I'm not saying it's going to crash. I

think AI is real. It's just more it's

going to be dead money for a while.

Think of what Bitcoin's done since 2025,

right? Or what Gold's done this year

after the crash. I'm joined once again

by Tien Yang, co-founder and head of

research at Variant Perception. Tien,

what do you think about the stock market

right now, the S&P, the NASDAQ, the

semiconductor stocks? They have been

trading quite weakly for the past month.

Do you think that this is a bottom? So I

I think time horizon matters.

So on our macro risk indicators that

generally looking forward more 3 to six

months, we're still in a risk on uh

macro regime where it sees the mix of

growth, inflation, policy, liquidity is

broadly still supportive risk assets. So

in general, I think the environment is

still good. Um, now clearly with the the

kind of hype around AI, the kind of, you

know, mania in Korea, there's there's

obviously signs of excess linked

specific specifically to AI. And that's

clearly why we've obviously had that

bubble like price action. You had a

bunch of LPPPL bubble exhaustions go off

in early June. We've had the correction,

but from here, I would say that this is

kind of like what the golden Bitcoin

tops felt like. Because if you go back

to like summer of 2025, it's kind of

like the fundamental story hasn't really

changed, right? Like you know Trump's

going to be a great crypto president. Uh

you know they're going to pass a genius

act all that but you know you despite

that the price action just exhaust

similarly for gold at the beginning of

the year and I think you're a little bit

at that stage with semis where there's

enough like underlying things on

bottlenecks and you know the future

that's all still intact. the

fundamentals haven't changed, but the

price action is kind of telling you, you

know, it's become like a meme. Too much

money's got in and typically when that

tops and rolls over is is quite hard for

it to regain the highs. Obviously, we're

well well below the highs. So,

certainly, we're recording this just as

we have the situational awareness news.

So, certainly, yeah, sure, could you get

like a very sharp squeeze, a tradable

bounce? Absolutely. But I think the the

medium-term picture is that you we need

like a new narrative, right? The

narrative around agenic AI, the

narrative around bottlenecks, that's

what fueled this leg of the rally from

April on. That narrative is clearly done

and we're waiting around for the next

narrative. Maybe it's going to be like,

you know, real world world modeling like

things like that, right? You need

something else really to come along with

like a wow moment. I I think for us to

really get back to the high. So yeah, I

I think the we're more in the kind of

phase of the market where the equity

market is broadening out. the money is

not necessarily leaving the market. It's

just rotating to lagards and other areas

which generally I think reflects the

risk on. So yeah, I think broadly equity

outlook is fine but on the semi

specifically I think we in terms of our

positioning we're keeping some of the

exposure but we we're really been

rotating to more of kind of the the

value lag has been kind of popping up

the portfolio in July right so you know

only energy only financials only

healthcare those have been pretty

important as kind of more portfolio

balanced. Tell me about the LPPPL

exhaustion signals. Remind me what that

stands for. Why did what what were the

signals you got, you know, a month, two

months ago about there's too much risk,

too much leverage in Korea, exhaustion?

And also, do the signals work the other

way? Are you getting bullish LPPL

signals or do they only work on the

downside?

>> They should work both ways. So LPPL

stands for log periodic power law. So

it's our uh bubble and crash detection

system. So, it's kind of designed to

kind of get you that final O of F leg of

the move that typically is not obvious,

right? It's more like after something

has been moving exponentially for a

while, it looks like it's stable, but

then because inherently of like just the

way markets were forced forced price

action, there's always that final leg.

Like recently, we had it on China for

example, right? China sold off, sold

off, sold off, just kept going lower. in

May, April, it looked like it was

bottoming and you have a final of lag in

June and then it was in June that all

the LPPL buy signals went off. Similarly

on the semi you know when it was

rallying up in April in May midMay it

kind of was like wow this is a bit much

but then it has that final leg up and

then it triggers the model. So it's kind

of designed to catch these log periodic

power law waves. So you can think of

these as um just essentially a pattern

matching uh model, but it's it's really

looking for not just things to be

exponential, but that the the kind of

wave pattern the market speeds up as

it's going exponential. And that's

typically what you see at the end of

these exhaustion moves. So you kind of

saw

uh you know a bunch of these from the

beginning of June as we were kind of

making the uh making the new highs. And

so typically these are more tactical

models. You know they typically are good

for the next months. So they're not

necessarily long-term models, but they

give you a sense of when things are

extreme to fade, right? So the most

recent has been obviously all the

semi-AI related cells and then the

China, you know, Indonesia, a lot of

these lagard, you know, bias things

we've been writing about and so

obviously you've had that convergence.

Yeah. So I I would think of it very much

as a tactical model to complement your

kind of medium-term views. Um, in

practice, the way we would use it is you

have thematic investments or stocks or

concepts you like. That's really about

the next three to six months and you use

LPPPL to help you with timing in and out

and for managing exposure around it.

>> And are you getting LPPL exhaustions to

the downside indicating bottoms in semis

in NASDAQ or no? Not yet.

>> Uh, it's not you're getting a little bit

on like more the intraday, right? So,

obviously on like the hourly 15 minute

like there was a bunch of those

yesterday. So, I think that would that

would fit into the kind of situational

awareness, right? Like the short-term

liquidation, but for like the daily

frequency, the medium-term, you're not

quite uh quite there yet. So, I I would

say you've gone from like extremely

crowded on the long side to now clearly

it's uncrowded, but not extremely. So,

>> you you said agentic AI is kind of over

as a growth factor of the semiconductor

AI trade. Tell me about why you said

that. I think we think of investing as

partially trying to understand cycles,

but a lot of it is about playing the

game, right? You got to understand the

narrative. It's like a scurve, right?

Like the narrative diffuses out. A

narrative starts somewhere and it

diffuses out. Lots of people start

participating and then like everybody

knows it. By the time everyone knows it,

we have to ask what's the next

narrative. So I think the AI trade has

been capitalized by multiple legs of

suddenly a new narrative takes hold and

it slowly bleeds out to everyone. But by

the time everybody's aware of it and

understands the ceases, usually the it's

pretty late in the game. And so every

time you get these big outsiz moves to

new highs, you need a new narrative. And

I think the the agenic AI was obviously

going back to December last year was

clawed code and these oh wow agents is

new and then suddenly people start

figuring out okay what are the

implications and turns out okay there's

all these new bottlenecks because we

need way more compute way more these

things than anyone expected. So the

bottlenecks and all these things start

working really well right as investments

and and then what we saw with the kind

of blowoff top was these things start to

exhaust right the prices are telling you

this narrative is well known it no

longer reacts you've had multiple you

know if you think all the way back to

when Broadcom had earnings right and

then subsequently multiple companies

obviously by SK not all of these and it

stops reacting that's just telling you

it's kind of

>> yeah I I think markets generally going

to top before the fundamentals change

before analyst earnings move.

>> So, I think we're at that stage and

we're just sat around waiting for where

the next leg of of the narrative is. And

until you have that, I think it's more

I'm not saying it's going to crash. I

think AI is real. It's just more it's

going to be dead money for a while. I

think of what Bitcoin's done since 2025,

right? Or what gold's done this year

after the crash. It just stops doing

anything. Um, and I think that's more

the it feels like where we're at.

>> So, what's not dead money right now to

you?

>> Like it depends on like what your

mandate is. I would say if you give me

any trade within global macro equities

everything live right now we really like

buying a Sonia Sonia futures so betting

on the bank of England to be less

hawkish right like UK has really high

rates but there's lots of growth and

inflation downside risks so it's a

pretty big outlier so I think that's

like the cleanest thing live today we

did have on short Swiss EM but as we're

recording this like the BJ's intervening

overnight so I think that so I think

that's slightly done for now and then

within equity space in terms of how

we're positioned if you look at our uh

VPX ETF we're basically running a

barbell of long energy long financials

and we're actually starting to buy back

into the the kind of tech and semi names

has crashed so I think we had a pretty

long pretty big long all the way into

May we d-risked a little bit but that

definitely has hurt performance a bit

but it's been offset by the energy and

financials piece so we still kind of

have this barbell of you have like value

exposure with a little bit of the

secular growth, but you you're just kind

of tweaking that um just so your

portfolio overall has kind of a better

kind of risk return profile.

>> Why financials? Why energy? And why did

you say a few minutes ago that the the

macro is fundamentally risk for

equities? Why is that the case?

>> Yeah. So the way our macro risk models

work is that it's basically a bunch of

uh decision trees right that tries to

understand macrocausality. So it's like

lots of decision trees that goes through

things like how is our US growth lead

indicator right and how is our ch China

growth lead indicator and how's policy.

So it's asking a bunch of these

questions and right now what it's saying

is yes inflation is high Iran has been a

problem. So as a result uh the inflation

component is no longer very risk on it's

going to constrain policy but there's no

real reason for central banks to hike

aggressively. Growth lead indicator is

broadly okay and liquidity on our models

are still fine right there's a long lead

lag from when liquidity tightens to when

it actually hits. So that that's kind of

more like that again there's lots and

lots of decision trees that come through

the model. It's a gradient boosted model

but basically if you net everything out

it's kind of telling you growth is still

fine. It's not amazing, not terrible,

but fine. Yes, inflation is high, but

not overly so. This isn't like 22. On

the policy front, people are overly

worried about big tightening cycles

everywhere. Obviously, we have um you

know, the Fed this week, right? They

didn't hike. Now, August, there's no

meeting again. Are they going to really

try and force a hike like midepptember

so close to midterms, right? So, again,

I think it's it's probably unlikely. So,

so again, policy is not a huge problem.

And then liquidity, yeah, the fact that

equities are broadening out. you look at

value line arithmetic the average stocks

making higher higher high higher low

that's typically not what you would

expect to see if there's truly a lack of

liquidity and net money going into into

equity market so yeah so high level

that's why I think that the macro is

pretty risk on um in terms of signpost

for what end of cycles look like there's

two key things we've seen out all the

major generational tops if you go back

to Nifty50 and in the 70s do 1929

what the two consistent The top down

things is one is that monetary policy

has generally been tightening for 6 to9

months right so we don't quite have that

obviously if if the W Fed does stop

hiking then clearly that starts the the

clock ticking but generally you have

monetary policy tightening for six to

nine months while

while it's they're tightening you see

equity breath narrow and the definition

is why I mentioned value line arithmetic

or these median stock the median stocks

going up, right? It stops making high

higher lows, but the concept stocks keep

going up, right? Generally, when you see

those and you see that those for like

six to nine months, that's generally

been like the absolute like peak of the

generational cycle. And what's very

interesting is they were generally lined

up with big events, right? So, AOL, Time

Warner or these kind of major events

people talk about. And obviously, we

have a few candidates this time around,

right? Anthropic will try to IPO in

October, but maybe OpenAI is going to be

like the single most important company

in the world right now. Like you know,

if they try and get the IPO off, maybe

it's end of the year, maybe it's Q127,

that could be the moment, right? That

marks potentially the top that might

line up with when these macro factors

are in place. So, so I think if it's

like our models are telling us things

are fine, when we've studied history or

thought about it, we're like, okay,

these are the signpost. If we start

seeing it, we need to start being

careful. the model might not understand

the nuances but right now we don't have

those signs and the model's still fine.

So broadly it remains risk well breadth

in terms of how many stocks are going up

and doing well breadth has been

extremely good like even though the

semiconductor space and NASDAQ has kind

of melted down over the past month and a

half. The S&P has really held in there

much more than I would have thought had

you told me there'd be such a you know

literally a bare market in the NASDAQ

and we're down at like 20%. Yeah, and

like I say, I think broadly the not not

only are models saying it's risk on, you

have lots of confirming data points,

right? If you look at credit spreads,

especially adjusted for sovereign risk

premiums, credit spreads in like a

normal range. It's not super low, super

high. Uh savings rates remain very low.

So, you know, like from a colle point of

view, like money just flowing around the

economy, one person spending someone

else's income, right? Just going around.

So, yeah, there's been a lot of insider

buying, right? despite all these things

in there's like a flood of insider

buying globally across lots of different

stocks. So yeah, these are not what you

typically see at the imminent top. Um

you know we did our exercise before,

right? We have this market top checklist

that we run through periodically from

all the different factors on like

behavioral, corporate, economic and

really when you run through the market

top checklist it's more like an amber

warning like what is excessive is the

corporate behavior right the circular

financing you know Nvidia is basically

like behind every has to prop up

everything else right because you know

there's a struggle for credit right CDS

is widening for hyperscaler so forth so

you see some of those signs you see some

of the the retail excesses like with

Korea you with with like kind of the

news guru investors obviously

just because it is a live news right for

example Leopold the fact that you know

my Chinese cousin might know who he is

right

>> yeah like like you know these kind of

things so those were were kind of the

the red alerts but you were missing the

economy right the economy wasn't slowing

down

>> right you were missing the market

internals right like those were the

things that you typically see so at the

top you need to see all these things

lined up and we really in aggregum will

have like amber warnings um that they're

kind of full reds at the moment.

>> Why did the economy hold up? Why with

the price of oil going to 120 bucks, gas

going up so much in the US, in Europe,

it being even worse, why has the economy

held up? Has the economy held up? That's

my first question.

>> Yeah, I think our models has been fine.

Again, it's not too hot, not too cold.

We would say somewhere between one and a

half to two, probably closer to 2% real

growth in the US. Um well, obviously

everyone knows the answer, right? this

AI AI capex that that's been one piece

uh that that's been helpful. But the way

I frame it is this idea of like I

mentioned collect right this idea of one

person saving is somebody else's income

that isn't that that wasn't realized. So

one person spending is very important

because the more you spend the more

that's somebody else's income and they

can spend an economy works because money

flows. So what we've actually observed

is that um for the corporate sector as a

whole there's obviously a lot of capex a

lot of investment so corporates are

dissaving that's providing a net income

to everyone else at the same time the

fiscal side tariff refunds right OBBA

frontloading again fiscal ended up not

being that bad right our best neutral if

not even a slight slightly of a positive

impulse so again that's providing net

income to other people and then at the

same time there's all these concerns

about oh yeah K-shaped

uh consumer like oh um you know

delinquencies are bad all these things

but the key is household savings remain

low. Now you can argue it's dystopian

lower income consumers can't save

they're living paycheck to paycheck but

what's happening is they're getting a

lot of they're getting maybe multiple

jobs and what income they get they spend

so the savings rate remains low. So if

everybody's savings rate is low and

going down, that's somebody else's

income. It just keeps flowing. And I

think that's basically been the case um

for the economy. And that's still

basically the case right now. Like the

time to worry is when people start

saving more. So for example, if suddenly

the hyperscalers go right, we're going

to cut capex. That's at the margin more

saving from corporates. That's bad.

That's why I'm

>> well tien tien you know Meta reported

Microsoft reported Meta basic they

raised their capex by the range just a

tiny bit I would say it's a very anemic

raise and then Microsoft literally held

their capex guidance flat and so what do

what do you when companies are raising

capex and capex and then what do they

have to do before they cut capex is they

keep it flat so I'd say that's not even

though the semiconductor stocks are one

of the biggest days today in the rally

and you know technically in my personal

portfolio like I guess is a very very

good day. But I guess the the reaction

is a lot better than I would have

thought based on the capex from

Microsoft and Meta,

>> right? So I agree. But I think we got to

think of it what makes this cycle

slightly different I would say to you

know when people think of railway mania

or like com is they tend to be more

heavily private sector only driven

whereas obviously we have this I think

you know even when I spoke to you

previously right we've been talk we have

this whole 5 to 10 year theme for

investing called essentially the primacy

of sovereignty right sovereignty is the

most important lens in which think about

every investment decision there's a

existential US China like competition

going on in all the kind of key pillars

of sovereignty from energy to

manufacturing to technology, right? So

what makes this cycle trickier is even

if you fully exhaust the private

sector's ability to fund the capex, the

government will find ways to try and

step in, right? And and you see the

heavy involvement, you know, the

Ministry of Defense um or I guess

Department of War, right? Like you can

see lots of government um involvement in

all these sovereignty pillars, right?

and that will keep going and they will

backs up and try and facilitate

financing if the private sector starts

exhaust and in a way it's just mirroring

what China does right you can think of

this as a national balance sheet just

like in China people are very

comfortable with idea okay the Chinese

business and Chinese government the same

thing but you so you can view as a

national balance sheet and they use it

well in the same way the US needs to do

the same the max 7 and the US treasury

that's one balance sheet that needs to

be used to facilitate um this buildout

right to ensure the US's sovereignty it

does not have huge dependence. So I

think that's the part that's trickier

that will keep the keep the the kind of

caps out going longer um than people

expect but for sure right at the margin

the first sign would be these guys

slowing down.

>> Yeah I mean I will say the back stop

that Nvidia is providing it does seem

like the companies are going to use that

and I think I mean cap I think capex is

going to go up by a lot over the next 18

months. I uh

>> and and and I think that's the thing

where it's very easy to have a initial

dismissal of circular financing right

but fundamentally circular financing is

no different in my mind to any other

forms of financing on the way up and

that's the key on the way up so uh uh

you know we talk a lot about this you

know I'm a big fan of Harry Merlin's

work right you know like obvious I think

you've you know he obviously he's he's

not a super um frequent guest on shows

but obviously Pirate shows up but the

core idea is the hierarchy of

Right? So the core idea of the hierarchy

of money is the quality of money matters

only in the downside only when things

are turning down. When things are good,

transactions can be settled by whatever

people willing to to accept, right? It

doesn't matter what par value is, it

doesn't matter anything else. So we're

if we're in the upcycle, people willing

to yeah accept Nvidia's backing or

accept compute or whatever, right?

Whatever things that are not cashlike,

it's fine. the the the problem is when

you start to see the first signs that

people demand cash settlement, right? At

some point, we're going to turn around

and go, "Right, we need cash settlement

for these things." And that's when all

the kind of like transactions that were

built on these pledge things start to

unwind, right? I mean, you see in the in

the credit space, right? Payment in kind

instead of forcing cash settlement.

There's lots of these things. So, I

think as long as the cycle's turning up,

that's all fine. But the moment we start

to see the demand for cash settlement,

it starts becoming bit more of a

concern. And that's and I will say like

that's why these mega IPOs matter,

right? Because SpaceX the first one is

like, "Hey, we need cash settlement.

We can't just take stock or other

things. We want to start seeing cash."

And then as more and more of these come

in that that will start to I think

potentially create downside risks.

>> Ten, have you ever seen a stock trade as

badly as SpaceX from the IPO? It

literally goes down every single day.

And it's funny. I think if you had

asked, you know, 10 financial pundits,

how do you think SpaceX trades? Uh, I

think many of them, you know, my partner

Max said, "Oh, well, there's so much the

unlock is ridiculous. There's going to

be so much selling. It's not going to do

well at all." And normally, like some of

the times the pundits are, you know,

that's it's too easy. It's too easy. But

like, literally, it's SpaceX just goes

down every single day. And it's still

not cheap by any metrics. And I mean

literally, okay, if if data centers in

space are going to be a thing, like buy

silver, you know, like because the data

centers need more way more silver in

space and they can't they they have to

disintegrate when they go back into the

earth, so they can't be recycled, which

is key for silver. So like I think like

if you're going to have some ridiculous

thing about data centers in space, which

is probably is going to happen in like

20 to 50 years, I don't know about five

or 10, then like there's a lot of other

ways to to play it. And it just seems

very very speculative. I don't know. And

and just broadly, how concerned are you

about these mega IPOs that are requiring

tons of capital to be spent and

basically be sucked out of the market?

People have to sell Nvidia to buy

SpaceX. That's just a fact. And when

Anthropic and Open AI go public, if if

they do, which they probably will, you

know, people have to sell more Nvidia.

>> I guess the first thing is I I I get

what you're saying on the you know, like

when all the experts agree, something

else happens, right? That's like the

very famous Bob Farrell uh quotes. And

you know we saw that with oil for

example right every oil expert agreed

and something else happened. So I think

typically those things happen because

>> uh humans and markets are not good at

pricing kind of the reflexivity the

second order path dependence. It's very

good at pricing first order and seeing

it but we we tend to miss the second

order which is when everybody sees it

tends to be a policy reaction right that

shifts things. And so I think that's my

mental model for why when all the

experts agree on something macro, it

often doesn't work because there's a

policy shift um from the policy makers

that suddenly change the dynamics. But

on something like the IPO lockup is it's

very unlikely for there to be a policy

shift. Like it's very unlikely like you

know the Fed or whoever is going to look

at space as going down and decide to

change. So then maybe that's why, right,

if you think back to when Facebook at

the time, right, IPOed after a while was

just like down down down. Um, so yeah.

Yeah. I I'm with you. I've been

surprised though how on time it's been,

right? You expect all the you expect all

the book runners to do a good job and

pump it, which they do.

>> Yeah.

>> And then you Okay. And then the passive

index buyers bid it, which they do. And

then you know the unlocks really start

in July and they do and it just starts

going. So but like I said I think

there's no second order reflexive kind

of shift in behavior that results versus

a lot of those other examples which is

probably why you know it's carrying on.

How low can it go? I don't know but like

maybe 80 is like a okay level. Um just

thinking

>> yeah I mean I what is the floor like

there's no valuation floor. I mean, I'm

a I'm a fundamentals guy in deep in my

heart. There's no fundamentals. There's

no valuation floor. I mean, the uh you

know, the space business loses money.

The Starlink business makes a lot of

money, but then they're spending so much

money on the data center business, which

is his new thing. And look, Elon Musk is

the best hardware person in the world. I

not not going to bet against him there,

but it's just the there's nothing in the

numbers to say, "Oh my god, yeah, it

$70. It can't go below $70. Once it hits

$70, it's it's cheap. Like, no way.

>> Maybe it's a trading vehicle, right?

Yeah.

>> Yeah.

>> But I've I've learned my lesson on like

looking at Tesla. If you look at the the

amount of people that got burned, both

long and short, on Tesla, it's kind of

like

>> true. And yeah, Tesla's fundamentals

have gotten worse. Like literally

revenue declines in some the sectors,

literally cars, and the stock has been

flat to moderately up. So, yeah, it's

it's it's

>> no robots,

>> right? Like that's the thing. So, too

hard.

>> Yeah. So Tan, how do you think about

oil?

>> So we've actually we're running a pretty

big overwway on energy right now, but we

actually have not until about May. So we

did get hurt a little bit on the May leg

and it's been doing okay. I think of it

as like I don't really need oil prices

go up to justify the fundamentals here,

right? Cracks bears are super wide. As

long as you you own like the

integrators, the refiners, they should

be making hay and printing money. And

just please please just don't do dumb

things and destroy it. just like return

it to shareholders, buy back shares,

free cash flow. And obviously, it's a

very natural portfolio balance, right?

like is the one thing that's going to

break is going to be a prolonged

inflation/stackflation

scare that keeps longer end yields high

and longer yields high is not good

because everything else we discuss

ultimately there's a lot of capex of

finance and so I think it's so to the

extent you have equity risk which

basically just AI risk this becomes like

a really obvious um kind of balance

against that right so so that's probably

the more the way

Uh, I think about it right now. Um, in

terms of the Iran war, it's funny like I

think I I I like on the eve of the war I

had the I actually spoke with Max. I

think we recorded something literally

like the day or the day after had to

like have some hot takes and stuff. Um,

but I I would say the I think the China

US trade war is a very good template for

kind of how the politics of it goes,

right? that when the US and China

reached that phase one trade deal back

in like you know 2019 2020 whenever they

announced it that was basically as good

as it got because the fundamental issue

is irresolvable from both sides and Iran

and the US the same the fundamental

thing both sides want is just not

possible right it's irresolvable so I

think theou is kind of that phase one

trade deal that you both agree that you

see where the ledge is and neither side

wants to jump but from there you know

you can't really close the gap so then

you go for a period of both sides

overplaying their cards a little bit

thinking you have leverage but the

reality is like it's not a closable gap.

>> Yes, I I agree. If you look at US,

Israel and Iran, there's nothing in the

world that could satisfy all three

parties. Nothing at all.

>> 40 years you got we're supposed to fix

40 years of you know issues in in how

many weeks and months. It's I would say

it's probably more the second order. I

mean, something that's probably

undertalked about was the the Saudi

Arabia nuclear deal, right, that got

announced. Like those things are really

norming

and like I think just like you this is

where I think the Trump administration's

pragmatism could really have some

long-term actual consequences, right?

Like you're injecting a lot of these

things that are breaking how the region

operates normally. And so, yeah, like

you know, if you're the rain seeing that

deal, like what incentive do you have to

give in?

>> Yes. Yes. And and also I think that the

conditions that the US and Israel

initially demanded of Iran of literally

no enrichment at all that is something

that extremely few countries have ever

agreed to. Like I think maybe the UAE or

Bahrain like like being able to you know

uh enrich uranium to to have nuclear

energy is kind of a a right of something

of a country and it is it is kind of an

extreme demand to make as Iran has made

very extreme demands too of course the

UA feels today seeing the Saudi deal

when as you say they signed something in

2014.

>> Yeah.

>> Like there's a lot of dynamics that I

think is so broken in the region. So I

guess as investors we should just be

prepared that there's just going to be

more sovereign supply chain sovereign

link shocks right to your portfolio. So

like that's going to be the that's

probably like the new riskoff defensive

asset. It's not going to be hiding out

in consumer staples.

>> So where should you hide out? Sorry.

What do you mean?

>> Yeah. So I think you're going to I think

all the geopolitical

shifts just means that there's the

likelihood supply side shocks is so much

greater, right? just like it's going to

be a lot easier to have more supply side

shocks that affects obviously very

optimized supply chains that you just

have random things go up, right? And

these are generally going to be various

forms of resources of some kind, right?

You just you just keep shifting the

world's politics and

that's more likely where the shocks are.

So if if you live in a world where you

expect most of your shocks to be these

supply side shocks, then you know the

traditional definition of cyclical

defensive or what your portfolio buys

look like doesn't work, right? Because

traditionally you're like hey I hide out

in bond nominal bonds and I hide out in

names like staples right all these are

going to get hurt if you have like

stackflation

type of setup right um so I think that's

like a pretty meaningful regime shift in

in how how markets operate

>> yes but don't you feel like that you at

least in the United States there have

been fewer supply shocks that have

actually impacted markets maybe less

than we deserve like given what the US

has done in Iran I would have thought

that the the US economy would have been

impacted a lot more. But it does seem

like we are in you know separated by two

oceans and we have this immense uh

natural gas and and oil reserve in in

Texas. Like I don't know it it seems

like um the global oil markets are

functioning better without the straight

of hormuz than I would have thought and

everyone would have thought.

>> Yeah. I I think when back in March when

we did our scenario analysis on the

economies we thought for the US it's

like WTI would need to get to 120 to to

to be the tipping point for recession

>> and that happened for like a few days

but but not a long time

>> you would need to average essentially

average 120 for the rest of the year to

get you to recession or else the same

obviously that's a big assumption there

whereas for example in Europe it's

somewhere between like 110 to 120 Brent

if you average that it's like at the

tipping point, right? So, like there's

like different sensitivities to your

point because of these natural

advantages and you know and how much

redundancy there is, but yeah, we've

seen clearly a lot of reserves got

released. I think we all been surprised

by China's role. I don't know why China

would be willing to do that, but I think

it's probably pragmatic, right? You can

see China's like was managing their

refined runs, right? They stopped

exports refined products and now they're

just managing that. So, it's probably

not altruistic.

>> Yes. And I I think that China has a huge

stockpile of petroleum reserves and they

were willing to draw that down. So So

but I think that that we shouldn't let

that let that excuse be for complacency.

Like the yeah

>> we were saved by stockpiles going down

around the world particularly in China

but that's that number one that we can't

rely on that forever and number two it

has to be replaced. So like

theoretically the the oil straight up

from news could be solved tomorrow but

over the next two years we're in a

structurally bull market in oil because

China's buying back all the oil.

>> So the impress agree but I think the the

whole point of the supply the whole

point of the reserves that they're like

a oneoff supply buffer, right? Like I

don't think they I don't think it's

going to be such a strong bit to push up

prices. The whole point of like reserves

you just wait until prices are so bad

you step in you just get filled. Um, but

I think the China definitely is real

because I I remember for the last two or

three years people kept asking me, "Do

you think China was gonna try and make a

move on Taiwan?" Because people were

looking at China's oil. They were like,

"The economy is doing so badly. Why are

they buying so much oil?" Right? Like

like literally non-stop. And I guess now

we have

>> they're doing it for the tanks. They

need it for the planes. Yeah. Yeah.

>> Yeah. Yeah. Right. Like remember that?

Like non-stop talk. My man, look how bad

the the organic demand is. Why are they

buying so much? They're stockpiling so

much so much so much.

>> Yeah. It turns out like it's more

probably more it's uh to be resilient in

a in a world of just lots of shocks.

>> What do you think about the Chinese

economy and Chinese stocks particularly?

I think people keep making the same

mistake on China like I don't think

China's coming back in terms of consumer

right China remains a export oriented

they prior again the the overarching

lens is primacy of sovereignty it's an

existential competition between us and

China will be prioritizing

you know manufacturing technology all

the things industrial policy needs that

necessarily crowds out your household

sector because credit resources are

funneled towards the geopolitical

sovereign sovereign priorities Right. So

your household sector is by definition

crowded out. They just have to make sure

things don't get so bad for the

household that I think that's really

bad. They'll buffer it and put back

stock. The pol, you know, we had a poly

bro in July, nothing happened, right?

Like I just think, you know, you look I

look at these luxury good company like

like earnings results and it's like, oh,

you know, yeah, but maybe China's

coming. I'm like, I don't think it's

coming back.

>> Yeah. The the growth factor for LVMH and

all these luxury European brands was

China was growing at like 30%

year-over-year. Now it's flat to down,

contracting very bad. But within China,

the domestic consumption has always been

weak. So that's not new.

>> Yeah.

>> And it's because China's been executed

in the sovereign thing for like 10, 15

years, right? They prioritize industry

and tech that necessarily crowds out

your household sector. And so the

household sector generally is under more

pressures. So they can't consume as

much. And now house prices are down so

much like Yeah. I mean, it's basically

like we all know real estate value is

how people is people's wealth. If real

estate value is down so much, how are

you going to get people to feel 30%

richer overnight? You're going to have

to, let's say they revalue the R&B.

Suddenly we wake up tomorrow, dollar R&B

is at five at four, like crazy

appreciation overnight. Then sure, then

maybe the Chinese suddenly feel a lot

richer in dollar terms. They're going to

stop buying stuff globally and then we

can have a bit of a a a rebound. But

again, that that that's very very

unlikely, right? China doesn't do things

like that under the current regime,

right? There's no big shock policy. Um,

so yeah. Yeah, obviously could you have

like sectors that do well? Of course, if

the government's behind them like yeah,

you can get cycles. Like I say, we had

those LP exhaustions in June. So there's

always tactical trading opportunities. I

think Chinese tech, Chinese AI, Chinese

biotech, like certain things, China has

a lot of potential. Um but yeah, I think

if you want the narrative to shift on

China, you know, we've had this story,

oh, they're going to do fiscal, they're

going to do these, but fundamentally,

you can see China's focused on supply

side, it's focused on geopolitical

priorities, and it's going to be very

hard to see how we shift from that,

which means, you know, they're going to

have to just export, right? And you

export because you want to people to

stay employed, to have jobs, right? that

that that's just like the most

fundamental thing on and I don't think

that's going to change for the

foreseeable future. Like I say, if we

wait for one day to do a big reval, I'll

be buying Chinese equity consumer stuff

hand over fist. But um it's very hard to

see at the moment.

>> What about the key drivers for corporate

profitability? Mainly the big stocks,

Alibaba, 10 cent, you know, Muan, Pindu.

Basically, all these online retailers,

the Amazons of China, have been killing

each other because they've been

competing on price so much. And the

government keeps on saying

anti-involution, anti-involution.

We're going to encourage our companies

to actually stop, you know, fighting

each other like Japanese fighting fish

or Chinese fighting fish, but it never

really does seem to happen. Do you see

any policy changes there of like, oh,

actually, we need to get Alibaba's

profits up. We need to get 10 cents

profits up because we need to stop

having a financial crisis. or do or no?

Do you think you think this all talk?

>> I think they they're clearly doing I

think it's clearly something you should

do at the margin, but the fundamental

issue is do you have enough domestic

demand for all these things, right? And

fundamentally the issue is there's not

enough demand yet because you're worried

about employment. You don't want these

companies to truly shrink, right? the

way you will truly shrink. Yeah, if all

the companies start firing tons of

people and cutting costs, then yeah, you

you couldn't get a restoration. But the

government doesn't want that, right? And

that applies to every part of the

Chinese economy, I think. And I think

that's the real tension. So if your

priority is jobs,

it's very hard to solve the involution,

I think, because you need to cut actual

supply, right, to to to down to where

the demand is because you don't want to

do that. you have excess of supply

versus domestic demand has you export

and everything is by export.

>> So yeah, I think they can try things at

the margin but it's a bit like the Japan

all these things right there's like a

global macro balance and like you have

to solve the breaking point issue and I

think on China the critical breaking

point issue is the importance of

employment

which is a supply side issue in China.

>> What do you think of Chinese AI? So

that's the publicly traded AI model

companies which we actually don't have.

You know ours are publicly traded

really. That's the Chinese semiconductor

chain. That's the uh cloud providers

like Alibaba which you know also owns

Moonshot and owns whatever. Are these

are these investable? What do what do

you think?

>> I think it depends on who you are. If

you're like a western minority

shareholder like you know you have to

decide what your risks are. Uh right.

But yeah, but yeah, you look um you look

like the CXMT, right? The the memory

IPO.

>> Yeah, you're a local government. You're

like a you know, you know, SOE,

statebacked private equity fund, venture

fund. You you're making out great,

right? So I think it depends a little

bit on who you are and if you have

access I think um in terms of how

investable I would say in general for

western investor investors it's probably

not super obvious um that you you're

first in line to to get access um

clearly I think the impact is more

broader that is moving us away from the

kind of you know frontier labs right

closed model right that's clearly

helping to accelerate kind of price

compression

you know, essentially China's doing the

work to accelerate Japanese paradox to

ultimately get more people to use it.

But in terms of how that profit pool is

split

like you know chi China when China

enters the industry generally it

destroys the profit pool right that's

happened like and everything and I think

that's the that's a little bit of the

problem here. Um to

>> yeah totally I mean just like if you

look at Alibaba's AI cloud revenue it

actually is growing at triple digits but

it is so low compared to Google Amazon

or you know Microsoft what they're

charging open anthropic so it's just

like in China just things are just so

cheap and absolutely

>> price China is where profit's going to

die

>> yeah but it's but again you got to think

of is there's a sovereign balance sheet

right it's a national balance sheet and

then they want to make sure they win

Marisha and the rest of the So I think

what China is exceptional at is

obviously taking new things, adapting

them, right? Commercializing them and

then trying to win share. And I think

they're doing the same playbook here. So

they're going to China just way better

commercializing, gaining share and and

meeting customer needs at low cost,

right? They've done that in

manufacturing all these things. I think

that's what they're doing uh with

obviously the focus on open way, right?

make sure that people are locked in or

not locked in but essentially that

people are not locked into the US right

in a way if you view it for the

sovereign lens I think things make much

more sense. China does not want the rest

of the world to be locked into the US

especially closed weight. So as long as

China fully commits to open weight and

makes these breakthroughs the rest of

the world obviously will pick China and

in fact in the endgame is the US have to

catch up and also commit to open weight.

Maybe there's also the hope that

companies in Europe are going to use

anthropic and open AAI and pay more

because they don't trust China. And that

is kind of what happened in software,

you know, right? People use Microsoft

and I'm sure there's like a a

Singaporean version of Microsoft more

word that's cheaper, but people still

use Microsoft.

>> I think of it a few different ways. So,

I think we have to obviously guess what

the end state of of the market looks

like. I think essentially you're going

to have three tiers, right? Like the way

I would describe is you have a 150 IQ

mass market tier, right? That's like

open weight, cheapest, lowest, marginal

cost, everybody can have access, right?

Good for consumer. You probably have 150

to 200 IQ range. That's for like small

businesses like ours, right? Or for

business adoption, speed up lots of

processes, right? And and it's very good

at that. And then like the 200 IQ plus

is for governments, big business where

rest of us no chance of touching it,

right? And that's like the new growth

part. The enterprise part is what eats

the profit pool of horizontal SAS

whatever consulting or the middle layer

that eats the profit pool. The consumer

tier very hard to make money because

it'll be open and then the top is where

the money is made. But that's a much

smaller I think addressable market. So

that's in my mind how the end state

looks. So if that's the end state and

you work backwards like why do companies

like Microsoft D succeed? I think I

think it's more to your point the trust

is it's because they have the

complimentary assets because you trust

them with your data and and you know

their cloud right so yes there's going

to certainly be that for companies that

don't have great in-house tech talent

then clearly if I'm on the Google

Microsoft ecosystem I'll stick with them

if the price difference is not too big

but even then you can see that

everyone's building harnesses right so

you can be on Microsoft Microsoft can

plug you into whatever open source open

way model you want right so that that's

another shift that you you're not going

to be tied in, right? Like that's the

big shift as well. And also the the

another big trend is clearly on premise,

right? Where people are taking open way

deploying their own on premise, keeping

that data on premise, right? I would say

the biggest development over the last

couple of months is just the sheer push

back against US frontier labs from US

businesses, right? like you know I I

heard a story like the the hugging face

founder or someone was like protesting

open AI this weekend like right like I

think that that's a reflection of the

shift that I think people don't want to

just give all their data over to

Frontier Labs have to pay off for

everything that there's a clearly a

desire to optimize spend um so in terms

of what you said I do agree like if you

look at the hyperscalers they will

ultimately be okay right your apples

Microsoft Google's you have the

complimentary asset that you have the

customer trust. You can plug in and out

whatever model people want to use. Um,

but I that that doesn't mean the Chinese

models won't have a compressing effect

on on pricing that that profit point.

>> And Tien, how is that not a case that

this ultimately will be a bubble? You

know, like look, I've been bullish on

semiconductors. still am. But I'm just

just saying like ultimately that this

will end in a in a bubble that will

burst because literally I mean I heard

Sam Alman on on a podcast and he was

he's still talking about intelligence as

a commodity and how it's going to be

like a utility and I'm like dude you

cannot be talking about something that

costs trillions of dollars basically to

make as a commodity like you know uh

coned and all these um you know

utilities that they're granted a

monopoly by the government and they

spend a lot of money on capex but

nowhere near what you're spending. Like

I think that I don't know you the word

commodity maybe on the west coast people

don't think of that very negatively but

on the east coast all all these

investors in public markets like I don't

know he should he should stop saying

that word and but but but like if if it

really is a commodity then the ultimate

pricing power is not strong at all like

what is the moat and and and then you

know it's it's going to be it's going to

be a bubble that is not not defensible

basically I'm not saying that that's

going to tomorrow. In fact, I don't

think it will happen tomorrow. But like

how is that not where we end up?

>> Well, I I think that's where the tearing

matters, right? I think your 200 plus IQ

is not a commodity, right? The 150 200

is also not that obviously commodity.

Like that will need like deployments or

human AI loops to get it to work. But

yeah, like I think for the 150 IQ AI

that we all use day-to-day for

everything in our daily workflow, I

think that's the part that goes away. So

yeah that obviously affects the the

consumer application side right I think

that part's probably the most vulnerable

um but I mean again I think with all

these things is like the Charlie M

invert the problem right so I've been

you know we've been internally debating

this and challenging on like you invert

a problem what's like the opposite case

and I think the most compelling was my

my colleague Ben actually mentioned um

this idea of yeah if we suddenly need to

move on to modeling um like you know

doing world simulations right like

modeling real world of physics, right?

These are all things that matter for

robotics and real world interaction.

That's a heck of a lot more data you've

got to collect and process and use.

Suddenly you need a lot more training, a

lot more inference. That's potentially

one thing that can keep this going for a

while. Um, you know, if we get genuine

breakthrough on like reinforcement

learning, right? Like I think there's a

lot of debate because fundamentally the

one of the bottlenecks we've run out of

data. So, we're supposed to generate the

models need to generate their own data

to to start the self-improvement cycle,

right? Um, so far there's pretty limited

evidence of that, but that's possible

like you know if you suddenly because

that would obviously unblock the kind of

hardware software data loop to to start

again. So there are things that I think

again you'll need some kind of claw code

like in December 2021 moment when we

suddenly we'll wake up going oh wow this

was actually a breakthrough and then the

next act comes in but I think until then

it's probably more just dead money like

I said I don't think it's nec

right it's just yeah we don't have a

narrative that people can hold on to to

drive the the kind of yeah next leg

>> what is your recommended allocation

towards US versus foreign stocks and it

sounds like you're not in love with

China, the Chinese equity market. Like

what foreign markets do you like in

terms of equities?

>> No, we still like LATA, but I I feel

like I say that every time I come on

your show.

>> Yeah, it's true. True. [laughter]

>> But like Brazil has elections coming up

in October, so maybe like, you know,

there'll be some wobbles around that.

Yeah. So we like Latas

basically. I'm skeptical on the Europe.

I think Europe feels very contrarian,

but you know, it's exposed to energy

crisis, right? It's got a lot of

regulatory issues to deal with. like a a

good a good long-term client mine always

used to make this joke about um you know

you want to go to Europe on holiday but

you need to like go all your work done

the US um I think yeah until Europe

overcomes a lot of these regulatory

energy issues is going to be tough right

plus like the Chinese exports just

everywhere in Europe right you don't

have to travel very far to see Chinese

electric vehicles you know I think

potentially Chinese aircon I think is a

theme that might be coming to Europe so

I think that that's puts are pretty

limiting for for um European assets. So

yeah, I I we still generally like the

Americas still ultimately.

>> And what about India, Taiwan, Korea,

other you know,

>> so I think India sold off a lot um that

I know people are started looking.

personally pretty skeptical of India as

an allocation just because one valuation

is not obviously see cheap but

fundamentally again with that

sovereignty lens I think India is caught

between China and the US and it's going

to get hit with the stick by both

whereas latam is going to be the carrot

right so I think India's I don't think

the US wants to allow India's rise

because they they don't want to make the

same mistake they did with China so I

don't think the US is going to be very

supportive any India initiatives you

know India wants to do manufacturing I

don't US going to support any of that at

least the Trump administration has not

been equally obviously for China India

gaining a foothold in manufacturing any

of these things a direct threat right so

yes maybe China India has some

cooperation on doing like a bricks

currency things of the margin but I

think India's actually caught between

China and the US because it could be

enough of a threat if left alone and I

think that's going to be real limitation

sure there's obviously a lot of real

growth on the ground right maybe some of

the banks but I I just think that that's

that's a pretty big um headwind whereas

for Latin America like both China

doesn't want to give up the US needs to

dominate it and they're doing it with

with carrots

>> but Indian growth is so high and

corporate profitability is growing so

much like it's it's like China but it

has capitalism and companies are allowed

to make money.

>> Yeah. Like you know I think it certainly

sold off a lot. I'm just letting you

know that my overarching thing is I

really don't like India's geopolitical

setup right I think it's extremely

vulnerable there and also you know it

has one of the biggest weights for food

in terms of this inflation basket right

we obviously live in a world with El

Nino lot of disruption so that's going

to limit um the RBI's ability to to

loosen policy so I don't I don't think

the policy outlook looks particularly

good right rates and these things will

be held up um sure of course there's a

lot growth. Yeah. Like obviously if you

can get like some some exposure, it's

okay, right? I just think it's something

that I will put in the kind of Yeah, it

feels too hard and if there's truly

going to be money rotating away from

Korea, then I would pick China over

India, right? And then you've seen that

this month, right? Does the lag of money

truly go to India or is it just go to

China? Um, so it's like either AI keeps

going, the money stays and goes back

into Korea, Taiwan, but so far the

evidence of this month when money comes

out, it's going to uh China.

>> What about Japan?

>> Yeah. So I think there's some

interesting play. So like, you know,

companies like Nintendo and these I've

looked at a lot like so I've been

thinking about are there companies that

have been hurt by the memory AI

components but that irreplaceable

um have you irreplaceable assets and

modes, right? So like some of those are

kind of interesting but ideally I would

like the the Japanese government BOJ to

resolve their currency issue. So that

like today is obviously the first big

one, right? Like Japan's macro situation

is just so ridiculously untenable that

it's just a joke, right? Like Tokyo real

estate prices are growing double digits,

right? There just like inflation

everywhere. You know, Shanto wage rounds

like 5% plus three years in a row. Just

like ridiculous amounts of inflation

everywhere in Japan. And yet obviously

BOJ hasn't done anything. And yet Tak's

been going like full fiscal, right? So

no wonder your currency is weak. and yet

you're trying to intervene. So guess

what? That doesn't work. It's impossible

trinity. The only way that works is you

get your buddy, you know, uh Bess at the

Treasury and the Fed to come help you to

give you some credibility, right? And

that would be a plaza court type thing.

So I think there's a nonzero risk of

that happening. So I would like that

shock to happen and then I think Japan

the macro situation more resolve and

then it will be more interesting. So I'm

looking at his headline Japanese

inflation is still low like 1.7%.

But you're saying that on the ground

it's a lot higher.

>> Yeah.

>> Well like if you look they've been like

they have core core core right like you

you strip out food and energy and you

stripped out these institutional factors

and by the way there's like a we're at

the turning point for the base effects

from the yen depreciation. So all the

previous depreciation kicks in now as

well. So from here even mechanically

will go up but it's just more across the

board. The real inflation is what's on

the ground. Wages going up, real estate

price going up a lot, yet people are

struggling with cost of living, right?

And so the way you're supposed to

resolve all this is you need to get a

handle on FX, right? You need to stop

the depreciation. You're supposed to do

that because Japanese pension funds and

real money is supposed to repatriate and

buy back fund, right? And bring money

back home to buy JGBs, right? At some

point, JGB yields rise enough, you're

supposed to want to buy it. But these

guys, it's like a generation that's

seeing Japan depreciate

and turn around, right? You need

something major to shift them out of

their mindset. Otherwise, I don't think

it's that easy to just flip around,

right? Again, why would they turn

around? They be they can just keep

buying agency debt, right? Buy high

yield in the US, right? There's

alternative. So, it's going to take a

lot to flip that. Is US debt, US

Treasury yields, let's say the US

10-year yield, is that attractive to buy

to a Japanese investor now relative to

the Japanese tenure? If you take into

account hedging cost, isn't Japanese,

>> it's not. Yeah, it's not. Yeah, in

theory, well, that's that's the argument

all the macro guys been making for ages,

right? It's like, oh yeah, FX adjusted

JGBs give you like 200 basis points

over, so why wouldn't you repatriate?

But I'm just saying that the reality on

the ground is you can see the numbers,

right? They they report pension fund

buying and selling. Nobody wants to do

that because you can get extra spread

elsewhere. That's why I was saying you

can buy agency, you can buy credit, you

can invest in US credit funds, you

invest in US private credit, right? You

don't have to go to treasuries when you

do this.

>> Yeah. There's a reason that when Howard

Marx is interviewed, he's often in

Japan. He's raising money for

>> Yeah. But it's because the Japanese like

they have a generation of institutional

memory of like the yen only gets weaker

because our policy makers can't get a

hold on this. So like you need I think

you need to shock them out of that.

You've done the first shock, right?

You've broken the deflation mindset.

That's clear. The next piece is you need

to shock them out of the fact, okay,

we're going to have like real monetary

policy. I think if you do that, then it

suddenly I think it works. But again,

this is where the I think the ti fiscal

makes it really complicated, right?

Because interest expense is a big deal.

It's the same thing ultimately that I

think Walsh is tied to in the US. If you

hike and you issue a lot of debt, it's

going to mechanically force up interest

expenses and clearly that's limiting the

BOJ.

>> People say that a lot, Tang. When I

first entered the business in 2019,

people would say no one could ever raise

rates because there's so much debt. But,

you know, here we are six, seven years

later and rates are higher. And yes, the

overnight rate for Japan is only 1%.

But, you know, the 30-year yield is is

very, very high. and you know the the

sun still rises uh you know in in the

east like isn't like it's not impossible

for

uh for rates to go up with the amount of

high debt we have and theoretically you

should say it actually could be

justified because if there's more debt

there's a greater supply of debt.

>> Well, it's about avoiding the the

supposed doom loop, right? So obviously

if you can walk it up whilst you can

have economic fundamentals to justify it

so that ultimately like people still

want to buy your debt that's fine,

right? I think the concern is more do

you want to do it's the concern is more

like if you if you're looking to like

massively boost your fiscal and then you

hike into it and people are very focused

on interest expenses then basically like

you know your central bank has to step

in and buy up right so yes you can

technically hike but it's kind of

self-defeating because if you hike and

then you you then need to do QE

afterwards it kind of like defeats it

and I think that's more the point right

and obviously in the on the US case

specifically obviously they've trying to

reduce the duration of issuance, right?

So, obviously the more you carage the

front, the more sensitive you bet. So,

yeah, I I think ultimately I'm not a

bond I don't believe in the whole bond

vigilante. They're going to lose

control, right? Policy makers have lots

of things they can force onto the bond

market to control it, but you probably

don't want to get to that point of

genuinely explicit yoke of control, all

these things, right? You you don't

really want to get to that point. So, I

think that's more what what we're what

we're dealing with here. Do you say bond

bond vigilantes? The US 30-year yield is

now at the highest level since uh 2007

uh maybe 2006.

What do you think happens to long end

rates the treasury bond market? I think

until Japan resolves that issue

generally there'll be upward bias for ys

everywhere because Japan's kind of like

I think the lead indicator that they

have the most broken fiscal versus

monetary policy setup and flow setup. if

you get some signs that stabilizes that

will allow the rest um to to stabilize.

That's kind of more my mental model. So

I don't see as a massive issue on the US

or commentary on the US. It's more the

Japanese are letting their yields go and

yet they're trying to intervene FX

market. Most likely they have to sell US

assets if they truly intervening. So I

think it's more if Japan basically just

hikes rates a lot it will take the

pressure off and resolve it. Um

otherwise obviously the reason we're

talking today is because the market is

obviously trying to test Walsh right

because he didn't hike and he came

across probably a little bit smug on the

in the press conference right so I think

that might be why the market is pushing

a little bit um but ultimately I think

by time we get to September the data

will probably give him give him some

excuse not to do it right like I say US

housing US labor market US small

businesses the data is all fairly muted

and sideways. Um, so I don't think it's

that obvious he has to be forced to

hike.

>> The only thing that forces him to hike

would be him basically trashing the Fed

before for not hiking and he's always,

you know, said the Fed is too dovish.

The Fed is too dovish and now it's his

job and he's not hiking. It's like how

are you going to fight inflation if you

don't raise interest rates?

>> Obviously I know where the market is

pricing. Obviously a lot of a lot of the

the hish has been taken out right

overnight a little bit on the front end.

Um but the way I thought about it was I

think he's doing something extremely

important for basically the future of of

of markets in general which is you need

to reform the Fed full stop right the

basic concept is money markets have

stopped functioning as a signal because

money markets became just whatever the

Fed said and got priced so restoring the

functioning of money markets right

removing the excess reserve regime right

allowing the market to actually do its

job and provide a signal No, I think

that is so existentially important to

restore credibility to markets is way

more important than 25 bips or here or

there. So I think the nature of who he's

picked for these task forces and

ultimately I I view as him you know

obviously Basson they all work for Joel

dro's own record the complaint right

they've all expressed some concern with

the postJFC fiscal monetary policy mix

right so I think if they truly can work

together and resolve these longerterm

issues restore market functioning that's

way bigger a win than are you going to

do 25 bits here or there but that means

they need time right that's that's

that's where the political capital

should be spent rather than rather than

yeah hiking now hiking again in

September why would you do that to risk

pissing off the president ahead of the

midterm when you know he's not he

doesn't want you to hike rates so I

guess that's more the lens in which I

I've been looking at it which is why

I've generally been skeptical of of of

hikes but yeah we'll see right

>> what do you think of the metals

>> I think it's not clear what the catalyst

for gold to rally is I think gold's

found the floor is just going to be

sideways from here the gold miner

valuations look pretty reasonable but

we're going to need central banks to are

cutting right for gold to really take

off. So until we get there, it's

probably fine. I do think gold plays a

portfolio role as your stackflation in

terms of multiasset portfolio, right?

Like I still prefer having some gold

instead of nominal bonds. So you have

some tips, some gold as your offset

against your equity risk. I think that

makes sense. Um the rest of the metals,

yeah, I think we we I would say, you

know, bullish, right? Want exposure,

especially as I say in this there's

going to be more geopolitical shocks. So

having upside exposure will make a

difference.

>> Yeah, it is interesting. I'm just

looking like I think the gold

near close to the gold's top was when

Kevin Worsh was nominated by Trump. And

I you could say that's gold pricing in a

more hawkish Fed. But if the hawkishness

is basically fake and uh he's not going

to be that that uh that hawkish, maybe

that Yeah, maybe gold stops going down.

As you said,

>> I also think that's probably I just

think gold's moving January and February

is nothing to do with fundamentals at

all. It's just the end of a meme like

trading where every again everybody

every retail every you know like my

cousin like people's cous you know

sister day trading at home right people

got in and got out. I just think it's

similar to like I think the the semi

move in May and June and July, right?

People got in, got got long and got

levered and got destroyed on the way

down, right? The signal is probably like

where it was before like the end of Dece

4,000 seems okay, right? As a level.

>> Tell us about VPX, the your variant

perception cycleware US equity ETF.

Yeah. So, this is a longonongly

systematic strategy that's designed to

be an alternative to your S&P

allocation. So, we we created the

product because, you know, for our super

long-term money, we just want to be long

US equities, right? But looking at S&P,

we're a bit nervous about, you know,

this it's obviously 10 names are like

half the index. is obviously everything

is on AI and we wanted something a bit

more active that can rebalance and using

an ETF vehicle is very good because you

can do a lot of frequent rebalancing in

a tax efficient manner.

>> So we launched it in March. It utilizes

our macro capital cycle quality crowding

models and you know touch word but so

far I think performance has been very

very good in terms of upside capture to

downside capture. So this is more for

long-term if you have some S&P you're

nervous you can sell a bit of that that

replace it with this that that's the

short version but essentially it's just

large cap US equity allocation rotating

between sectors and picking stocks

>> and what's the process for picking those

stocks and sectors

>> so everything is systematic so this is

the combines every model we've built in

the history of VP that we've uh used out

of sample that you know has survived to

now so it starts off using basically our

capital cycle models to drive sector

tilts And then once you have the sector

tilts um you will then look at quality

and crowding uh to essentially pick the

stocks and then after that there's a

macro and LPPPL overlay to manage risks

around it. Um everything is combining to

essentially a forecast return. So the

difference between this and every other

quant strategy I'm aware of is we we

take all our factors but try and turn it

into a forecast return so that when we

rebalance we're trying to maximize

forecast return in the portfolio for the

given amount of risk we expect and I

think it's subtly different from just

ranking based on valuation like a value

factor or quality factor. Um, so yeah,

so I think obviously there's not been

that much track record since March, but

it's so far I think it's shown that

we've survived the kind of factor

meltdown that's really hurt Quan funds

this year very well, right? Um,

>> yeah, you've definitely drastically

outperformed the S&P since launch. So

congratulations to what what do you

attribute that in terms of more energy

exposure, less software exposure? What

would you say are the biggest drivers of

that outperformance just in terms of

kind of factor attribution?

>> So I think it's been more factor timing.

So we've had pretty big because the

market's been so volatile. There's been

very significant factor and sector

exposure. So we were like megalone

everything in tech in April and May. But

then at the end of May actually sold

down a lot of the tech right and put

into energy right. So that was basically

I would say sector wise the biggest

shift. But if you look at the factor

attribution we started off with a very

big growth even sector neutral pretty

big growth bias but then flipped to a

pretty big value bias from May as well.

So there's definitely an element of like

timing with the factors but I think the

reason you have factor timing is those

things are not stable anymore right and

like we're in environment there's

constantly going to be more shocks like

I think all you can do with your

portfolio is when there's v try and

rebalance to optimize for expected

returns so the attribution is almost

slightly misleading in a way because I

don't think factors are stable there's

basically there's a factor or not right

that's basically like almost the only

factor in the market

>> yes like the value people who are perma

bulls on value which I'm not hating on

at all but like they that the values

outperformed and the reason is is

because like Micron was 18%. You know so

>> yeah and the index rebalances and now

the you know the IWD or whatever is like

what Apple Microsoft right in index now.

Yeah.

>> Yeah. Wait what's IWD?

>> Oh the Russell 1000 value ETF. Yeah.

>> Oh okay. Okay. Gotcha.

>> I think it's it's like IWD IWF like

whichever way around like one's growth

one's value.

>> Yeah. So that's being a pretty So that's

pretty important to be aware of like

that was a very big Russell

reclassification

end of June I think. Yeah. So it's not

the traditional value you think it's got

a lot of mega cap tech in into value

now. So I think we prefer our value more

in the energy financials piece rather

than just outright in the tech space.

>> TM we will leave it there. People can

find you on X at variantperception.

Tell us about your website and where can

people find out more about the ETF and

stuff. Like I say, varant

perception.com. I, you know, we think of

ourselves as combining macro quant with

bottomup equities. Obviously, you know,

I've been I've been, you know, lucky

enough doing your show multiple times,

so hopefully the audience kind of knows,

but yeah, I think the ETF's our attempt

to try and show it's not just research

or writing, right? We're trying to prove

over time that we can generate um our

performance as well.

Thank you. Just close the door.