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We can say look given where interest rates are likely going given the inflationary outlook given the valuations this is a bubble and it is a bubble there's no way that anybody could convince me that this is not a bubble you would have to convince me first of all that 2000 was not a bubble um and and then you'd have to convince me that you know that the risks facing us are are less than that moment to begin with um this is a bubble [Music] Welcome to Fala Money. I'm its founder and your host, Adam Tagert. Today's guest is the perfect expert to discuss a year as volatile as 2025 has been so far. Jim Carson is founder, CIO, and managing principal of Kai Volatility Advisors and Kai Wealth. He's widely known as Jim Quissant on X. Heading into 2025, Jim warned us that he predicted it would be a year of heightened volatility. And that certainly proved true in the first half of the year. But what about the road ahead? Are we through the worsts of the bumps, twists, and turns that the market will throw at us this year? Or is the ride about to get rocky again? Well, let's hear straight from the man himself, Jim. Thanks so much for joining us today. Wonderful being here. Thanks for having me back, Adam. Oh, it's a pleasure, Jim. And uh I got to apologize. I made the mistake of asking my followers on X if they had any questions they wanted me to ask you. And boy did they ever. So I only got about 2,39. Uh we'll get through as many of those as we can. Um but real quick, given that it's been the better part of the year since we've talked, well I guess we talked back in April. Um but a lot's happened since then. So just quick at a high level, Jim, um what's your current assessment of the economy and the financial markets right now at this stage of the year? Well, those two things are are often not the same. Exactly. Right. Um and so uh I'll separate them and start first with the economy with the understanding too that uh that again the financial markets might be very very different. Then we'll get there. Um we frontloaded um a bunch of demand in the economy by announcing we were going to do tariffs then putting them on pause for 90 days. So uh there was a bunch of demand earlier this year um uh after uh kind of the markets bottomed on liberation day. Uh employment looked quite strong. Uh no effects of uh inflation that again uh yet at that point um given that the tariffs were paused. Um, and we thought, as the Fed had kind of also alluded to, that coming in July or August that we would need to start being ready to see maybe the effects of the incoming tariffs and and the slowdown and the inflationary pressures at the same time. And sure enough, the last unemployment number here that we had in August was a pretty big surprise. And the PPI number that came right after it, which is leading on the inflation front, was also way hotter than expected. So, um, we've talked about stagflation here and other venues for some time. Uh, that's a function of structural kind of populism and protectionism and all the things that come with that and and tariffs are the tip of the spear on that. Um, so not surprisingly, we're starting to see that. My expectations is this is the beginning on that front. Um, stagflation is uh is a very very tough uh thing for particularly the working man, right? um uh on the bottom of you know uh the the the the uh stratification bubble people are dependent uh on their jobs a but b uh on they spend 100% of their their money on goods right and so inflation is a flat tax and not great for those people so in a populist environment that is going to increasingly make people unhappy um and is frustrating so in terms of economy um not Great. Not great. Stackflation is not great. And sorry to interject here, but just just on this, we just went through a massive cost of living spike, you know, coming through COVID, which people are still smarting from. And it sounds like you're saying, "Hey folks, the beatings are going to continue until morale improves." Like it's it's Well, I can't Yeah. Since 2000, since 2020, I apologize. I have been very clear um that this surge in inflation, which was Yes. Some of that was definitely uh tied to essentially um protectionism that was implement on everybody, right? We all had to kind of close up. Well, putting tariffs on is akin to that, right? Think about it. We're closing borders. And u particularly with uh our largest trading partners. Um and so the more that that's the case um the more you can expect supply side issues and and that's structurally inflationary. It's also tough for growth. Why? Because it's it's inefficient, right? Uh capitalism, the money flows to the lowest point just like water does in the cheapest places. Make it easier to make money and to drive more capital, etc. to um and and produce goods for cheaper, etc. And and the reality is that's great for economic growth. Um the current um place we're in is um is not that way. I would add as well importantly uh during COVID the response to this was also fiscal stimulus which is a response to populism and guess what um here we are again going into a more stagflationary environment again and my expectations is going into a midterm year that this is going to force more fiscal spending right okay so so broadly economically not great right uh pretty pretty poor um in terms of those outcomes now the response response is um and has been um to create more liquidity, right? Uh it's the old supply side economic model. Uh we are going to whether it's through the treasury and shortening duration or uh in taking over the Fed and lowering interest rates, which we can get to more here in a bit. Um a supply side response, which is lowering interest rates, increasing liquidity, driving more money to capital, is not a populist policy. It's the opposite. It's what brought us here to this populist moment, right? And uh the big beautiful bill is also not a populist uh policy. It is again tax cuts for corporations and largely uh you know removing funding for the the bottom 20 30 percentile that all of that will um is good for growth and in a cyclical perspective and can counterweight the stagflationary pressures of the protectionism that is being put in. Um but it can counterweight in terms of growth. Um I would argue though that it is not going to right circumvent in any meaningful amount of time the inflationary pressures that are coming from that protectionism. Um, so yes, can we create a I would say we can shift up a stagflationary environment to instead of negative growth or flat growth to maybe one or two% still not great, right, with these policies, but what that's going to do is take inflation, which is 3% to probably 5%. And so um, so from an economic perspective, you know, they are trying to deploy policy like we've done before in the past. The problem with that is you have a very populist environment increasingly a millennial on down generation that is more um controlling the voting uh and the outcomes and of politics and baby boomers that are passing on. And so that's going to in my opinion create a increasingly frustrated uh group in populace that will only again drive more fiscal spending, more inflation. Last of all, uh if you try and lower interest rates aggressively, create real negative rates, that's great for assets, right? That's great for uh equities and uh bonds and and everything else, right? Real estate, you name it. But at the end of the day, what that's going to do is is going to drive more inflation, right? If you take real rates negative, anybody in an instit in institutional level, even on a retail level, they're going to see a two and a half 3% interest rate and 4% inflation and pretty obvious you want to borrow as much as possible with as much leverage as possible to buy things pinned down. Guess what? That drives inflation from four to 5% and then you have an even bigger gap and this creates a spiral. Not to mention the pull forward a demand that that will drive. So we have a system right that has gone to its uh likely terminus in terms of driving inequality and populism and protectionism that we are now doubling down on in an effort to control the stagflationary pressures of that policy. You can keep the plate spinning with that, but the net result will be inflation, more inflation. And ultimately the check on all of this, even though we could keep assets afloat through a midterm, maybe even the election, like these things can go on for longer than you expect, but the net result and the ultimate check on all of this is inflation. And just to underscore, if I'm hearing you correctly here, um, yes, it's more inflation, but this is an environment that, uh, capital is much more cushioned against that, the effect of that inflation, and those who own assets are much more cushioned against it. And so you've been saying populism, but but the wealth divide which kind of got us Trump in office uh is only getting worse here based upon the current policies that we're doubling down on. That's exactly right. And and so we've had a move towards that populace in the last four or five years. I would argue Trump's uh creation and his uh his mandate from what he has kind of you know rusted out cities in middle America has been to respond to that populism. He has done that with the protectionism and tariffs and closing uh immigration right on the border. Um but he is simultaneously uh in a more quiet way in the in the ways that people don't necessarily understand doing supply side economics behind the scenes with a big beautiful bill as well as massively lowering interest rates, shortening duration. All of those things are massive and will in my view counteract and continue to drive inequality. Um, and the net result is a likely stagflationary environment that just runs hotter with more inflation. Um, and that that net outcome is um is not long-term good for assets, but short-term quite good for assets and we can get kind of into that path as we move forward here for markets. Okay. Um, so I do want to get your high level thoughts on the markets in just a second, but let me ask you this and and Jim, I don't know if any of this is influenced, you know, by what you've personally seen going on in places like Turkey, but you know, if we are continuing to expand the wealth gap um uh and um uh you know there there's there's only so far you can expand. Oh, and we're we're continuing to pull in future demand, right? You can only do both of those for so long before things start to break and not even necessarily economically, but society, right? So, where do you see this going in the longer run? That's the toughest question. It really is, Adam, because you mentioned Turkey. Like Erdogan has been in power for 25 years now. Um and he you know just the last two years have seen anywhere depend depending on what metric you look at 60 to 100% inflation right um and yet there they've managed to control societal unrest largely um why how well because of the cons you know consolation of of power right like they um they have they have created judiciary which is completely at Erdogan's beck and call. They have a true strongman regime. Correct. No, no freedom of the press. Polls are controlled, right? So, you know, if everybody thinks that America can't go there, but there's clearly a move towards authoritarianism, not just under Trump, by the way. It's broadly true and has been true now for multiple um presidents, right? But the the truth is that our system that we hold near and dear here in the US, which we believe to be truly a relatively free electoral process and um you know that has been and is increasingly falling under pressure. And if there is enough consol consolidation of power um we could in theory get to a point uh where where it doesn't matter how unequal or unfair or unjust the distribution of wealth is um you know the the those in power and the oligarchs that we will eventually you know that we are heading towards um will will be able to come more and more of of the wealth Uh and so that could go on for some time is my point. Um now generally speaking inflation is a you know outside of the turkey example can lead to dramatic unrest as a flat tax where the poor are the most hurt by it. Um and already a populist environment uh you know highly likely you start to see more unrest. question is can that be stemmed and politically you know in terms of elections can that also be um you know can can we avoid uh the the actual political outcomes with force um I know those are crazy questions and things that people here in the US aren't used to talking about but trust me you know being from Turkey um you know that they happen and and by the way the playbook is this is not a political comment you know whether it's the taking over the Federal Reserve like we just have seen you know or the you little by little at the press and the fake news or or the uh judiciary and you know this is there are steps in that direction. It's hard to um the question is just how far will it go and I know there's an intent to to try and um gain more control and more power over those outcomes. So so that's the big that's the hardest question of all is is what I can tell you is the the populist uh force that we've seen for the last four or five years is uh is is strong. is growing. It will continue to grow. Not only, by the way, from uh the the non-pop populist policies that are being deployed here um and and the inflation that's likely to cause. But by the way, there are other factors like AI which are only likely to make that worse. Um and so you put those all in front. Yes, it's a very dynamic um situation that's likely to lead to more populist policies. But at the end of the day, if if things get worse and uh instead of through placating uh the people who are the most hurt by this and trying to solve that problem, if instead we do manage that through control, um you know, wealthy the wealthy can get wealthier and the poor can get poorer and uh that can go on for quite some time and that's actually really good for financial assets um but but not great for the economy. Yeah. If you're if you're wealthy enough to be part of the aristocracy that owns assets and can ride that wave for some period of time, it's good. You know, maybe right up until, you know, if we get to a French Revolution style, right up until the guillotines get rolled out here. Let me ask you this and look I'm no political analyst and and this isn't a political channel but um you know we still America is still you know very you know on a relative basis one of the most democratic countries out there maybe still the most democratic um flaws aside so you know I let's assume for a moment you know um there's the king Trump argument where just you know consolidates more power takes over the Fed uh runs for a third term and then it becomes an eighth term and all that stuff, right? So there's there's that potential dangerous path. Not saying it's going to happen, but I people make that argument. That's the fear, right? Mhm. On the other side though, let's say the pendulum swings in one of the next national elections, still very populist, but you know, democratic socialist, right? So, you know, um other side of the same coin, right? um that doesn't necessarily prevent the type of outcome that you're worried about, right? I mean, if it's if it's just massive government spending on everything and you know, redist confiscatory wealth transfers and stuff, but it's still all with the intent of spending and and if it ends up like every other sort of socialist communist regime we've seen before, that's not necessarily the answer. We we don't necessarily get to any better place in the long run, do we? No, no, no. I want to be clear. I want to be very clear. the outcome where, and this is really going to blow some people's minds, but the outcome where we go to a more authoritarian environment, which again I think is less likely than the alternative, by the way. I'm just saying it's more likely than people could uh probably fathom, right? Um that authoritarian outcome is one of the best possible long-term stories for stocks and bonds and assets. Okay, I know that's hard for people to believe, but that's the truth. As long as, it comes with a big caveat that the world still uses the dollar and that we don't lose complete faith in America, right? I don't see that happening because there aren't many alternatives, at least not for some time. Okay? Now, eventually that could be the undoing of the whole republic. That's a whole another story, right? But that's probably not 10, 20 years away, right? given uh the strength and importance of America in the world and the lack of alternatives. Okay. Yeah. So, one of the best things for assets in the next 20 years, let's say, is probably that outcome. I don't think it's the most likely. Okay. Okay. I know that's hard to for people to keep in their their mind at the same time, right? But that's the situation where interest rates go to zero that that the wealthy you know we have increasing wealth inequality that a rising tide keeps the wealthy uh and liquidity flowing and and we go through an AI kind of fueled you know oligarch oligarchy. Yeah. Um the other outcome which is much more likely and probably much worse for assets arguably much better for the economy and for the average person. This is why I really wanted to drive a divide between your question of the economy and the markets is a is a democracy which is much more likely where where you know people are unhappy and the populism is not being met with the needs of the people and now you get a more populist social democracy type candidate which then shifts us back to more fiscal spending, more populist policy, right? and a a attempt to make the the system more less inequality, more fair. The problem with that is is that is a a very stagflationary environment. The more we spend and send money to the poor, the more that inequality narrowing means more spending, which means more goods inflation. And more goods inflation means higher interest rates. and the higher interest rates we have that's very poor for assets. So one of the worst things we can see for assets is actually a a a narrowing of inequality in the developed world. Now that doesn't mean it's bad policy. I would argue that is a scenario where we're optimizing to median outcomes. I think that would be if we started optimizing which is what the populace generally I think wants wants. Yeah. We want to optimize not to GDP growth or or or production or um uh technological development. We want to optimize to median outcomes. And if we start doing that with doing what the people want, the problem with that is that's poor for profit margins. That's poor for revenue growth. um at the end of the day that's really good for uh median outcomes um and and that's bad for assets. basically labor right or inputs gain a greater share of GDP growth right and in through that process you get more inflation and narrow profit margins and we've seen that through history we saw that in the 60s and 70s is one of the most you know recent examples of that um and prior to the Fed being involved uh during the great depression right before we are on a fiat and we could control these things we saw a kind of a depression kind of grow out of that but without the the monetary response. These environments are um are rebalancing um and they can be very poor for uh GDP growth uh very poor for um economic growth but they can re rebalance inequality and then take us on the kind of next leg with a much more balanced kind of stable society. Um but again two very different outcomes. I still think the argument we've been making for 5 years now will continue in that this is a 1015 longer term period of uh populism and the incentives of populism pushing on uh on a rebalancing the the pendulum having swung so far to a um free market process of capital of big capital. Um, but again, I the hardest part of that question to reiterate what you said is which one of those outcomes is going to happen. I would still point to the more likely being we're in a free democracy and the the will of the people will eventually come through. But increasingly there is a real probability that we need to be cognizant of of of and this is the way this is going so far this year at least, right? that that there could be a continued effort that's really meaningful that leads us down a path of control um yet continued um policy which is supply side economics. Okay, this is super fascinating and I would love to keep drilling down in this in the long, you know, to to get more clarity on what what could happen in the long term, but I don't have you forever. So, I got to pull it into um I got to pull our beam back into the more immediate road ahead here. Um I also, like I said, I've got these thousands of questions. Obviously, we're not going to get through very many of them, but I want to squeeze a few of them in at least. So um so uh okay so we have you know regardless of where we might go over the next 10 to 25 years we've got the world we have right now we had uh this very volatile first half of the year um up down up big um I I remember the last time I talked to you Jim you said um uh that you thought that there was because because we were we coming out of the the doldrums and you said that um you thought the year would continue to be volatile and maybe even have a we might still make new lows before the end of the year. Are you still expecting that type of volatility from here given how the script has played out? Yeah. So let let's let's talk let's clean up exactly what we were saying and where we are. I think that's important. So one uh expected that decline and called it you know almost to the day in February we thought it'd be about 15%. and went down as much as 22. Uh we also prior said that 15% decline we thought was coming Feb to March would likely end up with a rally back towards the highs or even maybe a minor new high. And then we said, look, uh, come the summer or the fall, we would, based on what we knew or thought at the time, we would likely see a retracement from those levels, right? Because topping is a process that would be a bigger uh decline that could lead all the way till March or June of next year, which could be a much bigger decline that would go even below those lows. That was our view. Okay. uh we got kind of and by the way been fortunate enough to kind of get the turns quite right for for several years now. Um the rally back has gone further than we thought. There's no no question about that. Um you know we thought uh it would probably stop somewhere between 6,000 and 6350 in the S&P and here we are at 6450 6500 right. Um why and and and where do we think things are going now? Um several things. One, I think we underestimated the amount of liquidity and how quickly the administration would provide that. Um the shortening of duration on the Treasury side has been dramatic. That's been silent QE and liquidity has been fairly dramatic. Um, two, uh, we thought quite frankly that that the Federal Reserve would not come under the administration's umbrella or their ability to influence policy would not come through till at least June of next year. If that, given that, yes, they would take the chairmanship, but, you know, how do they get the rest of the governors um on board? And and in theory, you would uh you know, if you give a Nixon analogy, you would need some type of recession to stimulate or to justify just stimulating the way that we're talking about now was was our thesis. Okay. Largely that's not that was not correct, right? I think that's pretty clear now. Uh just this week I think we got um you know final uh kind of uh reality that not only has has Trump now taken over at least three if not four of the seven governor roles which also by the way control the the regional president's uh reappointment or replacement. So you know again a full takeover of the Fed is now in process. Um but but importantly um you know we we also have gotten now at Jackson Hole a clear reversal of the Fed's inflationary mandate to control which by the way we called for several years ago but this is happening quicker than than we thought completely abandoning that two yeah way sooner than we thought. Um we have also said for forever that the market is a weighing machine in the long run but it is a voting machine in the short term. And if you want to call the the uh what I can tell you is what's going to happen with confidence in general in the next 10 years. I can also um you know call turns based on liquidity. But but liquidity changes quickly and uh the the factors that drive it can change in in meaningful ways. Um and one of the first things I'll always tell people is you know cannot be dogmatic and you have to you know be water. This idea that you have to watch liquidity you have to see how things evolve. probabilities change as you move forward and a lot of that is based on measuring supply and demand how that's changing quite frankly the the amount of demand in this econom not this economy in this market which again has been driven by the uh the the both the treasury and and now the taking over the federal reserve is is uh very hard to fight. Um and um we can simultaneously and this is hard for people to think about say we are at record valuations and it really is not a question at this point. We are above uh most valuation metrics uh from the 2000 top in the the S&P um which is the highest valuations ever. And uh and to be clear also with that fundamental side uh back then we were interest rates were going down. We were in a budget surplus. the USSR had just broken apart and the US was the uncontested hegemony. um with I think you know the the feeling then having been there in at the center of financial markets was you know uh wow this next 50 years is going to be the 50 years of American singular dominance right I think right got to wear shades yeah yeah and I I think it's fair to say that there's a lot more risks right now than we thought there were back then uh being at those valuations are insane I want to be clear and you know uh in 2020 in 200 1 2002 uh having been in the center of those those markets um I thought no way in my lifetime would we see that kind of bubble happen again like literally again that was a 20 25 year old gem right uh naive maybe in some ways but what's changed there have been dramatic changes to market structure one verse repo all of the new facilities that came out of '08 have provided the tools for government to do uh almost unlimited provide almost unlimited liquidity, right? Um the the move to a much more activist Federal Reserve with much bigger tools and obviously the central centralization of power and the executive branch's ability to pull these these levers as much as they are doing. U those things are huge. Never mind the increase of volatility products and the structural structure product issuance and the ball compression and all of the structural mechanical demand that keeps plates spinning. This is what leads to right market number go up um in the face of really fundamental you know gravity valuations which don't make sense. Um so both of those things can be true at the same time. We can say look given where interest rates are likely going given the inflationary outlook given the valuations this is a bubble and it is a bubble there's no way that anybody could convince me that this is not a bubble you would have to convince me first of all that 2000 was not a bubble um and and then you'd have to convince me that you know that the risk facing us are are less than that moment to begin with um this is a bubble but you can believe it's a bubble and also believe the liquidity the voting uh um you know you have again a wing machine a voting machine that the voting machine is so geared so weighted to the demand versus supply that this this bubble will not end here and the reality is you know we had a bubble in 1998 and then the market went up 50% before you know the NASDAQ dropped 92% and 95% of tech companies went bankrupt and so the question is how does the bubble end it always ends almost always ends with the fastest move at the end with the most convex move before the opposite. And so, you know, if you're asking me of probabilities of outcomes given the dynamic that we're seeing, you know, that's where we are. Um, and really hard for people to say, okay, you're saying down, but that you're saying up. What I'm saying is up and up fast and high probability of fat right tail before left tail and a megaphone of increasing volatility as we get there. I'm also calling for more, you know, unrest from a political perspective. Um, you know, this and by the way, not a particularly strong economy in the context of all this. Um, but but uh but that is that's the reality of of where this is heading. And uh even even to be clear when we were talking about this meaningful decline that would come into March or June next year, we were always very very bullish of what would happen coming out of that decline. The the plan the thought was that we needed a recession and a slowdown for the Fed to then come to the rescue and then the afterburners to come in. they've just moved forward the afterburners and so and said look we don't even need a recession you know and we'll deal with the the the effects of this from a populist perspective likely from from other means of control and so you know what does that that do that creates more volatility brings forward the the right tail and uh creates a much more dynamic end to the story as opposed to a more choppy kind of down an up and down kind of story. Uh the more you go up now as opposed to kind of burn off some of that and then go higher um the more ultimately this ends poorly. Um so I'll stop there but there's um you know that's how the picture has changed and why it's changed. Uh and uh and importantly it's not about up down it's about distribution. And so the distribution, you know, that that fat right tail has grown dramatically through the, you know, the removal of our our holding to a 2% inflation target through commandeering the Fed earlier and sooner um and and all of the centralized control that we've been talking about that is happening um within the administration. Okay. Wow. A lot to unpack in there, but I think the underscore is this is the bubble. And what do bubbles do? They pop. So, um, we there there's a bubble peak somewhere in our future. Uh, and then there's a bubble pop somewhere in our future. And if I if I heard you correctly, Jim, so correct me if any of this is wrong. Um, there's still going to be a fair amount of volatility uh perhaps between now and that bubble peak. Um, go ahead. You said a very important word, volatility. I just want to reiterate in 98 one of the best ways not one of probably the best way to manage entering a bubble was owning upside volatility owning upside calls hedged so you know ball um it was one of the easiest most profitable trades for almost two years into the a year and a half to two years from the end of the bubble basically Upside volatility is priced incredibly cheaply relative to downside volatility, right? But the second you start taking the lid off inflation and start stimulating uh in an uneven way, you introduce the possibility of dramatic volatility on the right tail. And where those things are priced is in a much more historic context, which is not where we are. You can own an upside call. You can be short stock and you can see that call outperform the stock into a rally which it usually doesn't do right for the broad market. And then when the market goes down, you could also make money on what is a low volatility expanding with a short stock eventually taking over on the tail. So in in 98.99 by far one of the most profitable trades was to own six month one year one and a half year longdated calls delta neutral not being long the market not trying to be short the market right but playing that right tail of the distribution and capturing the idea that that right tail is just too cheap and I think that is the cheat code for dealing with his last chapter in a bubble you really need to start realizing that that right tail the world is getting short into what they know as a bubble. Institutions are at the 30 13th percentile by the way up from zero percentile just several months ago and they are short for good reason because this is a bubble. But from a voting machine perspective and given the amount of buyers that are like liquidity and stimulus being pushed on the demand side, it is an uneven voting machine and and the number can go up way dramatically at the end of this for those exact reasons. And so the cheat code is not to try and short the bubble. It's not even it don't don't just yolo calls unhedged. I mean you can and that might be very profitable given the scenario I'm talking about because again calls themselves are under but better yet on a riskadjusted term go delta neutral if you don't want to take the risk but you'll still make a lot of money on the upside and very well make money on the downside when the bubble finally pops and so that's think about it in distribution we don't have to think about up down as much as where is where is the market cheap what is cheap what is expensive and what is cheap is that fat right tail at this point. Okay. So, um like any good interviewe you you kind of took this to the punchline I was trying to see if it laid there which is you know your expertise is investing in and trading volatility. Um it sounds like that is sort of a key area of opportunity here given where you see the market going from here. right? At least one of them, right? And again, I think that's obviously a core, you know, expertise of ours, right? Um I would argue there are other opportunities, right? Um if we're going to de from a macro perspective, if we're going to debase and monet try and monetize our debt, which is what's happening here with the inflation, right? Mhm. and run this hot. Um and and you know, ultimately what that's going to drive I said as I said is inflation. Well, you know, what are the inflation trades, right? Uh you know, you should be focused on the most convex inflation trades you can. We can get to other reasons outside of by the way um of of why these are going to work other than just hey they perform well in inflationary environment but the gold trade you know the the energy trade whether it's uranium or or or other similar uh trades um even the Bitcoin kind of trade all of all of these more inflationary trades particularly the ones that are um in limited supply um are likely to perform also very well and by the way distributionally you don't have to bet on up down as much as those things will uh with much less risk on the downside perform quite well on the upside from here. Um so you know there are ways to do this outside of just using the convexity of options and and and and looking at volatility. Um, you know, you want to be also barbell like that's another G-code. If we're going to get something convex, there are certain things are certain equities themselves at their core that are more convex in these types of environments, institutions. Keep going. But just for the the casual viewer who doesn't necessarily know what you mean when you say convex, can you just describe that real quick? Yeah. So, uh, convex, you know, most if you own the S&P, it's just a linear like market goes up 1%, S&P goes up 1%. Right. Um but there are certain uh stocks that in certain environments may uh go up um if the market goes up two it may go up 3%. Right? And if the market goes up four it may go up 7%. The market goes up six it may go up 12%. Right? That increasingly have upside capture. Now they probably have the same on the downside to be clear, right? Um but but they are more convex vehicles and and part of that is because of their leverage to economic and and uh you know um market outcomes is is great. Um and and so those types of names are a way to get more of this right tail in a way without using options as well. And better to do that than you know instead of having a 100% stock than the S&P for example probably better to have 25% stock you know in something in a pool of assets that are going to be convex on the OP upside similar to owning a call and you know being hedged in the sense that those things can get you as much performance on the upside into the t part of the tail that we're talking is like you know likely into if we go up this is the likely outcome. Yeah. but likely then to not lose as much into a decline as well. Decline. Totally get that. So, thank you. Yeah. So, that's that's a barbell approach, right? And and and that's taking advantage of convexity to deploy kind of a a barbell. Um which is, you know, safe assets or cash with more convexity in a much more concentrated type of investment. Um so, that's another thing, you know, that that people should be thinking about given the distributional aspects of what we're talking about. understand that right tail is is driven by the fact that institutions largely because it's rational get shorter into high valuations in a bubble and eventually that's likely to have them get squeezed um and and that convexity um means uh well what kind of stocks are likely to perform into that kind of short squeeze if you will the things that have been performing this summer into a short squeeze right go find the things that instit initutions are short uh and that uh that don't really have a replacement that that are going to likely get squeezed. Go find also the narrative names, right, that are um going to make, you know, the the other, you know, ingredient for a convex bubble is a story. You have to have a story that captures the imagination of the whole market. We had that in 2000 and guess what? We have it again here. That's, you know, that's part of the whole reason this can go. At some point, people have to at least have a reason they can point to why they would be buying things at these record valuations. And um you know, they need a narrative. They have need a narrative to tell them this time is different. Different. Yeah. And so, sorry, just just to make this even maybe a little bit more r understandable. Um there's the old saying that the market can be irrational longer than you can remain solvent, right? And that's kind of said a lot about bubbles, right? Like the bubble can go a lot higher than it can get a lot crazier than you think, right? So you want to look at things that um where the narrative can overpower logic like that ride the irrationality, right? That's definitely again we're trying to give you different diversified ways to play this, right? And that yes, that would be a part of the pool of assets you would want to focus on. Absolutely. for sure speculative one. But those absolutely if you're in a blowoff top, you know, in in a in an asset bubble peak by definition, playing the right tail in a bubble is speculative. I want to be clear, right? Yes. Very true. Yes. Yeah. So, um Yeah. And and again, the key is to do it in ways that are balanced that don't lose money or lose less into a eventual popping of that bubble. Right. Right. basically catch have the potential to catch more of the upside but but lose less on the downside or maybe even make money like I said with a call and a hedge stock. Yeah, it it's hard for people to understand but with volatility you can make money in both ways. The key is how wide is the distribution not up down and that's that's the important kind of concept here. So there are ways to set this up, right, where you can actually do that. And again, very, you know, volatility traders made a ton of money in 98.99, but they also made a ton of money in 2000, 2001, 2002. That was a golden period for for volatility. Um, but but there are ways to do that with with more linear or you know, equities and other instruments as well. Um and again I think uh precious metals uh you know some of these other assets as well as a barbell approach with with some layered in shorts as you go get higher is also a decent way to to do that. Okay. And and I'll ask you this again in a couple minutes. We only have about 10 minutes left but um uh presumably these these are the strategies that you are deploying for your clients at Kaialth. Correct. So I for for regulatory reasons I can't get into too much about the details of Kaiwealth but I can tell you that we're much more non-qued. Okay. So this is uh you know our our goals at Kaialth are to be uh much higher riskadjusted returns over the long run with much less beta and much less um kind of long-term interest rate exposure is to manage risk uh optimize for risk adjusted returns. And so if that's our goal, right, uh we we are focused on finding ways to take advantage of non-correlation, right, and diversification uh and take parts of the distribution, right, which some of these strategies do to to take um to to create excess returns, right? Um it is not a 6040 portfolio, right? Um and and 6040 could do very well into the into the bubble, right? Uh but we'll we'll absolutely get destroyed into the decline. Not to mention if we do get inflation like we think the the 40 in particular can really be a drag all along the way. Right. Won't won't provide the protection that you normally would hope it would in a market. Yeah. Um All right. Well, look, so the key question I think in many people's minds, uh Jim is an unknowable. I'm gonna ask it anyways just to let you answer it in any way that you you like, but is the when the whole when of it, right? Um and I guess maybe the how much and the when of it, right? So it I can maybe encapsulate this by saying so do you in this cycle where are we? Are we in 98, you know, um or or do we think we're we're closer to the end here than Yeah, it's it's different than 90. We that's the only recent memory that we can point to, right? because it's the big bubble, it's the highest valuation we've seen, etc. But this time is is different in the sense that it has much more inflationary pressures, right? Like we did not have that at that point. It's also different in the sense that we are living in a much more multipolar world with global conflict and protectionism, right? And a lot of things that is not where we were in 2000. So the ingredients for volatility from a much bigger macro perspective are dramatically higher and again inflation is a key key differentiator. So, um, given that, um, it's hard to say, oh, we're in 98 or 99. Uh, and and I would argue, um, whereas 90 that that bubble burst and it but it was a fairly short-lived all things considered, uh, repricing that then came back relatively quickly. I would argue because this is much more structural, uh, and again, this is an issue of rebalancing inequality, which is again a much bigger bigger structural issue. I'd say the the higher probability of this outcome is not some type of uh crash in nominal terms, right? Uh that then resolves relatively quickly with monetary stimulus, which is what we saw then, right? It's much more likely to be something that um ends in a combination. Again, I like to think about these things in real inflation adjusted terms, right? back then we had 2% to 0% inflation throughout that period even some deflation in between right um and so we saw a nominal correction dramatic correction and then kind of resolution here I think we're much more likely to see something where it's less of a crash from this rally but um you know maybe from a big rally and then a decline but but then uh a lot of this along the way gets eaten up by a maybe 5 to 10% inflation Um and if you compound a 5 to 10% inflation over 5 10 years that can do a lot of the real adjustment for you think again 60s and 70s right um as opposed to getting it as a dramatic short decline um and so I think the shape of this outcome will be quite different uh and so because of the shape and the timing of it um it's less uh just right tail then quick left tail and then res resolution again, right? Um, I think if you zoom out, and I've been saying this since basically late 2021, I think this market goes net nowhere in real terms till mid 2030s. Okay. So, this is what I was just going to ask you this. You pretty much answered it, but so you you see less chance of a um of a big nominal decline or a crash, right? but much more likely probability of a so we're not going to have a short nominal crash but we are going to have a long-term real lost decade. Yeah, I think this is so important. Very few people know this. If you look at 19 uh 29 to 19 uh you know basically 1929 to 1949 that 20 years the outcome is very very similar in real terms to 1963 to 1983. I mean that but most people think those two things are dramatically different markets. One was a deflationary environment. One was an inflationary environment. The difference is in the 1920s and 30s and 40s, we didn't have a Federal Reserve that had the power that it has because it was no, it was tied to gold. Mhm. So the introduction of a fiat currency allowed and that's why they did it by the way introduced dramatic powers to essentially shave coins to avoid the knock-on effects of deflation and the perception of the market outcome. We don't think of the 60s and 70s as bad as an outcome as as the Great Depression. And you could argue that's smart because it smooths the business cycle and creates like again less knock-on effects. Like there were a lot of effects of the Great Depression um in World War II and all the things that you could argue were related to that. Um so it is a smoothing and nominal terms but that does not change the real outcome is my point. Um and so my point here is one thing I can say with conviction is there's nowhere out of this re way out of this real outcome or very few ways out of this real outcome. Okay, in real terms, but the more likely outcome, given the tools that the Federal Reserve's uh disposal and given what we're seeing at the administration is doing, they're they're going to use their powers of fiat to shave coins and and and try and take what they think is the more manageable path, which is inflation. Okay? That doesn't mean, by the way, financial markets um don't have to normalize in real terms. And so my my point to you is if I look forward in the next 15 years, I think we've already moved again four years or so through this, right? Maybe it's, you know, 10 years, maybe it's 15 years. It'll depend on the path. I I see a very a lost 10 to 15 years. I've already been saying this since late 2021. Yeah. Um of of uh you know, of poor returns. And I want to highlight by the way if you take 125 years of America American status 6040 stocks and bonds if you take that this blows people's minds as well there are three to three and a half 20year periods in real terms so more than half the data set in real terms the market goes nowhere for two decades that blows people's minds when I tell them yeah so so as as much as people don't want to hear what you're predicting You're like it's kind of common. It's normal. That's actually what happens. Market in 125 years. We have almost 75 years in in concentric periods where the market goes nowhere. 1900 to 1920 nowhere. 6040 went nowhere in real terms. 1929 to 1949 the market went nowhere in real terms. Again 1963 to 1983 market went nowhere. 20 years in real terms. That's 60 of the 125 years. And then we have 2000 to 2013 or wherever you want to draw that line. Different in the sense that it was quick. Um and and but again another lost decade plus and and if I understand we're drawing lines certain places but if you only take those other 50 years of periods which are very concentrated that 125 years the returns during those periods are astronomic and I'm here to tell you we've reached the end of one of those periods and we're likely to digest that for a lot of structural reasons not just because of valuations. um this the way we resolve that is uh is is you know has several different paths at which it can go in nominal terms but in is likely given the the powers of the Federal Reserve and the incentives which everything tends to respond to incentives of the powers at at be at play. So again uh the Fed kind of told you uh and it's and and the central you know and and the government has told you what their preferred outcome is on top of what the incentives are likely to be. So um you know I I would play in that in that way. So uh it is a bubble but that bubble can resolve and digest over time through inflation and I think that's probably one of the major ingredients. That doesn't mean the the bubble and even higher valuations don't come down in a meaningful way. It's just I think we need to think about it in in those terms. Okay. Um well look um since we're we're bumping up the end of our time here um I'm I'm going to reserve uh to do this give us the the justice it deserves and and the next time you come on we'll we'll ask this question up front um but would love to get I I have a good sense I think of what what it's going to be but would love to get your investing playbook for the last decade right so so a decade is a long time and so that I want to be clear um this is people hear this and then they come back in six months and they say, "Well, you said this was going to go up for the next decade." We need to think about timelines. So, I can talk about a decade, but by the way, the things I may suggest for the next decade may not be the things I suggest for the next nine months. Absolutely. And hopefully, Jim, too, we'll have you on here many times to be able to kind of give audles all along the way. Right. And that's not hedging. That's just the reality. And actually I have again one thing I will I'll tell you for example I would not invest in the meme narrative names for the next 10 years but I do think that that's a very undervalued likely convex right tail play for the next nine months to a year for right now for right now and so I think you need to understand th those differences right and be very focused on that but your question was 10 years right and and uh the the best thing I can tell people from a very short perspective um from a short time perspective here is you have $500 trillion dollar of stocks, bonds, real estate, private credit, private equity assets. They ballooned right to in unimaginable sizes globally. Okay. Meanwhile, three years ago, we had about $4 trillion of non-correlated, you know, you could argue non-correlated or not, of non-correlated investment. And again, I'm not really including so um and get into kind of how I qualify that and I can get into the breakdown, but that four trillion dollars three years ago has ballooned to 15 trillion on the non-correlated side. But understand this is just the first this is just the beginning. If you have 500 trillion on one side, what happens when that correlated to equities and bonds and everything else? All of that money now needs to find more non-correlation. What happens when 6040 needs to find a way to make money in a lost 10 to 15year period? We haven't even fully experienced that yet. We saw a little bit in 22 got people moving in that direction. That's part of what's driven the move from 5 trillion to 15, call it. Yep. Right. But if we're moving through a 15-year period or so where this is likely to be structural and people are going to lose faith in that 6040 outcome, what do you think is going to happen to the 15 trillion now and the 500 trillion? There's limited capacity in these things. Why do I, by the way, what are these products that I'm talking about when I say 15 trillion now? Precious metals. precious metal is about 22 trillion now. But to be clear, 15 or so, I would say 17 of that is in sovereign uh you know uh vaults that are not touched. That's irrelevant. There's no supply there. It's it's it's closed uh to to investment. And by the way, that's up from 7 trillion total going to 22. And meanwhile, uh you know, the part in vaults has not increased that much. Candidly, it's the part that the broad investment world is is is buying that's driving convexity there. So that's actually gone from one to something like four trillion. Okay. Bitcoin and crypto broadly has gone to three or four trillion from $1 trillion in the last three years. Right? That's another you could argue non-correlated. I'm not saying there's I know there's a lot of arguments about you know is it non-correlated? Is it it is at this point a store of wealth and a form of non-correlated kind of the the money has to go somewhere and millennials are the tip of the spear on that populism and wanting you know they're the next wave. Guess what? That's that's millennial gold. And then we had the other things that are not actual assets which are hedge funds and structured products, right? And those depending on how you look at them, hedge fund assets have gone from two and a half to four. And and that's only in two years, probably closer to two to four in three years. And structure have gone from 500 billion to two trillion in three years. So we have this and those are just going to keep growing. the use of options, by the way, and zero DTE and using different parts of the distribution to make bets that are more non-correlated. That's also just going to that is a explosion that we've talked about here that will continue um and and um you know expect so much innovation and growth in that space because it's it's one of the few ways to be capital efficient into rising interest rates say and be expressed more non-correlated bets not to mention hedging the other 500 trillion of assets that that need to be offset the risk needs to be offset for. So if you want a big thesis, there's many more that I kind of outlaid already for the next 10 years. Go look at the non-correlated and go look at the non-correlated stuff that's likely to have um you know that again gold, precious metals, Bitcoin, that's that's still early, I would argue, and look at finding ways to get convexity and volatility. Um not to mention focus on more non-correlated kind of stacking type type strategies. those will do very well in a context of again a 6040 that does not well right particularly relative to inflation. Um so so I think again what we're trying to do at Kaialth right is is really take advantage of a lot of those structures and these more non-correlated things um to achieve a much better riskadjusted return without playing that that game. Um so I think that ultimately is is the is is the focus um that you should have for the next 10 years. Again that does not mean that should be your only focus now for the next year given some of the outcomes we're talking about. you know, this is when when the Fed uh you know, is afterurners and and the Treasury is afterburners uh and you have short exposure to institutions uh and you're heading into a midterm next year, you know, leon rule as they say it at the good times roll. Um but again, that will not end well and and picking the exact peak of a bubble is also a bit of a fool's errand. Um so you know strongly recommend uh if you're going to do those things which again I think there is a place for that um particularly in the next year um you know you want to be doing it with again a more barbelled hedged approach uh and playing a kind of that right tail distribution. All right, fantastic. Um, so two things. One, very important, you want to use the playbook for the stage of the game that you're in, right? Um, and so as I said earlier, Jim, really look forward to having you back on again, you know, multiple times in the future here so that you can kind of call for us audibly where where you think we are in the middle of all this. Um, but super useful stuff and I got to imagine this this 15 trillion of of non-correlated assets. Yes, it's going to grow organically, but as we enter into this last decade, there's going to be rotation from that 500 trillion of, hey, look, we got to get into something that's performing better. Wow, this much smaller market is doing great. Um, let's get in there. And obviously, that'll have big price implications. So, I got to wrap things up given given my constraints and yours here, um, Jim. But, um, most importantly, hey, thank you. This has been wonderful. Um, for folks that would like to follow you and your work in between now and your next appearance on this channel, where should they go? So, uh, kywelp.com or kai volatility.com, uh, we have a, you can hit a button on kyvalatility.com to get on kyvalatility.comnews to get our kind of updates that come out weekly or so. And of course, jam_quasant on Twitter. Uh, you can always follow me there. We try and post any videos or other uh media that we do to keep people in the loop. All right. Absolutely fantastic. Jim, thank you so much. Really appreciate this fascinating discussion. Thanks for being so generous in sharing, you know, all the details of how you do this. Um really look forward to having you back on again soon. It's always a pleasure having Thanks for having me, buddy. Look forward to coming back. All right. Well, now is the time in the channel where we bring in the lead partners from New Harbor Financial, one of the endorsed financial advisory firms uh by Thoughtful Money. I'm joined as usual this week by Mike Preston and John Lodra. Gentlemen, thanks so much for joining us. Um it's always so great talking to Jam. Um one because he's just so freaking smart. Um but he has um you know a very differentiated view on the markets because of his intense focus and experience on volatility. Um, you know, Jim Jim's like he's one of those guys like Mike Green where I really do kind of feel like I'm I'm just hanging on by my my neural fingertips, you know, through the conversation because he's so smart and I'm just trying to make sure I get the basics of what he's saying. Um, but I actually felt like this one went pretty well. um we didn't get into the the the great depths of volatility and all the you know Greek letters and stuff that he normally goes through but uh what he said was no less important. Um so you know basically he thinks that uh more or less this market's going to continue going up obviously with volatility so it doesn't mean we can't have draw downs but is sort of on its got a date with destiny with a blowoff top here which is something Mike I've heard you say many times that's your expectations as well. Um and then you know in the post blowoff world um I think that's where you know the real rubber meets the road. You know do we have a how much of a nominal correction do we have but then importantly as he just talked there you know we might end up having a decade where we kind of go nowhere uh on a on a real basis. So Mike why don't why don't we start with you. Um what were some of your key takeaways from there? And I got to imagine you you heard a fair amount of things that were validating of your point of view, both from the the blowoff top to, you know, really liking precious metals and where they can go from here, but curious to hear what some of your key takeaways were. Adam, thank you. A lot of what Jam said rhymes with our beliefs here at New Harbor, a number of them. And I guess I'd like to highlight a few things that I thought were most important because I've got almost two pages of notes here and I don't want to rehash absolutely everything that he said, but here are what I think are the high points. He said that economically we're in a not great position. That's really no big surprise. You know, he talked some about stagflation, that's what it's looking like we're in. And that the policies that have driven this not great position that we're in have been really unfair. These policies have driven inequality. But furthermore, he said it doesn't matter how unfair policies are, they can go on a lot longer than you think they can. So that's just not right. But it is what it is. We had 10 years or more than 10 years of 0% interest rates on savings. That cost savers close to $3 trillion. And all of that money was funneled into the banking system to recapitalize the banking system. That wasn't fair. And yet it happened. And and and it's continued year after year. And now interest rates are back up. So it's a little bit better. We're starting to forget about that time. But this targeting of asset prices where the stock market always has to go higher, where housing prices always have have to go higher, where collectibles always go higher. You know, guess who owns all the collectibles and the fancy boats and all of the businesses and and you know, resort properties and things like that? The very rich. And that's what this asset price targeting has done. It's driven a very very wide gap in wealth inequality. And yet, it can go on a lot longer than you expect. So, and furthermore, we've talked a lot about the fourth turning that we're in here and how we are approaching, we think, a crisis and a climax over the next few years. It's in my opinion going to become very evident that these policies were not only unfair, but they caused a lot of social conflict that had a price that we just shouldn't have been willing to pay. Now, all of that has yet to happen. And I know I'm making some predictions here, but a lot of things are going to happen in the culmination of this fourth turning that are not going to be easy to to stomach. Um, lastly, one or two more things and and then I'll take a break. Jim talked about the fact that we're above uh the year 2000 valuations. Let me share a quick chart if you would allow me to there, Adam. And this is from somebody we mentioned quite a bit. John Husman just came out with a piece a week or two ago. This is his most uh popular or famous uh valuation metric, non-financial market capitalization divided by corporate gross value added. And not only are we above 2,000, which is back back here, you know, at roughly one, you know, just below 2.8 right around here, we're way above that and have been for the last few years. In fact, since 2020 co, we've been above 2,000 peaks, but we're not only above that, we're above the 1929 peaks. And why does Husman use the non-financial market cap divided by corporate gross value added? Because it has the highest statistical correlation to what actually happens in the next 10 or 15 years. You know, in fact, Husman's work, if I scroll down just a little bit here, um, when plotted against future returns, shows that we should expect around a minus 6% annual return in the S&P yearly over the next 12 years. That's pretty crazy. If you invest in the S&P today and even add back 2% dividends, it means that you likely have less money 12 years from now than you have today. And it could happen in a very torturous way. We don't know if we're going to have a 70% collapse or if we're going to have a slow drip downwards. We have no idea. But just wanted to reiterate what Jim said about valuations. They're completely off the charts. So lastly, I think I'll pause there and and and he talked more about some things that make sense for the future, but I'll let you and John perhaps cover those. All right. Um well, let's um transition over here to John, but Mike, maybe I'll let you comment on this real quick before we we hand the baton over. Um, so you know, Jim talked a lot about this ending in more or less a blowoff top, right? Um, that that is still sort of your default assumption here too, correct? And I want to put words in your mouth, but I've heard you mention that many times. Yeah, absolutely. We can't predict the future, but if I could share the chart one more time of the S&P, I guess I'd like to do that here. As we speak today on August 27th, we just put in a brand new all-time high right here at 64.87 on the S&P. This is the daily chart. And the S&P has been respecting the 21-day moving average, which is this light green line all the way up, including this last pullback a week or so ago. And the whole world is waiting, holding their breath, watching, and waiting for Nvidia's results tonight. Nvidia is a $4.4 trillion company, and it's just a mammoth. And so we'll see. That could move the market. It could cause this squeeze or or or move higher parabolically or or not. We'll see. But if I move out to a monthly chart, you'll see how just crazy this has been this S&P. Look at the pullback in April. It's it's the biggest reversal I've seen in one month. Really going back even more so than CO. I know that more recent results are a little bit perhaps more exaggerated on this chart because of the nature of the chart, but look at this bounce off the 200 moving average. It was a huge reversal after liberation day and it's been straight up 1 2 3 4 months. So at this point, I wouldn't be surprised to see an all-in moment here. Jem talked a little bit about institutions starting to get short. I think we're early in that process. Wouldn't be surprised to see a squeeze higher. That's what it's feeling like in my bones, so to speak. You can't prove any of this mathematically. It's just it's just, you know, some gut intuition and experience. But this bubble has been so big. This everything bubble we've been living through for 20some years. After this fake out here, I wouldn't be surprised to see a squeeze up towards 6700 7,000 even before this is over. So, we're not trading from that perspective. In other words, we're not getting more aggressive as the market's moving higher. We're actually getting a little bit more conservative as the market's moving higher by adding some hedges and things like that. But, uh, long story short, yeah, I think that we will likely see some kind of blowoff top here, the final fireworks show. All right. But, you're still participating, uh, in the uptrend, even though you're becoming perhaps more hedged. Um, which obviously sounds prudent. Um, and you answered the question kind of where I was going with this, which is which was going to be, you know, what what's a crazy number this could get up to that wouldn't shock you in retrospect. And, you know, you threw out 7,000 is, hey, you know, not saying it's going to get there, but it but it it's in the realm of the possible. It certainly looks It certainly looks possible. And I think a number of years ago, you had a different guest on that that predicted that. And at the time, I thought that was kind of crazy, David Hunter. But I've got to give him credit cuz it looks like that's what's happening. When I look at these charts, it looks like 7,000 plus is where this market could likely go. But all of this is fake, right? It's not sustainable with um with these valuations. So I would be very careful if you're not a professional, if you're not hedged, I wouldn't um I would not try to to participate here too much at least. Okay. And and John, maybe in handing the baton to you to build on anything you you want to build to what Mike and I have talked about so far. Um if you can just sort of comment on the hedging meaning when things get more and more stretched that's when hedges become more and more uh valuable especially if you're still maintaining exposure to the long side. Um and and right now hedging insurance is still pretty affordable right? Yeah. Adam, uh, I want to talk about, uh, in answering that question, I want to reference Jim often talks about volatility and he looks at the markets through the lens of an option strategist. And if, if I could encapsulate what that means to the average lay person, it means thinking about things in terms of probabilities. Um, we in our seats and anybody that has done this work for a long time knows and should have a healthy dose of humility because as much as we have systematic processes to help us try to gain an edge on markets, we don't know the future. But we can use probabilities and and factors that underly them to position prudently. And that's really what is is talked about when we talk about hedging um and the cost of of insurance through hedging. talking about the implied probabilities priced into the market as to the the likelihood of certain price moves in the market happening. So when the market is complacent, it is collectively pricing in a low probability of for example a large move down. Well, it just so happens that's when uh the the purchasing of that kind of insurance, that kind of downside hedge is its cheapest because the market is not pricing high probability into that. Just like an insurance company uh maybe prices um flood insurance more more richly in an area that suddenly has seen a hundredyear flood three years in a row, right? It's the same concept. It's all based upon probabilities. So when Mike talks about blowoff tops, absolutely there's a probability. And in fact, a lot of the data that we follow that speaks to the the breath and the the strength of the market has flipped really recently back in a very strongly positive way. Um three weeks ago we were talking to you and those indicators were starting to stall and starting to tire. They have done an about face rather abruptly here and that speaks to this um really strong underlying tone of the market that can take valuations absurdly higher even from our already absurd levels. And um so it's important to understand that possibility. But what you do about that is are two different things. Most of our clients are folks that have worked really hard to save and build a solid foundation. They're not going to be harmed if they miss out on the last juices of a blowoff top, but they absolutely will be harmed if they unwittingly suffer a big downturn, which can happen at any time, right? The probability of that happening is certainly there. So, in some ways, knowing or having the awareness of a potential blow off top is helpful probably first and foremost in the psychological positioning of being okay with missing out in a late stage market rally and not trying to to chase every last drop, which usually ends badly because it turns down uh very quickly. Um, so yeah, we have started to to build in some very modest hedging. uh we haven't done anything too robustly because our system our our indicators have have suggested that this uh momentum is very firmly to to the upside and you know recent policy um news you know there there is literally a a coup going on at the Fed. It's it's no surprise no secret that uh there are wranglings going on in the administration to basically get it a a majority at the Fed that will you know acquies to very strong calls by the the current administration to lower interest. Um you know we think that's very shortsighted. We think it just uh adds fuel to an already very inflated market that was very much the product of nearly a decade of of zero interest rates. And you know, I'd just like to share a chart here to remind folks that, you know, lowering short-term rates by the Fed isn't isn't necessarily a good thing. Right here is a chart that shows what happened to the yield curve between now versus uh September 18th when the Fed first started lowering its its the rates. That was the the u the red red line. Okay, so this is the overnight rate here that the Fed controls. At that time it was five and a quarter. It's now down at four and a quarter. They've dropped the full percentage point. But look what's happened as you go up the curve. The long end of the curve has moved considerably higher than the short end in that roughly year since this rate drop campaign uh has has occurred. And just this past Friday, there was a very strong market reaction to what the market read into a very, you know, dovish communication from Jay Powell at his Jackson Hole speech. And and we had a what's called a 90 90% day. 90% of the issues uh on the market advanced on the day. That is a very rare occurrence. Only 25 times I think since 1980 has that happened. Now, it's a mixed bag in terms of what that means going forward. But uh more often than not not that means very strong markets ahead. if history is any guide except when we're in the vicinity of an all-time high which we are and that's been a much more mixed bag. One of the instances for example was in I think September of 2007 a similar 90 90% day within very small percentage of all-time high and we know what happened in the year that follow followed there. So it it is very uncertain market, one that even with the strong robust indicators we're seeing, we think demands a a healthy dose of caution. And the first and foremost and and cheapest form of hedging is to simply reduce your risk. We are underweight equities. We have been for some time. We're doing quite well for clients. Certainly our allocation of precious metal precious metals has uh contributed a very healthy dose to performance this year. Um but it it is a tricky tricky market. um that we're in right now and it it will continue to be so. All right. Um so that that term uncertain market um you know very true. I I feel that probably a lot of people who watch this video are probably feeling like oh my gosh it just sounds so like confusing what may happen from here because it could be kind of chaotic, right? we could be melting up into some blowoff top but still have volatility along the way but then potentially uh another um uh you know a another drop after that. Um and then maybe there's going to be some rescue efforts by the central planners. Um so uh I'll mention in a moment the the upcoming thoughtful money uh fall conference, but we're we're we're titling it, you know, an uncertain year. you know, what do the expert thinks lies ahead for 2026? I think this word uncertain or tricky that you just mentioned, John, um really does capture kind of the gestalt of of what we all have to deal with here, which is that there are a few things that I think we can have a lot of confidence about and we have to be prepared for a whole bunch of different potential outcomes in in the near term. So, all right, gents. Um I have to wrap things up from here just given time-wise. Um thanks so much for jumping in again this week, guys. Um making sense for this for us. We'll next week give you guys a little bit more time to catch up on anything else that we didn't talk about this week, especially with everything going on with the Fed with interest rate expectations. Um but um very importantly, I think a lot of people are are trying to think about, okay, well then gez, how do I position for this type of future that JAM and you guys think may lie ahead here? Obviously, you guys can help with that. So, as I say, you know, every week, um, unless you've got a really good track record of investing in highly uncertain periods like this as a DIY investor, most of the people watching this video, um, could benefit from the guidance of a good professional financial adviser. But, and really importantly, one that takes into account all the macro issues that we've been talking about here today. When you put that requirement on, the universe actually shrinks a great deal. Um, so folks, if you've got a good one though who meets that criteria, who's creating a strategy for you and executing it for you, fantastic. Don't mess with success. But if you don't have one, you'd like a second opinion from one who meets those criteria, consider scheduling a free consultation with one of the financial advisors that thoughtful money endorses, perhaps even John and Mike and their team there at New Harbor. Uh, to set up one of those consultations, just fill out the very short form at thoughtfulmoney.com. Uh, again, these are totally free consultations. There's no commitment to work with these firms. They'll just sit down with you, give them their specific advice for you once they learn about your own personal situation. It's just a free service they offer to help as many people as possible. Uh in wrapping up again, um the thoughtful money follow online conference is now available for registration. Um it's still available at the lowest early bird price discount that we're offering. So if you want to lock in that price discount, go to thoughtfulmoney.com/conference right now. Uh the faculty is phenomenal and keeps getting better. Uh breaking news, Sven Henrik just committed that he'll be um back again this year uh providing his latest TA. Um so um if you uh you know want to uh lock in that lowest early bird price, like I said, go to thoughtfulmoney.com/conference. But if you're a um paying subscriber to the thoughtful money premium substack, make sure you check out the code. that'll give you an additional $50 off of that low price. Um John and Mike, you guys are going to be participating in that throughout the day. Uh always love having New Harbor be such a key um participant in that. Really great both for me, but also for everybody to ask you guys questions live throughout the entire day as new important concepts get brought up there. That being said, we're going to wrap things up for this week. Again, John and Mike, thanks so much, guys. I really appreciate it. Always great to have you on here. Thank you, Adam. Great to be here. We'll see you next week where we'll talk more about gold and silver and the miners and everything else that's going on that we didn't get to this week. So, thanks. Thanks, Adam. Always great. And I wish all your viewers a wonderful Labor Day weekend here in the US. Hope everyone enjoys some downtime over over the weekend. That's right. All right, boys. Have a happy Labor Day yourselves. Everybody else, same to you. And thanks so much for watching.
