Hormuz & The Terms of Trade Shock

The macro trading floor.

With me, Alfonso Piccatello, founder of the Macrocombas, and former head of investments

at the large European bank.

And I am Brent Donnelly, president of Spectre Markets.

I've been a portfolio manager, day trader, and market maker at the biggest commercial

and investment banks in the United States.

I'm also the author of Alpha Trader and the Art of Currency Trading.

If you want to know what's going on in markets and where they're going, you found the

right podcast.

Hi everybody.

Welcome back to the macro trading floor.

My good friend Brent Donnelly and me myself, Alfonso Piccatello, completely jet lagged

from Japan.

So please discount anything I say today because I'm not sure that I know what I'm saying.

But we're back.

We're stoked.

And the market is nuts.

By the rule that every time I go on holiday, no, no, that's not true because everyone

says that.

There is a terms of trade shock basically going on.

And it's happening in effects, I would say, pretty much.

So we have one guy that knows a tiny bit about effects.

His name is Donnelly.

So I'll ask him, what does he think?

Yeah, it's really interesting because we obviously started from a point of quite a lot

of dollar bearishness for a bunch of reasons.

Although the dollar bearish thesis was already getting a little bit stale before all of

this happened.

And then obviously, it's interesting because there would have been probably X anti some

people that would have said the dollar is not a safe haven.

If the US goes to another war in the Middle East.

But what ends up generally happening is the dollars of safe haven if people are short

dollars, honestly, that's like the simple explanation.

And then like you said, there's a terms of trade shock potentially for Europe and for

emerging markets.

So it all coincided with the dangerous dollar cover of the economist was the exact low

in the dollar as usual, which is interesting.

There's kind of two ways to look at this whole thing.

And I find it really interesting because there's this Pavlovian response from a large section

of the market that's basically like geopolitics is a fade, wars are a fade, stocks are always

higher 12 months later.

So just ignore it and buy the dip.

And it's such a reflex now.

And I think obviously part of it is just muscle memory because it's worked so many times.

But also it ignores, it completely ignores two things.

One is the initial conditions of the market going in.

And then it also ignores the scale of the conflict and the potential economic damage.

So if you're fading every geopolitical event, you're just ignoring kind of everything

and it becomes this sort of dumb reflex.

And there's an interesting thing that Kevin Muir wrote was that part of the reason that

buying geopolitical events in the past was attractive was that people believe the opposite.

So people sold and hedged and stuff on geopolitics and that created an opportunity to buy the dip.

Now there's a lot more people that are just like instantly buying the dip, especially retail

because of the scale of the tax refunds.

There's so much tax refund money floating around.

And so now instead of the market declining investors just think that the risk reward is

instantly bullish and buy.

And I, you know, I've been writing about it.

I'm very skeptical of that.

It doesn't mean that you got to be like max short either.

But I think is more, you have to have a nuance view that evolves with new information.

And right now to me, the information is not great.

And then just to wrap up, because I said about initial conditions, you know, we weren't

exactly in a bull market, a proper bull market when this war started.

There was a lot of issues with private credit and the AI capex overspending and concerns

about software companies going bankrupt and things like that.

So like Nasdaq, if you look at NVIDIA, it's been in a range for like a year, Nasdaq, most

of the big Nasdaq stocks topped out at the end of October when Matt Azernings came out.

So to me, I think people are, not everyone, but a lot of people are taking away too simplistic

of a view.

And the real way to look at this is to look at the facts on the ground as they evolve, you

know, with oil price being obviously the key variable and anything above 90 to 100 being

the sort of psychological tipping point.

Now, I'm going to try to say something that makes sense.

So the first thing that I want to know out of this brand is how many people have capitulated.

It's pretty obvious by the sharp ratio of various asset classes going into this, the

six months prior to February.

You also wrote about it in Spectra.

You would have pretty aggressively sharp ratios like, you know, this British stock market

was a four sharp and some emerging markets were higher sharp than that.

Basically, you only went up with no ball in these markets, which means that mechanically

you're going to have people size up their trades there in terms of gross leverage because

there is no ball.

So in my hedge fund, I use inverse ball sizing and I'm not the only one.

I mean, there's a lot of people that look at some measure of ball when they're trying

to size their position.

If ball is very low and you're making money all the way up, it means your position is

going to be higher or at least the new marginal buyer is going to size up at the same position.

Okay, so we went there and then we had a sell off.

The first thing that I want to understand is on the terms of trade shock of oil from

$60 to $75.

Let's see, the first round, we had one day of several standard deviation events in

effects mostly.

I mean, we had dollar Chile move up four and a half percent in a day, dollar Chilean

base of four and a half percent is like three to four standard deviation events there.

So it means it was in discriminatory selling and mentioning Chile, which is a very exposed

terms of trade country, but I could have said the same for dollar Colombia was up, dollar

Brazil was up.

I mean, countries that are less exposed to terms of trade shock, we're still up several

standard deviations.

So I have to ask you a question before I tell you what I think brand is because you see

flows in effects through your franchise, how would you say the positioning is today?

Have people been completely washed out, and especially after the washout of that day,

have people come back and bought Chilean base of they bought Brazil in reality, they bought

Hungarian foreign, or I mean, what's going on on the flow side of things?

Yeah.

So, and then going back to what you said about the sharp ratios, so the thing that had

been happening was every time like we had some pretty big sell-ups and stocks and some

scary moments and technology and software and all that kind of stuff, and every time there

was like a little blow up in or at the end of the year in Brazil as well last year, every

time there was a little blow up, everyone just came back in and smashed the dollar.

And then we got to this kind of stupid point where this isn't hindsight because I was

saying at the time, but we got to this stupid point where people started to think that

EM was a safe haven, and I said this year at the time, it reminded me of in the Eurozone

crisis when people were buying Sweden and Norway as a safe haven, and it's mostly a reflexive

thing based on the price action, right?

Like if there's risk aversion and EM doesn't sell off, then people are like, oh shit, I

guess it's a safe haven, but there's no free lunch, like you're getting carry and your

short ball, there's going to be convexity at some point, obviously the hard part is predicting

when that convexity hits, but to answer your question, so the convexity has hit, as you

said.

Now to answer your question, I think that the fast money gets out pretty quick, so you

saw like a pretty big blow up in a lot of this stuff, but real money doesn't get out

that fast.

So I would say given the time like we've been in this thing, really, dollar max just blew

up like two days ago.

So given the amount of time that we've been in this regime, which is like two days, I

think the amount of position squaring is small, very small, like dollar max has been

trending for like three, two years with a sharp of three.

And like you said, with low ball comes bigger positions.

So I don't, I don't think that the, the real pain has really started.

I mean, now we're seeing like as we record this, there's another wave of EM selling like

dollar max is up to 17, 1784.

But again, actually yesterday in the, on the flow side yesterday was the first time

we've seen where it was kind of hard to get prices in some options like so that's using

indicator of like the shit is starting to hit the fan normally in FX options, you know,

if you're looking for one week to one month, it's very easy to get liquidity.

And yesterday was the first day where like mark some market makers were passing, some

market makers were showing wide.

And so like we're not in like some kind of crisis regime yet, but the cracks are starting

to appear in the on the liquidity side.

And then like I said, you know, there's some other stuff going on with the, with the private

stuff being marked from, you know, hundreds, hundreds of cents on the dollar to zero cents

on the dollar and stuff like that.

So I think it's important also not to forget that the initial conditions were a bit wobbly

before we got this potential shock or, or actual shock, I guess, not potential.

Okay.

So basically I get from you when I will tell you what I also hear from my client base

in general, but from you, I get that it's not like people have completely hidden under

their desk, you know, and there is a property leveraging.

You will not be able to add risk back to your portfolio, but it seems like we have cleansed

positions in general, but it's not like, oh my god, everybody's scared.

We had a huge bar shock and, you know, because what happened before is very important, right?

I mean, you had people making a lot of money.

The public information at Goldman Sachs shared, for example, Goldman Sachs prime brokerage

business also covers, for example, Asia long short equity guys.

And these guys, I mean, the best guys have made a lot of money in January and February

on the Asia, like Japan and Korea rally.

So they were up about, I think, 10% at the end of February, Brent, and then they lost

about half of what they made in the first few days of March.

Now, that's a big drawdown, but you're still up on the year and quite markedly.

So, and when you're up on the year, people don't hide under their desks, I think, you

know, they're still there trying to assess and take some risks here and there.

And that's also what I hear a bit from Mike Lyon based.

The general feeling is people want to try to catch a falling knife.

You know, they want to see value somewhere.

They hangar is a fantastic example and people just over ECB hikes, by the way.

So people come to me and they say, alpha, what the hell?

I mean, they were now pricing 22 basis points of an ECB hike this year.

I mean, they're not going to hike, right?

I mean, it's a great value to fake this or they want to buy Hungary because

there are elections and the skew is still there and what if Orban loses and half

has blown up, but everybody doesn't look at the skew and this and that.

So that's the feeling I get, Brent, and the most important thing for people that manage

risk here in my opinion is that you don't have a diversified portfolio anymore.

It's gone.

Forget about it.

There is no diversified portfolio.

You're basically trading one asset.

The PCA of your book is one item and it's called crude oil.

And that's it.

There is nothing almost nothing you can do, which is not going to be directional to whether

this oil goes to 100 or oil reverse backs to 60 and that I think is becoming a little

bit more clear, but it's not fully clear yet to many people out there, Brent, I would say.

Right.

And then I guess now the thing is the opposite of what you described is happening where

now vols is higher.

So say people want to get back into stuff and whatever look back they're using now that

the convexity move has happened, people aren't going to be as big when they get back in.

So if you were short $200 Brazil and then you stopped out and then things look stable

and you're all adjusting your position size, your position is going to be smaller.

So the inflows are going to be smaller now that the convex convex move is in the recent

look back.

So I think just I'm going to pivot for a second because one thing I find really interesting

here with this whole move is how gold and silver are now trading more like risky assets

than safe havens.

And I think basically that the retail crowd has kind of ruined gold and silver for the

short run because if you look at there's a thing called there's a website called swaggy

stocks.com and it essentially collects data on what stocks are being most discussed

on Wall Street bets on Reddit.

And normally it's, you know, regetti computing or shit, unprofitable shit codes or, you

know, Mara or whatever retail favorites or aqlo and all that stuff.

And for the last, I would say three or four weeks.

The number one and number two stocks traded on Wall Street bets have been GLD and SLV.

And you see it in the options market as well.

And so to me, this is kind of classic good news, bad price like a war in the Middle East,

you know, any macro textbook is going to tell you to buy gold on that and gold's lower

than it was going into the war.

So I, I would just say like, imagine what's going to happen when, if and when there's some

visibility on the end of the war, gold's going to be another 500 bucks lower.

I think like there's always the bigger picture view of like we're in a trend and debatement

and central banks and all that.

I mean, that's always going to be true.

So like if you're just long as an investor, sure, but as a trader, I think it's pretty

eye popping to see a war in the Middle East that was somewhat of a surprise.

Obviously, you can tell by the price of oil and yet gold and silver are both lower.

I think that's pretty bearish for those things in the short run.

Yeah, I think the golden silver part is important in the portfolio diversification aspect.

I should maybe spend some time on this topic.

So.

Well, yeah, good call.

Yeah, because you know, Brent, for quite some time, if you were a real money investor,

like a pension fund or an asset manager, and you were long stocks, your way to hedges

were generally speaking, you would buy bonds and you would consider your dollar position

because I mean, if you were long stocks around the world, you probably were also long dollar

because most of your position was in US stocks anyway.

If you're a foreign investor, that means you're implicitly long the dollar as well.

And you know, the other position would be metals.

You would have gold, you would have the dollar, and you would have bonds.

These are the three ways that you can edge a portfolio.

Bonds are obviously not working.

There has been an inflationary response out of this, and I will want to talk about it for

a bit later on.

So, but bonds are not working, so you cannot hide in bonds.

The dollar is working very well, but the problem is that it's working right when everybody

and their mothers were talking about, you know, the dollar is not a hedge anymore, we should

be sure dollars.

A good thing to notice there is that people have been asking me whether I can have a share

class in euros with Frank or somebody asking whether I can have a share class in gold.

So what does it mean?

It means that people really don't want to have dollar exposure in their positions.

They want the underlying exposure to private equity, to a hedge fund, to whatever, but they

don't want the dollar.

The idea that the dollar could be a hedge had been pretty much abandoned by many people,

and that's, funnily enough, the only thing that is working right now.

And gold was the bastion of, oh, but that's my portfolio diversification thing, gold is

working, bonds are not anymore, gold is, if gold doesn't work as a hedge anymore here,

then effectively you are forced to leverage.

There is no other way around.

Effectively, the only thing that was holding up your portfolio goes down.

So I am watching gold, silver, but gold first and foremost, because if I think if it

has a drawdown of another few percentage points, it will force people to de-risk because

their value at risk through the means of portfolio correlation across asset classes will increase

to a point where they can't hold it anymore.

And that could lead to another, I would say, leg of de-escalation in portfolio and in

risk.

Yeah, I think that's a great point because there's sort of this mechanical reaction where

when volatility goes up, correlation goes up, and when people are degrosing, obviously,

correlation goes up even more.

And it reminds me a little bit of 2022 where there's kind of like nowhere to hide, like

there's no safe haven really.

Yes, I guess the dollar is acting as a safe haven, but that's a little bit in hindsight.

Like I don't think a lot of people would have said like, okay, I'm going to be short

euros at 11780 because I think a Middle Eastern war is going to break out.

If that wasn't obvious, I don't think beforehand.

So there's really not much in, if you look at the end is not a safe haven at all, like

the end has been selling off because of bonds.

And then Swiss kind of operates as a safe haven, but now we're getting to the point where

the Swiss National Bank is going to start pushing back.

So there's really no safe haven there.

And that's one of the most shocking things if you look at one of those grids of all asset

returns from 2018 and 2022.

And funny enough, those are both midterm years and people like, oh, midterms are great

because they're going to pump the economy, but it doesn't seem to work out weirdly.

It doesn't seem to work out that way.

But in 2018 and 2022, if you looked at one of those grids where mostly in most years,

most asset classes are green.

And you have like a just this vertical strip of red in 2018 and 2022.

And that's what we're seeing since the attack on Iran is essentially everything's just

red.

I mean, on the bond side, I want to want to talk about this for a second.

People are comparing this to 2022.

I think there are a few differences.

Brian, the first one is that I will post it in the piece that goes out to clients in

a few minutes.

If you look at European gas prices or if you look at power load, one month forward prices,

like German electricity prices, UK electricity prices, and you benchmark them against 2022.

Man, we're like 50% below these levels.

It's not even close.

It's not even close.

This is a straight over moods, terms of trade problems so far.

It's pretty big.

Don't get me wrong, but it's a straight over moods problem so far, so far.

It can get broader, but it doesn't been prices as broader yet.

So one angle is that the other angle, which is vastly different in my opinion, is that

when in Europe, we had the October, you remember the winter problem, where there was this

idea that Europe couldn't turn the lights on.

You remember December 2022?

I still remember the headline hitting on my screen brand only from Spectra says it's

time to buy the sterling because there is, I mean, the news is as bad as it can be.

What do you want?

Maybe the rest was on the front cover of the economist again.

It was like Europe's frozen winter or whatever.

That was with EuroDollar at 0.96.

I love it.

I love it.

And so now the thing is very different because Germany is throwing a huge fiscal stimulus

on their economy, very, very large, 1.75% of GDP of primary fiscal impulse.

It's very large.

And Sweden is doing the same and Australia is doing the same and the US is doing the

same.

And guys, but if you remember in 2022, the story was very different.

People were trying to take back their fiscal stimulus because inflation was out of control

in early 2022, right?

So the consumer was under pressure from negative real wage growth.

And nowadays, it's the opposite.

Inflation has been coming down, wage growth has been pretty decent, so real wages have been

going up.

There is fiscal stimulus on top of that.

And so if you have a supply shock that brings inflation up, it's totally credible that

central banks will say, well, you know what, I need to have a hawkish posture here.

It's not a ridiculous thing to say, this might hike.

That is quite different, I think, brand than what it was in 2022 when the curve heavily

inverted on this fear, and people were pricing the growth shock together with inflation

shock.

So there was a stagflation trade.

I think seeing front and yields higher, it's not ludicrous.

I think it's completely fine.

And in some economies, you have even to take a decision, like a central bank.

If you're the bank of Japan now, for example, what do you do?

You have the yen at 158.

The market is trying to test the idea.

You will defend it around 160.

Then is a massive straight up or moods terms of trade shock problem, very, very large,

actually directly impacted, like most Asia.

So what do you do?

You either hike rates and you avoid inflation expectations, get out of control, or if

you don't hike, then the market's going to go heavily after your currency.

So I don't think that it's ludicrous to think that central banks can hike.

I think the bond market is doing what's rational here.

Yeah, it's awkward because there is like some research from the Fed, for example, that

shows that terms of trade shock can be kind of not as inflationary because of the consumer

impact and confidence shock and all that.

But you're right.

I mean, Michelle Bullock from the RBA, I think two days ago, specifically said that March,

the March RBA meeting is live because of the oil, the rise in oil.

And you know, March was priced for nothing and now it's priced to 25% or something.

So like, it's funny though, because I would have thought, because of 2008 and the disaster

CCB hike that people would be kind of hesitant to say, like, yes, it's inflationary.

I mean, undoubtedly, it's inflationary.

But at the same time, it's also like a confidence shock.

So does that partially offset it?

But anyways, I guess the cautious or like the path of least regret when oil's up 40%

is for central banks to be hawkish, not Davish, absolutely.

Especially when, so one thing I wanted to get to, which I've been writing about, which

I think is really important is the concept of visibility.

So the US and Israel have gone in and like, you can say, like, oh, maybe there's a strategy

and they're not telling anyone that I think requires a lot of faith given the $8 trillion

spent on Middle East wars over the last 35 years or whatever.

If, if there's a strategy, we don't really know what it is.

And anyways, not to get too political, but whatever the strategy is, at some point, you

might have some visibility that this thing's going to end and, you know, there's a massive

trade there, obviously, to sell dollars and buy equities and sell oil and all that stuff.

And so I think the concept of visibility is like the most important thing because on any

given day, they can just say, okay, we did what we wanted to do.

We're done.

Like, literally, they can just say that at any point.

And that's going to be such a massive trade.

So I think you always have to be kind of one thing I actually was writing and I just finished

my new book and one thing that I highlight in there just at some random point in the

book is having a good idea of what the headlines could be that are going to come out that could

help or hurt you.

And I think any headline that offers some visibility towards the end of this war is obviously

a massive game changer.

And so like, I'm super on high alert for that because like as much as this is a big macro

story, terms of trade shock and all that, it all just goes on the whims of two people

basically.

So they literally can at any point just say, okay, we blew up the stuff we wanted to blow

up.

We're not sending in troops and we're done.

And so I think that makes it really, really hard to say like, okay, this is my core macro

view because it's subject to the whims of the leaders that are doing what they're doing.

And I want to invite people to think about the fact that if you're trying to fade the

ECB hike, it's basically the same as selling oil contracts.

I'm sorry, guys, there is, it's very annoying.

If you're a macro investor, you're always trying to build diversified teams in your portfolio.

There is no diversified thing, guys, you're planting on oil prices, whatever you're trading,

very, very hard to find something that is uncorrelated to oil these days.

And the thing is, of course, like as we saw with like, say, RBA in 2011 and many other

times, it doesn't actually matter whether they are going to hike or not because the pricing

can just keep on going and going and going until it blows up like Silvergate in 2023

or whatever, you know, the front end is anchored about 95% of the time by policy.

But then every now and then it just becomes unanchored and you have to sort of be ready

for that that, you know, two ECB hikes get priced in even though there's, they're never

going to happen.

They can still get priced in.

So Brent, how are we going to trade this and we're going to try to wait for some visibility

one way or another or is there a point where probabilistically one says, you know, I don't

know when the resolution is going to be there, but at this price, I think the odds are

in my favor.

Anyway, I'm going to trade with a wide stop and I'm going to start buying risk and assuming

the resolution comes in.

I mean, as you say, this is a bit like tariffs, but there are two parties involved this time

rather than one party in tariffs was basically unilaterally.

I mean, just Trump could tweet at any time that it was off.

It was really not about the other countries, right?

It was about him, just one single actor.

This time it's a bit more complex than that.

Maybe you can say there are two or three actors, but it's still similar, I would say.

So is there a probabilistic assessment where you say if oil is at $95 or $100 or whatever

the number is, I'm going to go and start buying risk or is that not the right positive expected

value to to trade this environment?

No, I think that makes sense because the taco concept would come back into play at that

point.

So there's the biggest constraint on US policy has been the markets as soon as the markets

get to a level that makes the administration uncomfortable, they change their policy.

So I think that's exactly right, is that we get to, so for me, I'd rather be leaning

short things like Korea that are sensitive to oil with, you know, sitting at my desk

waiting for the headlines, so I don't get my face ripped off.

And then a climactic move to say like 95, 100 in oil.

To me, then I would probably start fading stuff because yeah, then I think at that point,

the administration sensitivity to the market shock will be high enough that then they'll

probably change the policy and just declare mission accomplished banners get rolled out.

And I mean, I think that's the smart thing about not really revealing what the strategy

is, is that you can just at any point declare victory and say, okay, we did what we wanted

to do.

As soon as you've eliminated the leader, you know, there's a naive view that that leads

to regime change in a country of 90 million people.

That's not how it works, but at any point because they've eliminated the leader, they can

say, okay, well, we blew up the stuff we wanted to blow up.

We got rid of the leader leadership and then they can just, you know, let the country

move on and do whatever it's going to do.

So I do feel like what you're describing makes a lot of sense this, this sort of, I wouldn't

say base case because there's just too many scenarios, but the scenario where oil just

keeps on ripping because of export bands and, and hormones and all that.

And then we get into the 95 100 area and, you know, Trump was supposed to be doing affordability

and no foreign wars.

So at some point, the politics will just become so horrendous or heinous or whatever that

I think at that point, he pivots and, but I don't want to frontrun the pivot until there's

real blood in the streets in terms of like, you know, I mean, Nazek hasn't even moved

honestly.

Nazek's where it was three months ago.

And oil and even gasoline prices are going up, but barely so I, that's, I think that's

a great thesis to have is basically leaning short, risky things, whatever those things are

most correlated to oil like Korea, I said.

And then getting ready to flip either when there's news or when oil gets to like 95 100.

So how do I think about this?

So first of all, anything that has been sold off has positive drift, anything stocks emerging

market effects, they have either positive carry or positive drift in the return distribution.

So you're selling off things that are normally speaking, making money every day, okay,

they have positive drift and negative skill type of asset classes, which is fine.

It will happen when there is a risk premium to be priced.

But once you have taken off most of the positioning for this to continue, you need gradually

worse news every day.

So every day you need to have an, like you need to basically prolong the duration of the

conflict or the perceived duration of the conflict.

If you do that, you're getting closer to the point where it has to shut down production,

Qatar has to shut down product where they've already done it partially.

But you get closer to the point where it becomes a broader terms of trade shock.

So it gets increasingly worse.

And only then, I would say brand, you can have this positive drift asset classes like equities

keep grinding down.

It's fine.

It's exactly what's happening as we speak.

And then on the other hand, you have a big positive skill event in case there is a resolution

because what happens is that not only you take off the uncertainty, but you can buy back

assets that have a positive drift at that point.

I mean, that's fantastic, right?

You can buy, say, the Hungarian foreign that very high carry, plus you have no uncertainty

anymore.

So I don't see the negative skill in risk assets anymore.

The reason why I don't see that is 10 delta S&P put vol is 31.5, so a normal level to buy

S&P 10 delta puts is about 23, 25.

It's a 31, 32 right now.

I mean, people have did out of the money hedges, people have unwounder dollar shorts.

People have definitely been stopped out of Korea.

I mean, this thing was down 20% from the top, so at some point you get stopped out.

I don't see, like Kevin Mir says, I don't know.

I don't see that surprise anymore that can cause proper negative skill.

What I see is something that can cause negative drift that's possible.

So the visibility is zero, the conflict continues, but on the other hand, there is a big positive

skill event that can happen and like very, very large positive skill event.

The moment Trump says, you know, enough Iran is innocuous now, we can just get out.

What happens?

I mean, you probably will have the Nikkei will be up 10% in a day, guys, that's what will

happen literally.

So it's not the easiest event to trade, I would say, which also brings me to one other thing.

As my mentor used to say, there's a time to go long, a time to go short, and a time

to go fishing, which means it just don't have a position.

It's completely fine not to have a position, by the way, I think.

Yeah, you know, probably the highest expected value trade right now is to just sit at your

desk flat and wait for the celebratory tweet from Trump saying we won the war and then

just buy Aussie or whatever.

I mean, because I agree with you, I think like to push back a little bit, I guess the

negative convexity would be the, so fast money's got out of these risky assets, but real

money hasn't.

So to me, the negative convexity would be like oils up 10 bucks in a day on some kind of,

you know, export problem or refinery closures or whatever the thing is or cargo or whatever

getting bombed in Iran and oils up 10 bucks and then, you know, dollarmex goes another

50 big figures or whatever.

I think that still exists because real money's not out, but, but I also, I think it's

really interesting.

It's sort of like this rare occasion where there's a lot of upside convexity for positive

carry assets, which is unusual.

Yes, very unusual.

Look, I don't think we have solved the puzzle.

I don't think anybody's able to solve the puzzle unless they have inside information about

what Iran and the US will do.

So this is a very humbling experience.

If you're a macro investor, somebody used to trade short time horizon and look at second

round effects and how valuable affect each other like brand does, sorry, but you, I don't

think here you have any edge.

So it's as well a good moment to recognize that I don't think anybody has an edge here.

I think there are ways to trade it where at some point, probabilistically, there is

enough bad news priced in at that point, though, how I recognize the situation is that

I will not want to go along there.

I really every, every fiber in my body will tell me not to buy risk and then probably

you can actually start buying something.

And I don't think that moment is here yet.

Yeah, I think that's a great point is that when you have a plan, it's just so much easier.

If I write down on an index card, if 9x crude trades to 97 flip massively long, I'm

much more likely to do it because that's going to be the absolute scariest moment to do

it. And that'll be the perfect moment, probably not investment advice.

Okay, guys, we're back.

Very happy to have done an episode, especially in these rocky markets.

By the way, NFPs are out in an hour.

We are recording before we have no idea what NFPs are.

Also very funny because nobody cares about NFPs now.

AI, what's AI?

Deflationary shock.

Do you remember that?

It was like a week ago.

I know.

It's funny.

We don't even talk about the Fed anymore.

Fed, what's the Fed?

It doesn't matter.

It doesn't matter.

It's all about it on.

So please keep cool.

Have a plan.

Even if the plan is wrong, it's fine, but do have a plan and try to follow it.

And if you want to check your notes with Brandon I, you'll find us on Bloomberg.

Brandon Lee, Alfonso Piccadillo, just being us up, we're happy to chat.

All right, cool.

And actually, I'm in Colorado next week.

So no podcast, sorry.

I'm not saying I'll find the special guest.

Guys, it is what it is.

The price you're paying for this podcast is exactly what it's worth.

So we'll try to record every time we can.

We love you very much.

Thanks for listening.

All right.

I love you too.

I'll see you guys.

Ciao, ciao.

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