What the Fed Decision Means for Global Markets ft. Cem Karsan

27:38But I want to give people an understanding of the size of this and the scale of it. And this quote, I think, really frames that up so brilliantly. Quote, this is from last time, July 9, 2024. Quote, so the index nowadays has more volume and more trading than the actual constituents. I think it's important for people to know that. And when I say it's not just the futures, it's not just the index itself, It's not just the ETFs. It's all of the derivatives and structured products and everything else that's tied to those indexes as well. And when that's the case, it's not just the tail wagging the dog.

28:14It is the dog. The S &P 500 is the dog. That's what everybody's trading. That's what everybody's benchmarked against. That's what everybody's hedging against. That's where the majority of the trading and the positioning is. Jim, this is a big concept because this is sort of the opposite of what you learned in your undergraduate finance class, this notion that what's happening is that individuals and institutions and firms are valuing the future net present value of future cash flows of companies. It's not the way it's happening on an individual basis. It's the aggregate. Talk about this, and then we can talk about the second order Greeks and the volatility compression.

28:52But I want people to understand your thesis in terms of the significance and why, the why, this drives the market in aggregate. Yeah, the investment game and process has become factorized to such a point that at this point, it's not about, you know, there is idiosyncratic risk in the market. Single stocks still matter. I'm not saying that they're irrelevant in any way. But the majority of capital is tied to not just how the index performs, but also to how volatility and factors tied to the index perform. That's where the supply and demand is. And in the short term, that is what's driving, again, 75 % to 80 % of what the market is broadly doing.

29:50not just on a beta basis, but again, there are now massive dispersion trades that are levered. I believe Millennium now has six pods, over a billion dollars. We are looking at a market that essentially is controlling the constituents relative to an index. And volatility itself is notionally a significantly bigger exposure than the market itself, just the volatility markets. And so I think that's important to understand. Everything must be held together by arbitrage constraints. And there are all kinds of pods and shops making sure everything gets held together versus one another and extracts an edge.

30:35But at the end of the day, the primary thrust of both direction and relative value is coming from indexes and derivatives and everything tied to those indexes. So understanding how those different things that are not linear, that are not two-dimensional, by the way, change over time and ball and other factor changes is critical to understanding the flows that come out of the underlying. I'm going to back up and actually make one another. I don't know how much I mentioned this last time. I don't believe I did, but I think this is one of the most important things I can get across. And this really blows people's minds who are from this fundamental world.

31:14People call options derivatives. They call options derivatives because everybody came into investing, and investing started by talking about an asset and having a value for an asset, a singular value. That price, or whether it's a stock or a bond or a commodity, that price for that asset is seen, you know, from our historical reference point as the underlying. And so we call these other things that were created options as an example, as derivatives. What people don't realize is that what an option is, option and people talk about vol like an asset class, like it's a separate thing. Options and vol are not an asset class.

32:01They are the underlying distribution, the pricing of the underlying distribution of every asset. An option is not two-dimensional. We don't just buy or sell direction in the market. It is a node on a three-dimensional distribution. We're going from two dimensions to three. It is a node on a three-dimensional distribution that gives the whole personality. You are all of a sudden looking from a flat picture to a three-dimensional space. at the character of an asset. I could give you two stocks. They are the same exact market cap. They are the same exact industry. I can take the labels off and say, look, they're the same.

32:42And then I would take the asset value away and look at the options chain. One could be incredibly right distributed with a fat left tail. The other one could be incredibly light left distributed with a right tail. They could have dramatically different long-term versus short-term expectation. the surfaces of those assets can look dramatically different. And you would look at them and be like, oh, yeah, these are completely different stocks. You would never know that from the expected value, which is the asset price. These asset prices, whether it's a stock or a bond or a commodity, is simply the expected return of an incredibly rich distribution of options, prices, and the value.

33:22They must, by arbitrage constraint, equal one another. But from my perspective, that expected value is essentially just comes out of the much richer what the asset is, which is all of its nodes and its distribution. And in a sense, that asset value is the derivative. It is just coming out of that other pricing. So when we talk about, oh, this is the tail wagging the dog, it's not the tail wagging the dog. It is the dog in a very fundamental sense. It is the dog. And the reason it hasn't been traded more, and by the way, I've been in the business for 25 years. For 25 years, I have seen secular, dramatic, convex growth in options volumes all on the way.

34:02And every time, everybody's like, oh, this is just a new trend. And we've gone, meanwhile, when I started to just quarterly options in the S &P 500 about every 3 % to 4%. Now we have daily options. We have strikes every five points or 0.05 % in the market. We have options for every single equity that you can think of, right? Not to mention every product. We've gone from 250 multipliers to 100 to 50 to 10 to one. Now there's point one. The point here is much like a new technology, these are network effects. You need to build up volume and interaction in order for market participants to take advantage of what is a superior technology, superior way to bet on specific information that you have with more specific risk.

34:54and options are that. They are a superior way to position in the marketplace. And so their volume is not just because people are, you know, just one leverage in our, you know, which is what the media will tell you. The dramatic growth, by the way, which I believe is just getting started. I think we're going to see 10 times this volume. And at some point the equity volume will be, why would you ever play in equities? When you can have a much more specific direct, way to position the market. It's a matter of education. It's a matter of software that helps people do it. It's a matter of people like myself and others talking about it and educating on it.

35:34And there just being more infrastructure for people to interact. So yeah, yes, it's a two-way street. At the end of the day, fundamentals on a stock and idiosyncratic risk and positioning in two dimensions will change the value of that equity. And that perspective is not irrelevant, but it is not the optimal way for the voting machine and positioning to play up. and we believe that this is just the beginning. Well, let's explain that. Let's do some of that education here because I know that this gets a little bit abstract. It's hard for people to get their heads around. First, I want to quote you from the last time you were on because you came at this, I thought, in a really interesting way.

36:07Quote, the constituents that have to fall in line with what's happening to the dog, that's the parts of the dog and those parts must equal the dog. And at the end of the day, if the dog has to be put to sleep, if there is enough structure, product demand, where the parts of the distribution are being sold, and in such supply that the banks and the market makers, everybody else who is warehousing, that positioning has to cause the dog to continue to sleep. The dogs aren't going anywhere. You can have the parts that move one way or the other, but at the end of the day, the dog can't go. This is so critical to understanding this.

36:41Let's talk about this. Let's talk about the way that dealers work. Let's talk about the way that market makers work. Let's try and explain how gamma works when those prices move. I know this is a lot. But folks, this is really so critical to understanding Jim's thesis for how markets work. Let's break this down. Let's do the options 101 and talk about that gamma hammer that swings and hits the dealers when prices move quickly. Yeah, and I want to be clear. It works in both directions. Everybody likes to focus on the convexity of gamma. But if there's a gamma supply, that convexity that's available will also pin volatility as well.

37:19It works two ways. Let's start at the absolute 101 with how options work, because I think for folks who are just looking at the cash markets, it can get a little bit confusing. Let's talk about the actual makeup, how this works. Yeah, volatility is a V at its most basic level. A straddle, buying a call and buying a put is zero delta. And at that moment, if it's at the money, it has zero delta or directional exposure. But what it does is it has exposure to the movement and volatility of that asset. So if you buy and put in a call for$20 and the thing moves by that expiration by more than$20 for every dollar more, you make more money.

38:02That's 101. So it's not directional. And that increase in the delta and exposure, right? If I go up by, if something is a 5 % probability of being in the money and has a 5 delta or 5 % exposure to the underlying, and then the market, it's a call and the market goes up, that probability increases. It goes 5 to 10 to 20 to 50, maybe to 100 at some point if it goes in the money, right? At the end of the day, that is gamma. That's it. Gamma is the increase in the probability of something being in the money. It is tied to the optionality of an option versus extrinsic value, you can call it the optionality versus intrinsic when something is actually in the money and has a real kind of one-to-one delta exposure eventually.

38:53So those gamma effects are critical. There is, in a sense, people call it leverage, embedded leverage in options in the sense that you're getting more notional exposure for a relatively small amount of exposure. Think of it as insurance. I think that's an easy way for people who are not familiar with these things to think, to think about these things. If I, you know, if you buy a$10 ,000 insurance for your two and a half million dollar home, that$10 ,000, you know, most times, you know, that's like a one delta option or less. It has a very low probability of being in the money. But if something bad happens in the market, your house burns down, that$10 ,000 a year insurance can be worth$2.5 million, right?

39:38That's gamma. That's gamma. That's what that looks like. And you can have it as insurance, the downside, or you can have upside insurance as well for underlying assets. So at its core, that gamma exposure now is what people are buying when they buy hedges or insurance for the market. And those hedges, ultimately, if they're bought, need to be sold by someone. Think of it as an insurance company. The insurance company has to lay off its risk. It's not just going to keep selling insurance and not hedge themselves, right? They have to buy reinsurance or they have to go find a way to hedge that exposure.

40:09That's what these insurers, which are the dealers, do. That is a market maker, that is a bank, that is an entity who sees the value of selling this insurance at X price, and not just to one person, but in a diversified way. And they look at hedging out that insurance and doing all kinds of things so they can lower their risk to quite low for a high return. So that's what a dealer is doing. That's what the market is doing at scale all the time. And at the end of the day, those insurers, as that insurance contracts come out, either need to sell more insurance to continue doing that business, or they need to get rid of their hedges that were protecting them on those contracts now that they've made their money.

40:51And those flows are critical to market structure, especially as these types of products become more actively traded and our superior way to position based on different outcomes along the distribution of the market. So hopefully that's a good one-on-one. Happy to kind of dive in more. But the important thing is those dealers who in that situation are short there, now as they unwind it, will reflexively have the opposite effect on the market. So in the gamma term, if there's short volatility of a tail put and the whole market is shorted, they're trying to hedge it in different ways. If the market all of a sudden goes to that point where these things were and they go in the money, Now those dealers have to manage that risk.

41:31And the whole way down, they have to manage that risk. And that is a convex risk. As the delta goes from 1 to 5 to 20 to 50 to 100, that is 100 % leverage, in a sense, to the market exposure. And they have to hedge out that as it goes. Those can exacerbate and make that volatility worse. It can drive cascades in the market that drive supply and demand factors. The opposite can happen if there's selling of volatility. If a massive amount of volatility has been sold to dealers and market makers, which we've seen in 2017 is the best historic example. We had 30 % lower realized and implied volatility than any other time in 125 years.

42:12I didn't get something that's 25 % lower than 125 years of data. Options and volatility and the dominance of all selling during that period at the index level specifically drove historic volatility compression. We didn't have a single pullback in 2017 of more than 3%. Yet the market was up 15%. So that was... And this is such a critical point. While we're talking about 2017 and then the volatility unwind in 2018, this is the challenges, this reflexivity, this idea that there are feedback loops that occur where you get amplifications of price moves. We talked about this a little bit last time, but let's talk about the unwind because I think it's an interesting example of the XIV inverse VIX product in 2018.

42:55I think a product that everybody believed who was really sophisticated, believed was poorly structured, but nonetheless had a really spectacular unwind. And I think in many ways, demonstrate some of the points that you're making. Talk a little bit about that. Yeah, so in a sense, the markets are a zero sum game, right? If you look at it, like there's always a buyer and a seller. You know, risk doesn't disappear. It doesn't get pulled out of this universe. It just gets transferred from one hand to another. But what's important is when risk gets concentrated and leveraged into certain types, certain places that can no longer maintain that risk relative to other entities.

43:41And that's a really important kind of high-level concept. The majority of the significant supply and demand liquidations, I would argue 2020 was even part of this, despite most people saying that's all about COVID. There's a reason we had a knee bottom there. And it wasn't, you know, there was a massive amount of structured products and risk in the March expiration that we had there and all kinds of knockout effects that made that decline dramatically worse than it would have been under any other circumstance. Think 87 is a similar type of example. Those occurrences are a function of that volatility positioning.

44:22At the end of the day, you cannot have concentrated positioning in a place and have a gamma effect happen and have enough losses by those entities without them having to liquidate, essentially. And that's what happened with XI. It's just too concentrated, too big. And like you said, ultimately a flawed vehicle. And ultimately when the flaw started to seem like it was about to come, then it was a self-fulfilling prophecy. And everybody kind of took it to where it eventually went. And that has big knock-on effects across the market. Dealers act differently than your average kind of person who's speculating.

45:05A dealer needs to consistently, regularly rehedge their risk. They have more leverage on their books. And at the end of the day, though, they're actively managing the position in real time. So they are continuously hedging and continuing directly based on ball changes and market changes. And they're doing it all at the same time. And they all have the same position. So they're kind of chasing each other around on these things. So dealers have direct day-to-day, second-to-second, minute-to-minute trends that, based on if you understand what their positioning is, that dramatically change the distribution of outcomes in that voting machine over short periods of time, meaning hourly, daily, weekly, monthly, maybe even quarterly.

45:47But over the long run, these things rebalance between entities unless there is a significantly growing and leveraged risk in the market. And generally that's because an entity is not flexible, is unable to change their mandate. I think XIV, I think long-term capital management, I think entities like that, that really have a big view that's too big relative to the market is in balance and are consistent in their approach. So I'll leave it there. But that's the real risk in markets. And that happens over a period. When something particularly goes on for a while, there's a, you know, people are backwards looking.

46:29They see the profitability of something. It's been, you know, 2017 was an incredible time to sell the ball. If you kept selling it and selling it and selling and selling, you went home every day and you made, you took home another, you know, car every day. And it looked great. You went to the beach. You didn't have to work very hard. You just sold it and sold it and sold it and sold it. And so guess what? A lot of people sold it. And guess what? Positioning got too big. Guess what? But eventually it got so big that it was reflexive, reflexive, reflexive and reiterated, you know, kept on happening until something happened and it broke.

47:01And when it broke, it broke spectacularly. That's not a surprise. That's just how markets work at their core, whether it's options or anything. People crowd and crowd and crowd and crowd until it gets too crowded. And then it creates a, it doesn't get rid of the risk. It just changes into a fat left tail and makes the whole thing right distributed. It's kind of how life works, right? I mean, we're all implicitly short volatility. We expect that we're going to walk down the street, that tomorrow is going to look a lot like today. We're not going to get hit by a fire engine. This is just the way that life works.

47:31I want to bring this back into today's price action because there's some interesting parallels here that I want to talk about. Right now, NASDAQ 100 looks like it's flirting again with that 20 ,000 level up about 2.5 % on the day. I want to read this quote from last time. Quote, but if you're really betting for the long term the next 10 years, 20 years, yes, getting the big picture right is critical. It's everything. You might go on a really wild journey on your way to that final outcome, and that's what the weighing machine is. This is what Graham calls the weight at the end of the day, the weighing machine wins.

48:04Usually that rebalancing happens, the lack of liquidity. Everything comes back in line when there's no longer liquidity, and that's what I suspect will happen here. Into a decline, things will become more logical. Well, what we've got today is the opposite of that, right? We've got the liquidity flow coming from the Fed. You've got risk asset markets responding, repricing that liquidity coming into the system. This is more kicking the can down the road if we're following your thesis. The opposite of what you would expect when you would see the weighing machine and the voting machine to disagree.

48:35Let's talk a little bit about the short-term directionality in your view of prices based on liquidity. Yeah, and I want to be incredibly clear. I have, despite this incredibly bearish view for equities and bonds for the last 15 years, I have been incredibly bullish this year. And the reason is because the voting machine, not just the voting machine because of the election, the voting machine of markets. And just because you are worried about a long-term outcome or appropriately concerned about it doesn't mean that you need to bet short on the market and be in some short period starting to position.

49:15To tie it back to the options positioning, there's ways to bet on this to benefit from a blow-off top and a potential eventual weighing machine decline. You don't have to bet on short or long. And that is the beauty of options broadly, and it gives you all kinds of flexibility. The likelihood of fast, big upside moves in the next three to four months is much higher than any other probability. Yet it's priced at the lowest probability of any other outcome. And increased volatility, which most people associate with downside, is highly probable to the upside in the next three to four months. That's the V you were just talking about.

49:59Correct. So you can bet on long volatility and win on the upside. And if and when the decline happens, benefit from that as well. And that's exactly what we've expected. So this 100-point move today at this point in the cycle, given where we stand in the broader cycle, is completely in line with that thesis. It makes complete sense. It's when you start thinking about things in two dimensions and in terms of 10-, 15-year fundamentals that you get trouble. And I think that's the problem with 90 % of how most people invest or, I guess, even trade these markets. To exactly that point, S &P 500 up about 95 points today, 5712 right now on my screen.

50:41Let's talk about how much room this may have to run in your view when you talk about the short-term liquidity-driven upside of these markets. How do you think about that? How do you frame that? Where are the boundaries? Where are the parameters? Yeah, let's talk more specifics to this last three months of the year. And I think three and a half months, I think there's an incredibly important, actually, let's say four months till mid-January. And for seasonal effects, and when I say seasonal, I'm not talking about Santa Claus and some magical construct. I'm talking about actual brass tacks, supply and demand realities to what happens in this market at the end from September expiration till January expiration.

51:20If you look normally during the year, you have the last two months of the year starting really in middle of November to middle of January. that's the last month and a half of the year into the first two weeks of January, are the most bullish period of markets. And that's true for a reason. And it's most concentrated in that last month, mid-December to mid-January. People call it Santa Claus and the January effect. Let's kind of start there. Why do they call it magical things? Because they don't understand why it happens. They just see that it happens. But the statistical anomaly is dramatic, right?

51:59And not over 10 years, 20 years, over 100 years. Why is it? Because most years, the market's up. And when the market's up, there is a reinvestment leveraging effect that happens on the beginning of the year. That is the first reason. There's other reasons that we'll kind of begin. We'll talk about. But let's talk about that one first. Most people think, well, if I was long a million dollars, they assume that people, the whole market works like they do. They're along a million dollars and the market goes up 20%. They're along at$1.2 million. And why would they invest more at the high? If anything, they would want to take some off, right?

52:36Or take down some. But that's not how the world works. Finance doesn't work that way. Finance has leverage in it. The whole system, most money is leverage. The whole banking system is 10 to 1 leverage. Every hedge fund, every relative value, the whole market making structure, everything has not small, like 50 % leverage, it has 5, 10x leverage on it. The whole system is leveraged. And so if the market goes up by 20 % in a year, which is where we are now, and the whole market, by the way, the whole equity market in the US is about 60 trillion. I think we talked about these numbers last time, but I'll just reiterate because it's a very important point.

53:14The whole world is about 120 trillion. And assets tied to the equity indexes here in the US constitute about another 130 trillion. So you've got to have about$250 trillion of assets that are tied to this index. Quick math, 20 % increase in those assets means you got$50 trillion more of collateral. People call it the wealth effect. I don't like that term because, again, it makes it into like we're all individuals trying this thing. You got$50 trillion more money in the system. That's collateral. That's hard dollars that you can pit against risk. And managers don't manage things in notional dollars.

53:52They manage it based on risk, on exposure. So if I was 10X levered on 1 trillion, that was 10 trillion, right? And now I just made 20 % on that. Now I need to leverage that money because I have new money in the account. So there is a leveraging reinvestment effect that is dramatic. Again, I think$50 trillion happens throughout the year. Now, it doesn't all happen in first of the year. That would be crazy, right? It happens continuously. But it's concentrated at the end of month, concentrated at the end of quarter, and it's concentrated at the beginning of the year. If 10 % of that$50 trillion gets reinvested in slower-moving reinvestment vehicles, new products, new money on the first of the year, that's$5 trillion.

54:42Let me put that in context,$5 trillion. dollars. The average volume, the net volume that moves markets on a given day like today is 75 to 100 billion. We're up today 2.5 % in the NASDAQ on 100 billion dollars or so in money. Maybe it's more today. But the point here is this is like a low float venture. The whole thing is like a low float venture capital investment. There is so little trading day to day relative to the size of the market that it doesn't take much to move the market on the voting machine on a supply and demand basis. There's a JP Morgan trade that people talk about all the time that happens is about to happen here at the end of the quarter.

55:35It's a$50 billion fund, maybe up to 75 billion. I got to look. But this one, I think, is about 50 billion that happens at the end of the quarter. They have other expirations of it. The one that happens at the end of the quarter has a dramatic effect on volatility and market outcomes. Everybody knows this. People talk about it ad nauseum. But very few people talk about the fact that$50 billion is moving a$250 trillion market. That's the reality. This is a leverage machine. And the momentum in it is dramatic. and it doesn't act continuously. That momentum effect happens at certain intervals. And January 1st is the biggest interval.

56:16And so when the market is up, in particular, that Santa Claus part is a front running of it. And the January effect is the net result of all that buying that comes in. So if you know that's sitting out there, what do people start doing in November? They start preparing for it. People that know, people that get it, start preparing for it. And on top of that, you have, this is most years without the election, we're going to get to the election. In the most years, you also have only 60 % of the volume-weighted time. What is volume-weighted time? We have more holidays in that period, Thanksgiving, Christmas, New Year's, MLK, right?

56:55You have more of the holidays during that period, not to mention dramatically reduced volume around those holidays because they're not like every holiday. Memorial Day is not the same as Christmas. Memorial Day is not the same as Thanksgiving. People take the week off. You have all kinds of volume decreases. And it's not just here, but it's globally. And that dramatic reduction of time, which is what it is, accelerates all of these structured buyback flows in the skew in the markets that we've been talking about all this time. All those Vana charm effects, those get double speed. as we go through this period.

57:27Not just that, the December expiration, we talked about quarterly expirations and their importance, is by far the biggest expiration all year. Why? Because it's on there as leaps years out in advance. People are trading it and trading it. It's the end of the year. And so the amount of buyback is also higher during those periods for that exact same reason. So now you have these flows piling on in the period leading up to that. And then guess what? everybody's tied to the same performance. If they don't, if they underperform in this period, there's a problem. So this creates a reflexive, oh my God, I got to get in there effect, which just then reiterates and reflexively forces these things out.

58:06So there's a reason the seasonality exists. People don't understand the actual realities. They talk about Santa Claus and all kinds of magic things, but these are real, this is the voting machine at play. And this, by the way, doesn't have to do with, did the Fed say something? Were their earnings good? What's happening in geopolitics? No, they're just the way the machine works. And it's structural. And that's why it happens again and again. Now, to be clear, this is a little different because we have an election this year. And electioneers have different effects. The election has a massive event ball.

58:41Rightfully so. There's all kinds of different policy changes and things that can come out of it. People are worried about the outcome. They want to hedge for that outcome. But guess what? That also creates more hedging. This is, people will call it the wall of worry. It's not a wall of worry. It's actually supply and demand. You have a bunch of people buying puts, right, in the market and hedge. And if those puts blow off, then that pushes the market higher. And so that effect, again, that is massive now in the election, which is part of what's driven and why we were able to predict this kind of wobble in the fall and all the volatility that increases we've seen coming out of the fall, is out there driving dramatic risk in the short term.

59:16but you know if a tail doesn't happen this thing has to continue higher it has to it's just fuel to that buyer so that's sitting there right behind uh the next you know six weeks so basically we have a six-week window right uh where this thing would have to drop 15 from here for these flows to kind of uh uh you know interact and the more time passes and the more volatility comes out the more things push higher. And they do not, markets do not wait for these. So I'm not saying it's a free lunch. There's no free lunch. There is a tail out there. If this thing drops 15 to 20%, it could be way worse.

59:53And that's how, you know, something like COVID, you know, get a 30 % decline, right? Because once it starts, those game effects of all that alibony, which is massive and huge for the market leverage, can be dramatic. But the momentum effects and they're coming day by day that sit back in the last quarter of this year are dramatic and meaningful. And the weighing machine doesn't really care about anything but those supply and demand factors. Now, come January 15th, that voting machine dramatically changes in terms of the supply. And if we do push higher from here, given the factors we started this whole conversation with in the weighing machine, time for dramatic concern.

1:00:36Time to be ready to hedge. So, base case, based on that, if you don't see this snapback of 10 % to 15 % where you'd see the reflexivity begin to kick in, those difference in magnitudes of cash flows, I mean, these are huge numbers we're talking about. My back of the envelope was 10 to the 10 versus 10 to the 14. These are huge numbers, hard for people to get their heads around. But if you don't get that snapback of 10 to 15 % by the end of the year, the expectation, in your view, is this continued drift upward higher just based on the mechanics of the flow? I don't like the word drift because it's going to be pretty volatile.

1:01:13This is not like May, June, July, where we didn't have a 3 % pullback and market just kind of drifted. This is a significantly increased squeezing of shorts, a dramatic buying wave in markets that likely will end in a blow off top. I would expect 6 ,000 to 6 ,100 at a minimum in the S &P. And in that type of environment, volatility will likely be increasing into the upside. again, rightfully so, especially given how low that volatility is to the upside right now, and especially given the amount of risks that sit to the downside into next year. All right, Jim, I've got to ask you, how are you getting - Actually, I agree with you.

1:01:56How are you getting exposure to that position of that target to 6 ,000 on the S &P? How are you playing it? What's the positioning? Long-dated calls. So when I say long dated, I'm talking March, June of next year calls in the S &P, which are very cheap. You know, you're talking about a 10, 11 vol in a market that historically has had an average vol of 17. I believe the vol next year, given market dynamics and the risks geopolitically and other things that are also holding at bay till the election and the realizations on that end is honestly mispriced. It's a mispriced as a function of structural flows, not because somebody has a bet on that they want to be short that.

1:02:38That's just the realities of how positioning works in the S &P 500. And that's an opportunity. Jen Carson, these conversations, they're always some of my favorite here on Real Vision. I know these are some very big picture ideas, but certainly admire your ability to come out and take a stand and actually talk about the way you're positioned on your views and the mechanism of how you express them. And as we have a few more minutes left, I know we're running long, but I just don't want to cut this one short because there's just so much to say here. Let's start by giving some of your final thoughts and some of your key takeaways here from this conversation.

1:03:14We've obviously covered a tremendous amount of ground about the underpinnings of this from a philosophical mathematical perspective right into the expression of the trade. Give us some final thoughts, key takeaways, and we'll just talk a little bit about them from there because I know I'm going to have more questions. Yeah, I think if there's one last thing to say, right, this is, you know, you have to think about that's in duration and three dimensions, really thinking about much like options do, right? You need to be thinking about why something is likely to happen over a week, over a month, over a quarter, over a year, over a decade.

1:03:49And many times what's likely to happen over a decade has nothing to do with what's likely to happen over a week. and what's likely to happen a week may have nothing to do with what's likely to happen over a decade. And often that's the case. The two things are not particularly correlated. Again, if you look at, there's a ton of academic research on this. Fundamentals have zero correlation to market outcomes over any period less than 10 years. Yet everybody is told that you buy stocks and you trade stocks based on fundamentals. That's not how markets work. I'm here to tell you, as somebody who was absorbing all that liquidity, it's 13 % of the flow of the S &P 500 options.

1:04:30That is not how markets work. Market, markets work based on who's buying and who's selling. And the majority of those flows on a day-to-day basis have nothing to do with fundamentals. They have to do with supply and demand. So I would keep your eyes where the rubber meets the road in the short term. Invest with bigger picture over the long run, but be thinking and managing day-to-day and month-to-month exposure. based on factors that have nothing to do with that long-term realities. Jim, I can't improve on that. I want to just leave it there. Fantastic conversation always when you come and join us on Real Vision.

1:05:07This is one I always have to do my homework for. Jim Carson, fantastic. Thank you so much for joining us. Thanks for having me, Ash. Always a pleasure. Thanks for watching. And don't be afraid to watch this one two or three times. I know I'm going to have to. Have a great afternoon, everybody.

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