goon over to iTunes and subscribe to
the show so that you'll besure to get all the new episodes
as they're released. We havesome amazing guests lined up for
you, and to ensure our showcontinues to grow, please leave us
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(01:08:43):
it's the best way to show usyou love the podcast. We'll see you
next time on Top Traders Unplugged.
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