Prediction Markets: Detailed discussion on binary contracts for events like Fed decisions, elections, and weather, including pricing, liquidity, and hedging use-cases.
Options Trading: Emphasis on a new interactive options learning tool and broader options strategies, plus observations about zero-DTE activity and its impact on volatility.
US Equities: Advisor survey showed a majority turning more bullish, yet mindful of correction risk; persistent buy-the-dip behavior and high margin usage were highlighted.
Precious Metals: Gold’s strong year and silver’s significant gains surprised many, with hard metals outperforming cryptocurrencies in 2025.
AI: Discussion of AI-driven portfolio analytics and generative AI enhancements, including intelligent query completion and expanded tools for investors.
Macro/Fed Outlook: Active debate on potential rate cuts and market odds via prediction markets, including contracts on dissent counts and mortgage rates.
Stagflation Risk: Sticky inflation readings and growth concerns raised the specter of stagflation, prompting caution around near-term economic conditions.
Risk Management: Year-end planning themes included tax-loss harvesting, RMDs, charitable gifting, and portfolio rebalancing to optimize outcomes.
Transcript
[music] The Disciplined Investor is all about you, your money, and the markets. Sit back and get ready for this edition of the Disciplined Investor podcast. This [music] episode of The Disciplined Investor is sponsored by Horowits & Company. If you're [music] looking for a portfolio manager, look no further. Horowits & Company. From seed [music] through harvest, cultivating financial success. >> [music] >> We got a quick flip and a pivot. The Fed's in focus. Stagflation alert. Inflation remains sticky and unemployment. Wow. ADP shows massive losses in one particular category. And we're looking into the prediction markets with our guest Andrew Wilkinson, director of trading and education at Interactive Brokers. All this and much more on episode number 950 of the Disciplined Investor podcast. >> [music] >> Hey, hey, hey. Ho, ho, ho. It's the holiday season and it's going to be a very short month. I got to tell you, there's some things happening. and we'll go through it and why I think that we really need to be ready and not lag because while it is the beginning of December, the fact of the matter is we got a few things coming up in the next few weeks that is actually going to shorten it down pretty pretty well. By way of introduction, I'm Andrew Horowitz, your host of this fine podcast where we are all about the discipline. I'm also the co-host of DH Unplugged where myself and John C. D'vor get together each and every week on Tuesday nights. Yeah, Tuesday night we're live and we talk about all sorts of things ranging from the news to what's happening in specific investments, where things are going, recipes, crazy discussion, but really uh I would say informative. So, make sure that you definitely subscribe to that whether it's on Amazon Music, Apple Podcast, Spotify, Our Heart Radio, the list goes on and on. Wherever you get your podcast, you can get the disciplined investor and DH unplugged. So discipline, we're talking about discipline and the discipline that we're talking about and what we do here is all about learning. It's about acting. It's about doing. It's making sure that we are going to have a very secure future. This is what it's not. It's not about the fluff. It's not about getting rich quick. While we're all about getting rich, I'm all for that, right? It's a disciplined approach. It's all about getting there and keeping you there. Making sure that you grow and that money that you have, those investments that you've accumulated, that you've nurtured are going to be there for you for the future and that they're not going to necessarily have any big problems. And there in lies the differential with getting rich quick. It's also getting rich quickly. The reverse is true. I got to say, right? You got getting poor quick. Why? Because sometimes easy come, easy go. Now listen, there are those great stocks, those options, those things that we could do and that we could set up for ourselves that make money very quickly and we have the opportunity to make some real scratch. I no problem with that. whether it's from the crypto markets to um speculative trading of of stocks. H have at it. But in totality, what we're going to do is make sure that we are disciplined. I have no problem with, you know, doing things in a small account that's really aggressive to put a little bit extra alpha in your portfolio. No problem with that. All your eggs in on one basket. No. Nope. We're going to say no to that. diversification. Yep. We're going to say yes to that. So, the discipline, the process is what it's all about. Now, as I mentioned, this month is going to be quick. It's going to go by like quicker than you can imagine. Why? Well, in a couple of weeks coming, we have Christmas Eve. That's on a Wednesday. We're going to have partial day for the markets on that day. And then you're going to be closed the next day for Christmas. Friday. So, you get the Wednesday, Thursday, Friday thing. Friday. Who's working on Friday? You're off ready for Wednesday or part of Wednesday into Christmas Christmas Eve. We all get the holiday bug. Whether you're in uh the state of Washington, down to Houston, all the way up to Maine or down where I am in Fort Lauderdale, Florida. The fact of the matter is it's holiday time and we take off. We spend a little less time. The fact of the matter is the setup this year is going to cause a little bit more problem for some people because people are going to work a little bit less. Same thing is the week after that, the Wednesday is going to be New Year's Eve. Then Thursday's New Year uh New Year's and that's it. Done. Kaput. Who's working Friday? Nobody. So, we come back and already we're into January. And there are some things that we need to start thinking about because I want to make sure that you get to these things earlier than later. Make sure that you have plenty of room to get things done because by the end of the year, if you don't, it's all over. You can't come back and say, "Oh, I forgot to, you know, sell that stock for a loss and hey, can I have a second chance into uh 26 and make it count for 25?" No, you can't do that. So, I put together a very simple list, something you want to think about to get the juices flowing about some of the things that you could do for year end to make sure that you are on the right track and you do those things to optimize your taxes to make sure that you are in fact doing the things that you can do from an investment standpoint, from a planning standpoint before the year is out. So, like what are these? What what what are we talking about? We got required minimum distributions from IAS. If you're at the age we need to think about this, you need to start thinking about it now because if you don't take out enough, if you under withdraw from your IRA and you're required to do so through RMDs, if you're age 73 or more or potentially there are are other ages that you may have had to start taking, but generally 73 or older or there's an inherited IRA also. You could be young and inherited an IRA. you're the beneficiary of an IRA, you have a 10-year plan that you have to start taking out that money. And if you don't do so, it's a huge penalty. So, you need to think about this. You need to contact your CPA. You need to look at your brokerage account. You need to find out from your investment advisor if they're doing it. We do that for our clients for the most part. We we do what we're holding. We'll make sure that things are uh discussed and taken care of. But if your investment advisor isn't doing that, uh, tell them, hey, you know what? Get with the program, let's get some planning going on here. And what else? What else do we have? Well, if you have a company, if you own your own company and maybe you only have a few employees and you don't have a pension plan, maybe it's time to start thinking about setting something up like a a SEP, a simplified employee pension plan. You can put lots of money on a taxdeductible basis into that, but you need to make sure to set that plan up before year end. You can contribute to it and put money in in 2026 for 2025, but generally speaking, you need to make sure that you plan and get that account set up before the end of the year 2025. Before the calendar year ends, you have to set that up and then you could fund it after the fact. Then there are tax matters like reviewing when your portfolio needs to take some gains and losses when it's appropriate. So what we do is we look at accounts, we do some tax loss harvesting for clients where it's appropriate, looking for ways to uh pass through the losses and take gains to offset reset the portfolio. Now, not everybody needs this. If you have only tax sheltered accounts like IAS and Roths and pensions and things of that nature, annuities, you can't, it doesn't matter. But if you have other accounts that maybe you have some extraneous gains and you're in a lower tax bracket, maybe taking some of those for short-term gains would make some sense to not put you into the next level. Or maybe the capital gains can be used against capital losses and vice versa. something should be considered. And also maybe thinking about the idea of tax loss harvesting with a little bit of a twist like selling underperforming investments to offset gains. But also consider harvesting gains if you're a lower tax bracket this year. Locking in gains at a low tax rate can be really just as powerful as offsetting losses. something to really think about there because the whole game is not only making but keeping keeping as much of your profits and your investments as you can. And if in fact you can take some of the gains and keep the money at a lower tax bracket, that means that you have more for yourself. And that's what we're talking about, keeping more. Then there's things like charitable giving. particularly appreciated assets, highly appreciated assets. So instead of cash, you could donate appreciated, highly appreciated stocks, ETFs, things like that to charities or even donor advised funds. And by doing so, you could basically eliminate capital gains tax because you're giving it to the charity and still get a full deduction for the fair market value of the gift that you're giving to the charity. Now, if you're charitable inclined and you have these kind of situations, this is one of the best ways to gift. You can do it also with a um an IRA, for example. So that's something to think about. Then you have RSPS and FHSAs. This is for education. First homes uh first home savings and buyers contributions must be made by December 31st to capture this uh this year's particular government match on the tax benefits or or tax benefits either and or even opening up an FHSA now secures 8,000 of contributions room for next year. then you could consider something like a backdoor Roth. So high earners who exceed the Roth IRA income limits can still contribute via what's called a backdoor conversion, which is you take your traditional IRA and take the money out, you move into a Roth IRA. There's some prora rules that you need to look at, but there's a lot of things that you can do before the end of the year. This is not an exhaustive list. Number one, and it is not big disclaimer. This is not tax advice. You need to talk to your CPA. You need to talk to your financial professional. But I wanted to I wanted to bring up a few ideas to get those creative juices flowing. Like, oh, I didn't know I could do that. Wow. Wait a second. Maybe I should start doing something. You're listening. You're spending your time learning. It is time to act. It's always time to act. It's always a good time to act. Sell those losers, offset some gains, reset your portfolio, rebalance your portfolio. There's a lot of things that happen towards the end of the year that get a little weird and into the beginning of the year. So, there's something I want to make sure that you are well aware of that you're working on. These are ideas. So, do what you can, be disciplined, and get set. Let's get to our guest. It's Andrew Wilkinson. He's director of trading education at Interactive Brokers. I have so many questions. He joined Interactive Brokers in 2007 with a background in interest rate and derivative trading in the city of London during the 1990s. He joined IBKR to create monetary and market commentary about stocks and options, forex, bonds for the website before helping create the IBKR campus. If you haven't checked that out, that that's something right there. You need to go look at it. Which covers traders insights, traders academy, webinars, podcasts, and all sorts of things about financial trading for uh training for investors and traders at all levels. So, let's get right to this discussion because I want to really get into how they're doing, how the industry is doing with what's gone on this year. Also, um I really want to talk about some of the hot topics right now that a lot of people have been talking about like zero data options, options, option strategies, uh predictive mark predictive markets. That's a that one right there is a biggie. So, let's get into it. So, Andrew, how are you >> doing? Well, thank you, Andrew. Thanks. Nice to be back. >> Yeah, it's great. So, I know we've talked about the the various times and travels and things and all the things going on, but some of the things that are happening right here in the US uh pretty amazing in terms of the activity. I mean, we looked at some of the reports from uh industries leading brokerage houses and in particular yours. I mean, 29% higher daily average revenue trades or is known as darts from a year ago. That's pretty impressive. >> Yes, it it is a function of what's actually happening in the market that month as well. So, you know, darts can fold as well as rise, but it it is it does speak to the fact that we've we keep adding customers. This has been a a huge trend since the beginning of co and I think in uh November we've added um more clients to the ranks around the world. We now have 4.311 million client accounts and that's up a third on a year ago. Um and and they executed 4.273 million dots daily average revenue trades as you mentioned. Um, so I'm I'm I'm guessing that maybe I mean we have more AUM 770 billion just about again that's up by a third. That's a function of uh markets rising. It's also a function of uh volatility in the marketplace and you know some of the selling we saw in November um would have would have translated into act active traders really participating uh which accounts potentially for why why the dots were a little higher. So but but what the point though is you know you mentioned something you said uh I thought that was interesting when we look at the ending AUM the assets under management uh and about 35% uh higher than a year ago you said it was a function of the markets but yet nay it's also a function of good investing so it's the markets for people who are just passive I'll go with that >> right >> but let's give you some credit here and some props for the fact that you're you know director of of education and of trading, understanding all that, right? So, must be something going right with what you're doing to educate your uh your clients to make sure that they're staying out of harm's way because even in a good market, you can get wrecked sometimes. >> Yeah, we we we we typically appeal to more professional type accounts, Andrew. So, yes, the AUM it's a function of those two things, isn't it? side if passively if the market goes up the AUM is very likely going to go increase as well but as we bring in clients we tend to notice the AUM go up the education journey we're very proud of it here we we have something called the IBKR campus and um it it's it's you I think of it as an umbrella covering a series of pillars we've got about nine different pillars whether it's something like API user guides um our student trading lab the Main pillars in in involve podcasts, webinars, traders insight which is market news, traders academy which teaches people about asset classes, how to trade and our user platforms. So we we also partner with the outside world. We've got a lot of uh information there from the CME group in terms of video format. So, we just try and cover as much content as we can to to to help keep investors on their toes and if they don't understand outside the world of stocks, they got no excuse because they can go and learn all about it um with our um with some of our lessons and courses and and something I should give a a big shout out for which has just been launched in the last month is our very innovative interactive learning tool which allows people to better understand OP options. So you can the the the journey is for somebody to um address the asset class, learn what a call is, learn what a put is, drag answers into a chunk of text uh and then interact with the screen so that you can see the impact of choosing a particular strike, a particular um uh expiration date uh and a and a particular price. And as you as you kind of get better at that, you you gravitated towards more complex uh options combinations and strategies. So this is kind of a first in the world as far as we know and we've run it past a lot of our industry partners and they're blown away by it as well. So we're very very proud of the educational offering we have here. >> So that that let's just stick on that for a second. that that options tool, the educational tool is more than just a simple black scholes representation of um what happens if you have this call, what is your possible max loss, max gain and scenarios. Is that what you're saying? Because we've seen those before. >> Yeah, totally. This allows you to use your mouse on the screen, drag the coordinates, the the strike price or the break even to a particular point so that you that the um the understanding of options is reinforced and you you know you're allowed to pick a series of you know straddles, strangles, long calls, short puts and test yourself until you actually understand what it is you're doing and and how that P&L chart will change. Um, so yeah, we kind of get into black shells and the pricing of it somewhat, but as you say, those calculators are already out there, but this allows the user to really understand to dive down, interact, and and um become a more knowledgeable trader. I >> I'll be honest, I haven't used this yet. Is that something where if you go through that process, you can say, "Okay, I pinpointed this." And then you can turn that into a trade right from there. Um, yeah, because you can be logged into the campus and then uh go straight through to the client portal. So, yeah, I guess you can. >> Well, there you go. Um, all right. Let let's let's talk about something that I may want to come back. I'm reserving the right to come back to talk about options, but um I want to talk about something that it it seems has become very popular. Um, and we're seeing this crop up um in in a number of different places in a different ways and there's a lot of companies that are starting to embrace this and really I don't want to say push it but really promote it and that is the predictions market. So, first let's just start I want to start from from from uh I'm asking you as the teacher in you right now. Okay. To educate me as if I and our listeners have no clue what that means. The words prediction markets and tell me what that is at the base at the core. >> Okay. So a pred the prediction market enables you to take a view express a view on the outcome of a question and essentially it's a binary question that the ultimately the answer is either it's yes or it's no and what this boils down to is looking at the probability of that event occurring. So um very shortly the Fed's going to meet again and um they're going to they're either going to reduce interest rates or leave them alone. So the question is will the Fed funds um rate of interest as of a specific date as if this was a contract will it be above a certain level? So the the the the odds on that are then calculated by buyers and sellers. Some people will have one view that the Fed will cut interest rates and other people will have a view that they won't cut interest rates. So, you know, for for a contract that might be some way off and there's a lack of information and a lack of certainty, the pricing might be 50/50, right? You know, the Fed may be done uh reducing rates and they may be entering a tightening cycle at some point. So, I I think the odds are 50/50 for June next year that this event will actually come true. So the the premise is that the correct answer is paid out a dollar. So I can wage 50 cents in order to earn a dollar in the view that my view was correct. Or on the other hand, if I'd taken a 50 cent wager and the outcome turned out to be incorrect, I lose my 50 cents. So the whole point of what we're doing here in the prediction markets is to try and help investors understand better what's actually happening in the real economy as pertains to what the central bank's doing, what economic data is doing, and how that can help an investor understand whether their portfolio is in in um you know they're likely to do well with their portfolio because some of these contracts like um you know will retail sales be above a certain certain level at a certain point of the year. Um if you're long of retail stocks, you could take the opposing view if you felt that retail sales was about to decline. So again, it's all about like calculating the odds which is done for you and expressing that view. So your your 90 cents can become a dollar, your 10 cents could become a dollar if you you get that right. A really a really good example of this is what's going on with the um [snorts] uh the nomination. Oh yeah, the Fed Oh, Federal Reserve, right? >> So, I'm gonna pull this I want to pull this up on my screen because this is over at because everybody could you can actually you can actually follow along without having to count. So, um yes, >> go to ibr all the markets all the markets are available on on online for people to see the current odds, >> right? So, go to uh I think it's um ibkr.com. Let me just read my screen because I have it up. So, what's interesting, let me go there. Um go let me go back. Okay. So you can go to like for example what what are the popular ones? So the popular ones are Fed decision whether it's going to be you know no change lower buy, higher than um there's things like futures contracts, things like that. Where is the one I'm looking? There's a lot of these uh >> so probably under um >> government >> um uh uh government. Yeah. So, under government, this sort of thing. Uh, presidential nomination for Fed chair. All right. I'm going to click that. >> Yeah. >> So, I'm going to click that. And it says, "Will President Trump nominate Kevin Hasset as Fed chair?" So, uh, what's interesting about this is that it just to repeat what you said, it's asking me a question, I have to say yes or no, >> right? >> And if I if I if I say yes, it's going to cost me.7 as of right now. And if it says if I guess no, not guess, if I predict or I whatever you want to call it, if I predict, I guess the right word, um it's it cost me 28 cents. So if if if I if I put money on no and I invest there and I predict that's the market and I put down um round number, I'm just going to use round numbers here. $100 and the no comes to pass essentially I'll get back three times my money approximately three and a half times. Right? Was that correct? >> Yes. >> So that's how it works. Basically, if if I choose a yes contract, it's 70% probability that that will come true according to this metric right now. Now, what about liquidity? What happens if I choose the uh yet uh let's say I choose the no contract? It's at 28 cents now. And let's just say let's just kind of go down the path a little bit. They have a little fight because President Trump has been known to have little fights with people, >> right? >> And all of a sudden it's worth, I don't know, 80 cents. Can I sell it right then? >> Yeah. I mean, there's going to be um hopefully another customer on the other side and it might be a penny or two different to get out. But you could see that the combination of the two premiums there, the yes plus the no adds up to um 98 cents right now. So there's there's there's two cents inside there that's being lost or paid away to the broker. Um that that's how that works. >> But my point is these are liquid at any given time, right? >> Yeah. Yeah. Six days a week. And I think what's interesting about this particular question, this market closes in 1143 days. The what you missed on the question there Andrew was uh will President Trump nominate Kevin Hassa as Fed chair and the as of date is January the 20th 2029. >> Good point. This is a weird one. Let's be honest. This is a little bit weirder than than most. Right. >> It is. So if you let's the logic here is that Jerome Pal's um term comes to an end in May. Yep. So, you know, we're going through that process right now of u you know, President Trump uh making his nomination and the the word on the street is that Kevin Hass is going to be it. Kevin Hasset then has to go through an approval process in in in in the Senate. I think uh and if he's not approved, then President Trump's got to go to the next person. Um or or or or whoever he nominates might say, "Well, thank you very much, but I don't want to do that. I'm really happy in my current job." So that's why we have a list of you know Walsh Hasset Waller Bessant other people. Um so you know should anything happen to the whoever becomes the next uh Fed chairman uh you know President Trump could still nominate somebody else before the end of his term on January the 20th 2029. >> Yeah. So this one is a much longer situation a little bit of a different thing than others. For example, the one we were talking about earlier that I was mentioning, which is much more um timely. We'll call it, you know, timely is um will in fact, let me go find that again because I just had on my on my screen. Uh it was under >> probably under financial markets. >> No. Well, no. Uh it was whether or not the the Fed is going to reduce. Let me see if I can do this. >> [music] >> No, that's not the one. I'm looking for it. Just bear with me one second. I think it's economic indicators. Yeah. Uh here, this one, for example, this one uh is going to end on I believe I believe the 10th of Yeah, it's going to it's going to expire on the 10th. And this is will the US Fed funds target rate be set above 3.625% at the F FOMC meeting. ending December 10th. Okay. Now, now recording this a little bit earlier than it would be on the actual day of the which is next week on Wednesday. That's next week on Wednesday. So, if they essentially here's the response. If they cut um then the no would get the nod here. >> Correct. >> So, this is an upside down question. So, let me just read the question again. Will the US Fed funds target rate be set above 3.625% 625% at the FOMC meeting in December 10th, 2025. So, this essentially says if they don't cut if they don't cut, that's a a no. >> No, excuse me. It's a yes. Pardon me. It's a yes. So, I don't Sorry, I'm confusing myself. It's a yes. Um, and if they do cut, it's a no. So, basically by a quarter point. So if you are inclined to believe and as you said you were expressed your opinion and your belief that the Fed funds uh the Fed Federal Reserve will be cutting you can buy uh a contract here or prediction uh on this uh as as the no. >> Right. Right. So if if you think they're going to cut um the the prevailing Fed funds rate is 3.875. So a a cut to 3.625 625 means that um they uh >> 25 basis points. Yeah, >> 25 basis points. The no at 92 cents is worth a dollar at uh at after the meeting on. >> So if you believe for whatever reason that they are not going to cut, you can make a wallpaping amount of money with a couple bucks. >> Yep. Eight cents buys you buys you a dollar. >> Yeah. >> Yeah. If if that's the case, >> pretty good. >> Yeah. >> Pretty good. >> Yeah. and and and and and what's interesting is that um this market was about 43% no say 10 days ago. >> Yeah. before maybe maybe 12 days ago before um the New York Fed chief started talking about um yeah I I can see I can see there being rationale to cut interest rates and then we've had subsequently we've had a couple of weak data points I think the PMI or the ISM and um the unemployment report >> unemployment rate was the ADP report showed a loss of jobs right yesterday >> and then and then and then you have the other problem with this whole thing is that the actual jobs report is delayed until the 11th, the day after or two days after 12th maybe the day after uh the actual decision. It's a very interesting situation. Who is this for besides everybody? Who is this? Give me some scenarios that you believe these this particular circumstance and then we can of course looking that uh because you could you could actually break this down. There's other things like okay another one Fed decision you know it's going to be unchanged um uh any FOMC member disscent will there be any any disscent uh number of FOMC members dissenting I mean there's a lot of different uh ways to predict this now the question I ask you is um let's take a scenario build me a scenario for someone aside from the fact they just want to earn money potentially on their their their belief who What else can these be used for? >> Well, I'd answer that question by if if you think on on Fed day, you get all these talking heads on the television um saying what they think the likelihood of something an event happening is, but they they can't really with any certainty predict the impact of that outcome. So yeah, that you know we think the Fed might cut rates on on on Wednesday, but if there's a number of dissenters um or the market reacts badly, then you might want to look at that that uh FOMC members descent contract or you might want to look at the 15-year mortgage rate or the 30-year mortgage rate or any other uh tre treasury note because you you so you you can predict accurately the [clears throat] outcome and which which the market currently says is going to happen with a 92% certainty. So, so maybe there's no value me me um making a wager on that. But if I think that I'm trying to understand what the stock market might do as a result afterwards and I don't want to take a short position, I might take a a yes on the number of dissenting members. Um because if that happened um you might see the stock market react in a particular way, >> right? And so the so so there's there's outright in uh you know prediction uh speculation there's outright uh ability to hedge positioning. So this could work in a number of ways. Are there limitations on contracts and how how how how um how much volume are on these things? >> Um we measure that in terms of I I think um I think we got to about a million contracts a day. uh and and that that may have quietened down a little bit, but certainly over the recent election period at the start of November, uh we were seeing a lot of interest in the um in in those election contracts and um what's the other thing that we're seeing a lot of interest in? Um c certainly as you mentioned at the outset, Andrew, uh the the Fed decision is is a big one. We're also seeing a lot of interest in temperature in or the high temperature in Los Angeles, San Francisco um as well. And now you can kind of extend that analysis into I think you know we all know what happened in January in Los Angeles with the with the wildfire spreading. I think there's there's some areas of the country where you can't even insure yourself anymore. And so you can potentially use these contracts to look at a way of ensuring, you know, if if you if you if you think that the temperature is going to get hotter and it's going to cause um a an an event such as a fire, but you can't insure against that and it might impact uh an an element of your portfolio. Um then then you could certainly take the yes on the on the high temperature. you will the temperature exceed, you know, 78 degrees or 84 degrees or whatever it is. Um, and you could get paid out. So, it's equivalent to having an insurance contract uh on on the weather in a place that may may even be lacking insurance. >> So, is it also possibly good for things like farmers instead of using futures contracts? >> Uh, again, similar situation there. Yeah, they they they they could certainly look at that uh type of scenario where there's where there's a lack of insurance. Interesting. >> I mean, I I think it'd be difficult to get farmers to kind of look away from traditional futures markets. If you if you're a corn or a soybean or a wheat farmer, um and you wanted to, you know, protect set a floor under your price, you'd probably be better off using a futures contract. But certainly I can see, you know, climate related events as not not not not not getting out of control, but certainly um having an a related undue impact on their farming activity and they they they could certainly use them too. I would suggest. >> Interesting. Interesting. All right, let's move on um to some other things I want to talk about. um some of the new things that you have because you mentioned um some smart educational tools, but let's branch over to what everybody wants to know about because you re I'm sure you're refining this from the last time we talked and that's some of the AI driven and AI powered tools that you have. Um there's there's there's a lot of really interesting things that can give you insights into your current portfolio but you've gone a little bit further than that right? >> Yeah. Yeah. So the so we I think that the the categories uh which you can query now if if you have a portfolio of um you know stocks stocks options and um ETFs bonds wi within the the portfolio metrics you can compare performance against benchmarks and identify valuation changes over time so that you can see periods of under or overperformance. Um you can analyze the sector exposure. You can do some allocation analysis and you you can compare the returns across asset classes uh and and assess by uh performance by industry type sorry instrument type. >> Mhm. >> Um holdings expirations you can identify the top positions you can have. Sometimes that's a little difficult if you're holding multiple ETFs and they they tend to you know ven diagram they cross over one another. um you you can identify those top positions, look at the geographic allocation and find out which which um securities pay the highest or lowest dividends. And you can track your activity. You can review trade history, uh monitor interest and fees that you're paying. And you can analyze cash inflows and outflows. >> Now, you're not thinking about putting me out of business, are you? >> Um no, not [laughter] trying. We we try we try and provide as much as we can for free. So I think I think >> No, no, no. That's I was just kidding because that stuff No, a lot of those things are are obviously very beneficial not only to the client but to advisers as well if there is an adviser on the account. >> Yes. >> So there's a lot of really good things on there. Where where are you going? What what what's what's what's lurking in the back there that you're working on? >> Um what have we got working in the background? Um well, we're going to expand in the education offering. We're going to expand um [snorts] our insight on cryptoreated um market commentary, podcasts, webinars, and um and video material. >> That's cool. >> Um we're going to we're always pushing the uh the the the generative AI applications um including intelligent question completion. Um, so we're, you know, in your drop-own menus, you can allow clients to select parameters such as benchmarks, time frames, and accounts. Um, so, so there's a lot going on AI wise for us. Cool. I wanted to mention, um, couple other things. I know you have a new Visa card. You have a whole cash management program that's going on there. So, there's no foreign transaction fees, which is kind of interesting because that is something that can be really beneficial when you're traveling. Um, yes, and and under underrated by the way >> by a lot of people not thinking about that. But that that's an important thing. You're out there doing your thing and you want to grab some cash from an account and you get a good currency conversion hopefully and not no fees, >> right? >> Or limited fees. Um, I want to talk about the um the the RAIA, the registered investment advisor client survey results because um you you put this out, you do this um this this um um these these surveys, if you will, by professionals um and you came up with um well, they came up with more than 51% of the financial advisors are bullish on US markets. Is that a big difference than you've seen? It's usually about 50/50, isn't it? >> Um, so so more than half are now bullish and and I think that um 59% have changed their views since June. 29% have become more bullish and about 30% uh have t turned more bearish. Mhm. >> And I think what's kind of if you dig into the weeds there, there is growing optimism, but there as ever, particularly with markets at highs now or towards all-time highs, the advisor seem to remain mindful of the potential risks of a market correction. That's the top concern. Um with with uh client clients more focused on the impact of volatility on their investments. Um, one of the biggest surprises for for advisers this year has been the unexpected rise in gold prices. Um, >> and how about silver, huh? Forget about gold. >> Silver's up 70%. >> Yeah, they've all skyrocketed. I mean, these are the things people always talk about as as, you know, assets that you should have in your bottom drawer, just a little bit in your in your portfolio. And here it is. It's it's it's come back. I I you know I've never been a fan of that but it's here it is >> hit me between the eyes >> right this year well you know once in a while it's it's just like you know the emerging markets discussion that every year for 10 years I had people coming to me and talking to me about how this is the year for emerging markets I'm like okay great and every year it's like gh didn't work out but they're there the next year pounding the table and you have all the gold bugs silver bugs and all the people there saying you know gold gold um I know people that finally gave up on gold about two years ago Unfortunately, um >> well, I I I I think some of that is probably wrapped up in the appetite for cryptocurrencies, too. >> Yep. They changed over said that would be a better deal. Meanwhile, look at this year's results. >> Uh clearly favors the hard metals versus the cryptos. >> Yeah, absolutely. >> Pretty amazing. >> So, I I it's a little difficult to understand to be honest. Um >> well, I mean, I think they think that what are you going to do with gold? How do you transact it? They've been trained now by all the crypto bros. It says, you know, you know, what are you going to do? You know, you're going to take your piece of gold in the and and you know, after the radiation fallout subsides, you're going to come up for air and how you going to trade, you know, what what are you going to do? How you going to use it? You know, you can always Now, they don't talk about the fact there won't be any internet and stuff like that because everything's, you know, been decimated. But, um, the theory is that, you know, how to use it. Now, the other side is saying, well, it's always available. It's in my hand. I can hold it. I can touch it. I can feel it. I can move with it. So stop there. I want to just going go through this other part. Um the full update of the 2025 interactive brokers advisor insight study also revealed that advisor more confidence in the markets as you mentioned in the spring. 59% of the advisers have now changed their view on the market stance since June. 29% have become more bullish. 30% reporting uh turning more bearish. So kind of uh back and forth. Um but I I agree the whole I think everybody's waiting for advisors and you you know you mentioned advisers waiting for correction and investors you know worry worry about volatility which depending on your your time frame they're the same thing >> right? Yes. >> A correction is just volatility in a long time frame. >> Yeah. >> A correction in a short time frame is disaster. One one of the most notable things um about 2025 uh we we we look at what in aggregate customers are doing on a daily basis in which names in stocks and options. or worker calls bought puts bought calls sold puts sold and in aggregate it it's it's been astounding that on every pullback this year investors have been net buyers. So e even in even even in um April when we had the massive selloff due to the tariff uh the tariff announcement in the rose garden um investors continued to buy into stocks. I'm absolutely blown away by that that that insight and I I think it's um something that's been echoed by other brokers too. So it's there's nothing nothing special about >> is people it's they've been trained to believe that selloffs are buying opportunities in every case because they have been and you look at all of this all we see are V's we see quick downs that are exacerbated due to the fact of heavy margin. I think uh I spoke to somebody and maybe it was you somebody was talking Oh, no. I think it was in your earnings release and then you I looked at a variety of other brokers margin brokerage margin in accounts. It was an all-time high. >> Always happens. >> Yeah. And that then what happens is the volatility is is exacerbated uh in the selling. >> Yeah. >> So, you know, we and and the amount of options that we have playing right now also probably has a bit to do with it. But the zero dated options, everybody's looking for a, you know, a hail mary. Uh, you know, they they want they want a touchdown every or home run, I should say. Every sing every time up at bat, every ball that's thrown, they want to hold run. That's what they're that's and they're not holding back. >> Yeah. But but I mean, going back to April, there was, you know, you mentioned that people have been trained to buy the dip and I don't disagree with that, but in April it did very much feel like this could be different this time, >> right? I agree. 20% down. But it also is a it's a function of of how how fast it happens. I find and this just makes sense if you think of it intuitively. A a very sharp drop down is met with almost an equal and opposite reaction on the you know up. It may take a little bit time, but generally it it will it will >> move back up. And as it moves back up, >> um you have the shorts covering very quickly. >> And as opposed to a long drawn out just, you know, corrective market, bare market doesn't have to be 20% down in a day. It could be down half percent flat, up a quarter, down 3/4 of a percent, but but stairstepping down. uh that is met with a much different, you know, and you do that over a 6, 8 month, 10-month period, it's met with a much different and and I think a little bit more uh concerning eye from the investor and from professionals. >> Yeah. Yeah. >> So, you got that there. Well, we're going to end there. Andrew Wilkinson, I want to thank you. Have a happy holiday. Have a happy season. I wish you a wonderful uh uh end of year, and we'll pick it up again uh next year. I want to hear all the good things that are going on. >> Brilliant. Thank you very much for having me on the program, Andrew. It's always a pleasure. >> Okay. Thanks so much. Cheers. >> Cheers. Bye. >> And that's a wrap of this episode of the Discipline Investor podcast. Thanks for joining me. You know, a lot of things happening as we get through the holiday season towards the end of the year. And we saw things like at the end of the week last week the PCE number come in that was by some measures a little bit hotter than expected at 3% and 2% or 3.3% uh which would equate to 3.6% over the next year and then also don't forget we saw that there was a core of.2 two better than expectations, but still in all and all a higher level of inflation that has been very sticky that looks like it could start moving higher. And what we get from there is what? Well, that horrible word that we all don't want to see printed on any particular economic forecast and that is stagflation. Maybe something that happens very infrequently, talked about frequently, actually occurs very infrequently, but something to be aware of. I want to thank you for joining me. Make sure to go over to Amazon Music, Apple Podcast, Spotify, even uh YouTube, which we don't have a big audience on YouTube, but we'll grow that uh in the future. But nonetheless, make sure to tell your friends, your family during this holiday season. Give them the gift of the disciplined investor. By the way, we have books uh that are that are available. We'll give some away next year. But also the audio book is available of course on Audible on Amazon and I think you'll really enjoy that. The discipline investor essential strategies for success. Thanks again for joining me. I'll see you again real soon. This podcast is intended forformational purposes only and does not constitute personalized investment advice. Investing [music] involves risk, including the possible loss of principle and past performance is not indicative of future results. The views and opinions expressed are those of the host and any guests [music] and may not necessarily reflect those of Horowits & Company Inc., an investment adviser registered with the US Securities and Exchange Commission. Registration with the SEC does not imply a certain level of training or skill. Advisory services are only offered to a client or prospective clients where Horowits Company is properly registered or is excluded from registration requirements. Any mention of thirdparty companies, products, or services is provided forformational purposes only and does not constitute an endorsement. Hypothetical scenarios or forward-looking statements are for illustrated purposes and should not be viewed as guarantees. Content is intended for US residents only and may not be applicable in other jurisdictions. Listeners should consult a qualified financial advisor before making any investment decisions. Please visit our website for additional information, disclosures, as well as a copy of our form CS. Advertisements are not related to the host or affiliates and are not considered [music] recommendations by the host of the show or any affiliates or Hollywood. [music]
TD Podcast: Predictive Markets (#950)
Summary
Transcript
[music] The Disciplined Investor is all about you, your money, and the markets. Sit back and get ready for this edition of the Disciplined Investor podcast. This [music] episode of The Disciplined Investor is sponsored by Horowits & Company. If you're [music] looking for a portfolio manager, look no further. Horowits & Company. From seed [music] through harvest, cultivating financial success. >> [music] >> We got a quick flip and a pivot. The Fed's in focus. Stagflation alert. Inflation remains sticky and unemployment. Wow. ADP shows massive losses in one particular category. And we're looking into the prediction markets with our guest Andrew Wilkinson, director of trading and education at Interactive Brokers. All this and much more on episode number 950 of the Disciplined Investor podcast. >> [music] >> Hey, hey, hey. Ho, ho, ho. It's the holiday season and it's going to be a very short month. I got to tell you, there's some things happening. and we'll go through it and why I think that we really need to be ready and not lag because while it is the beginning of December, the fact of the matter is we got a few things coming up in the next few weeks that is actually going to shorten it down pretty pretty well. By way of introduction, I'm Andrew Horowitz, your host of this fine podcast where we are all about the discipline. I'm also the co-host of DH Unplugged where myself and John C. D'vor get together each and every week on Tuesday nights. Yeah, Tuesday night we're live and we talk about all sorts of things ranging from the news to what's happening in specific investments, where things are going, recipes, crazy discussion, but really uh I would say informative. So, make sure that you definitely subscribe to that whether it's on Amazon Music, Apple Podcast, Spotify, Our Heart Radio, the list goes on and on. Wherever you get your podcast, you can get the disciplined investor and DH unplugged. So discipline, we're talking about discipline and the discipline that we're talking about and what we do here is all about learning. It's about acting. It's about doing. It's making sure that we are going to have a very secure future. This is what it's not. It's not about the fluff. It's not about getting rich quick. While we're all about getting rich, I'm all for that, right? It's a disciplined approach. It's all about getting there and keeping you there. Making sure that you grow and that money that you have, those investments that you've accumulated, that you've nurtured are going to be there for you for the future and that they're not going to necessarily have any big problems. And there in lies the differential with getting rich quick. It's also getting rich quickly. The reverse is true. I got to say, right? You got getting poor quick. Why? Because sometimes easy come, easy go. Now listen, there are those great stocks, those options, those things that we could do and that we could set up for ourselves that make money very quickly and we have the opportunity to make some real scratch. I no problem with that. whether it's from the crypto markets to um speculative trading of of stocks. H have at it. But in totality, what we're going to do is make sure that we are disciplined. I have no problem with, you know, doing things in a small account that's really aggressive to put a little bit extra alpha in your portfolio. No problem with that. All your eggs in on one basket. No. Nope. We're going to say no to that. diversification. Yep. We're going to say yes to that. So, the discipline, the process is what it's all about. Now, as I mentioned, this month is going to be quick. It's going to go by like quicker than you can imagine. Why? Well, in a couple of weeks coming, we have Christmas Eve. That's on a Wednesday. We're going to have partial day for the markets on that day. And then you're going to be closed the next day for Christmas. Friday. So, you get the Wednesday, Thursday, Friday thing. Friday. Who's working on Friday? You're off ready for Wednesday or part of Wednesday into Christmas Christmas Eve. We all get the holiday bug. Whether you're in uh the state of Washington, down to Houston, all the way up to Maine or down where I am in Fort Lauderdale, Florida. The fact of the matter is it's holiday time and we take off. We spend a little less time. The fact of the matter is the setup this year is going to cause a little bit more problem for some people because people are going to work a little bit less. Same thing is the week after that, the Wednesday is going to be New Year's Eve. Then Thursday's New Year uh New Year's and that's it. Done. Kaput. Who's working Friday? Nobody. So, we come back and already we're into January. And there are some things that we need to start thinking about because I want to make sure that you get to these things earlier than later. Make sure that you have plenty of room to get things done because by the end of the year, if you don't, it's all over. You can't come back and say, "Oh, I forgot to, you know, sell that stock for a loss and hey, can I have a second chance into uh 26 and make it count for 25?" No, you can't do that. So, I put together a very simple list, something you want to think about to get the juices flowing about some of the things that you could do for year end to make sure that you are on the right track and you do those things to optimize your taxes to make sure that you are in fact doing the things that you can do from an investment standpoint, from a planning standpoint before the year is out. So, like what are these? What what what are we talking about? We got required minimum distributions from IAS. If you're at the age we need to think about this, you need to start thinking about it now because if you don't take out enough, if you under withdraw from your IRA and you're required to do so through RMDs, if you're age 73 or more or potentially there are are other ages that you may have had to start taking, but generally 73 or older or there's an inherited IRA also. You could be young and inherited an IRA. you're the beneficiary of an IRA, you have a 10-year plan that you have to start taking out that money. And if you don't do so, it's a huge penalty. So, you need to think about this. You need to contact your CPA. You need to look at your brokerage account. You need to find out from your investment advisor if they're doing it. We do that for our clients for the most part. We we do what we're holding. We'll make sure that things are uh discussed and taken care of. But if your investment advisor isn't doing that, uh, tell them, hey, you know what? Get with the program, let's get some planning going on here. And what else? What else do we have? Well, if you have a company, if you own your own company and maybe you only have a few employees and you don't have a pension plan, maybe it's time to start thinking about setting something up like a a SEP, a simplified employee pension plan. You can put lots of money on a taxdeductible basis into that, but you need to make sure to set that plan up before year end. You can contribute to it and put money in in 2026 for 2025, but generally speaking, you need to make sure that you plan and get that account set up before the end of the year 2025. Before the calendar year ends, you have to set that up and then you could fund it after the fact. Then there are tax matters like reviewing when your portfolio needs to take some gains and losses when it's appropriate. So what we do is we look at accounts, we do some tax loss harvesting for clients where it's appropriate, looking for ways to uh pass through the losses and take gains to offset reset the portfolio. Now, not everybody needs this. If you have only tax sheltered accounts like IAS and Roths and pensions and things of that nature, annuities, you can't, it doesn't matter. But if you have other accounts that maybe you have some extraneous gains and you're in a lower tax bracket, maybe taking some of those for short-term gains would make some sense to not put you into the next level. Or maybe the capital gains can be used against capital losses and vice versa. something should be considered. And also maybe thinking about the idea of tax loss harvesting with a little bit of a twist like selling underperforming investments to offset gains. But also consider harvesting gains if you're a lower tax bracket this year. Locking in gains at a low tax rate can be really just as powerful as offsetting losses. something to really think about there because the whole game is not only making but keeping keeping as much of your profits and your investments as you can. And if in fact you can take some of the gains and keep the money at a lower tax bracket, that means that you have more for yourself. And that's what we're talking about, keeping more. Then there's things like charitable giving. particularly appreciated assets, highly appreciated assets. So instead of cash, you could donate appreciated, highly appreciated stocks, ETFs, things like that to charities or even donor advised funds. And by doing so, you could basically eliminate capital gains tax because you're giving it to the charity and still get a full deduction for the fair market value of the gift that you're giving to the charity. Now, if you're charitable inclined and you have these kind of situations, this is one of the best ways to gift. You can do it also with a um an IRA, for example. So that's something to think about. Then you have RSPS and FHSAs. This is for education. First homes uh first home savings and buyers contributions must be made by December 31st to capture this uh this year's particular government match on the tax benefits or or tax benefits either and or even opening up an FHSA now secures 8,000 of contributions room for next year. then you could consider something like a backdoor Roth. So high earners who exceed the Roth IRA income limits can still contribute via what's called a backdoor conversion, which is you take your traditional IRA and take the money out, you move into a Roth IRA. There's some prora rules that you need to look at, but there's a lot of things that you can do before the end of the year. This is not an exhaustive list. Number one, and it is not big disclaimer. This is not tax advice. You need to talk to your CPA. You need to talk to your financial professional. But I wanted to I wanted to bring up a few ideas to get those creative juices flowing. Like, oh, I didn't know I could do that. Wow. Wait a second. Maybe I should start doing something. You're listening. You're spending your time learning. It is time to act. It's always time to act. It's always a good time to act. Sell those losers, offset some gains, reset your portfolio, rebalance your portfolio. There's a lot of things that happen towards the end of the year that get a little weird and into the beginning of the year. So, there's something I want to make sure that you are well aware of that you're working on. These are ideas. So, do what you can, be disciplined, and get set. Let's get to our guest. It's Andrew Wilkinson. He's director of trading education at Interactive Brokers. I have so many questions. He joined Interactive Brokers in 2007 with a background in interest rate and derivative trading in the city of London during the 1990s. He joined IBKR to create monetary and market commentary about stocks and options, forex, bonds for the website before helping create the IBKR campus. If you haven't checked that out, that that's something right there. You need to go look at it. Which covers traders insights, traders academy, webinars, podcasts, and all sorts of things about financial trading for uh training for investors and traders at all levels. So, let's get right to this discussion because I want to really get into how they're doing, how the industry is doing with what's gone on this year. Also, um I really want to talk about some of the hot topics right now that a lot of people have been talking about like zero data options, options, option strategies, uh predictive mark predictive markets. That's a that one right there is a biggie. So, let's get into it. So, Andrew, how are you >> doing? Well, thank you, Andrew. Thanks. Nice to be back. >> Yeah, it's great. So, I know we've talked about the the various times and travels and things and all the things going on, but some of the things that are happening right here in the US uh pretty amazing in terms of the activity. I mean, we looked at some of the reports from uh industries leading brokerage houses and in particular yours. I mean, 29% higher daily average revenue trades or is known as darts from a year ago. That's pretty impressive. >> Yes, it it is a function of what's actually happening in the market that month as well. So, you know, darts can fold as well as rise, but it it is it does speak to the fact that we've we keep adding customers. This has been a a huge trend since the beginning of co and I think in uh November we've added um more clients to the ranks around the world. We now have 4.311 million client accounts and that's up a third on a year ago. Um and and they executed 4.273 million dots daily average revenue trades as you mentioned. Um, so I'm I'm I'm guessing that maybe I mean we have more AUM 770 billion just about again that's up by a third. That's a function of uh markets rising. It's also a function of uh volatility in the marketplace and you know some of the selling we saw in November um would have would have translated into act active traders really participating uh which accounts potentially for why why the dots were a little higher. So but but what the point though is you know you mentioned something you said uh I thought that was interesting when we look at the ending AUM the assets under management uh and about 35% uh higher than a year ago you said it was a function of the markets but yet nay it's also a function of good investing so it's the markets for people who are just passive I'll go with that >> right >> but let's give you some credit here and some props for the fact that you're you know director of of education and of trading, understanding all that, right? So, must be something going right with what you're doing to educate your uh your clients to make sure that they're staying out of harm's way because even in a good market, you can get wrecked sometimes. >> Yeah, we we we we typically appeal to more professional type accounts, Andrew. So, yes, the AUM it's a function of those two things, isn't it? side if passively if the market goes up the AUM is very likely going to go increase as well but as we bring in clients we tend to notice the AUM go up the education journey we're very proud of it here we we have something called the IBKR campus and um it it's it's you I think of it as an umbrella covering a series of pillars we've got about nine different pillars whether it's something like API user guides um our student trading lab the Main pillars in in involve podcasts, webinars, traders insight which is market news, traders academy which teaches people about asset classes, how to trade and our user platforms. So we we also partner with the outside world. We've got a lot of uh information there from the CME group in terms of video format. So, we just try and cover as much content as we can to to to help keep investors on their toes and if they don't understand outside the world of stocks, they got no excuse because they can go and learn all about it um with our um with some of our lessons and courses and and something I should give a a big shout out for which has just been launched in the last month is our very innovative interactive learning tool which allows people to better understand OP options. So you can the the the journey is for somebody to um address the asset class, learn what a call is, learn what a put is, drag answers into a chunk of text uh and then interact with the screen so that you can see the impact of choosing a particular strike, a particular um uh expiration date uh and a and a particular price. And as you as you kind of get better at that, you you gravitated towards more complex uh options combinations and strategies. So this is kind of a first in the world as far as we know and we've run it past a lot of our industry partners and they're blown away by it as well. So we're very very proud of the educational offering we have here. >> So that that let's just stick on that for a second. that that options tool, the educational tool is more than just a simple black scholes representation of um what happens if you have this call, what is your possible max loss, max gain and scenarios. Is that what you're saying? Because we've seen those before. >> Yeah, totally. This allows you to use your mouse on the screen, drag the coordinates, the the strike price or the break even to a particular point so that you that the um the understanding of options is reinforced and you you know you're allowed to pick a series of you know straddles, strangles, long calls, short puts and test yourself until you actually understand what it is you're doing and and how that P&L chart will change. Um, so yeah, we kind of get into black shells and the pricing of it somewhat, but as you say, those calculators are already out there, but this allows the user to really understand to dive down, interact, and and um become a more knowledgeable trader. I >> I'll be honest, I haven't used this yet. Is that something where if you go through that process, you can say, "Okay, I pinpointed this." And then you can turn that into a trade right from there. Um, yeah, because you can be logged into the campus and then uh go straight through to the client portal. So, yeah, I guess you can. >> Well, there you go. Um, all right. Let let's let's talk about something that I may want to come back. I'm reserving the right to come back to talk about options, but um I want to talk about something that it it seems has become very popular. Um, and we're seeing this crop up um in in a number of different places in a different ways and there's a lot of companies that are starting to embrace this and really I don't want to say push it but really promote it and that is the predictions market. So, first let's just start I want to start from from from uh I'm asking you as the teacher in you right now. Okay. To educate me as if I and our listeners have no clue what that means. The words prediction markets and tell me what that is at the base at the core. >> Okay. So a pred the prediction market enables you to take a view express a view on the outcome of a question and essentially it's a binary question that the ultimately the answer is either it's yes or it's no and what this boils down to is looking at the probability of that event occurring. So um very shortly the Fed's going to meet again and um they're going to they're either going to reduce interest rates or leave them alone. So the question is will the Fed funds um rate of interest as of a specific date as if this was a contract will it be above a certain level? So the the the the odds on that are then calculated by buyers and sellers. Some people will have one view that the Fed will cut interest rates and other people will have a view that they won't cut interest rates. So, you know, for for a contract that might be some way off and there's a lack of information and a lack of certainty, the pricing might be 50/50, right? You know, the Fed may be done uh reducing rates and they may be entering a tightening cycle at some point. So, I I think the odds are 50/50 for June next year that this event will actually come true. So the the premise is that the correct answer is paid out a dollar. So I can wage 50 cents in order to earn a dollar in the view that my view was correct. Or on the other hand, if I'd taken a 50 cent wager and the outcome turned out to be incorrect, I lose my 50 cents. So the whole point of what we're doing here in the prediction markets is to try and help investors understand better what's actually happening in the real economy as pertains to what the central bank's doing, what economic data is doing, and how that can help an investor understand whether their portfolio is in in um you know they're likely to do well with their portfolio because some of these contracts like um you know will retail sales be above a certain certain level at a certain point of the year. Um if you're long of retail stocks, you could take the opposing view if you felt that retail sales was about to decline. So again, it's all about like calculating the odds which is done for you and expressing that view. So your your 90 cents can become a dollar, your 10 cents could become a dollar if you you get that right. A really a really good example of this is what's going on with the um [snorts] uh the nomination. Oh yeah, the Fed Oh, Federal Reserve, right? >> So, I'm gonna pull this I want to pull this up on my screen because this is over at because everybody could you can actually you can actually follow along without having to count. So, um yes, >> go to ibr all the markets all the markets are available on on online for people to see the current odds, >> right? So, go to uh I think it's um ibkr.com. Let me just read my screen because I have it up. So, what's interesting, let me go there. Um go let me go back. Okay. So you can go to like for example what what are the popular ones? So the popular ones are Fed decision whether it's going to be you know no change lower buy, higher than um there's things like futures contracts, things like that. Where is the one I'm looking? There's a lot of these uh >> so probably under um >> government >> um uh uh government. Yeah. So, under government, this sort of thing. Uh, presidential nomination for Fed chair. All right. I'm going to click that. >> Yeah. >> So, I'm going to click that. And it says, "Will President Trump nominate Kevin Hasset as Fed chair?" So, uh, what's interesting about this is that it just to repeat what you said, it's asking me a question, I have to say yes or no, >> right? >> And if I if I if I say yes, it's going to cost me.7 as of right now. And if it says if I guess no, not guess, if I predict or I whatever you want to call it, if I predict, I guess the right word, um it's it cost me 28 cents. So if if if I if I put money on no and I invest there and I predict that's the market and I put down um round number, I'm just going to use round numbers here. $100 and the no comes to pass essentially I'll get back three times my money approximately three and a half times. Right? Was that correct? >> Yes. >> So that's how it works. Basically, if if I choose a yes contract, it's 70% probability that that will come true according to this metric right now. Now, what about liquidity? What happens if I choose the uh yet uh let's say I choose the no contract? It's at 28 cents now. And let's just say let's just kind of go down the path a little bit. They have a little fight because President Trump has been known to have little fights with people, >> right? >> And all of a sudden it's worth, I don't know, 80 cents. Can I sell it right then? >> Yeah. I mean, there's going to be um hopefully another customer on the other side and it might be a penny or two different to get out. But you could see that the combination of the two premiums there, the yes plus the no adds up to um 98 cents right now. So there's there's there's two cents inside there that's being lost or paid away to the broker. Um that that's how that works. >> But my point is these are liquid at any given time, right? >> Yeah. Yeah. Six days a week. And I think what's interesting about this particular question, this market closes in 1143 days. The what you missed on the question there Andrew was uh will President Trump nominate Kevin Hassa as Fed chair and the as of date is January the 20th 2029. >> Good point. This is a weird one. Let's be honest. This is a little bit weirder than than most. Right. >> It is. So if you let's the logic here is that Jerome Pal's um term comes to an end in May. Yep. So, you know, we're going through that process right now of u you know, President Trump uh making his nomination and the the word on the street is that Kevin Hass is going to be it. Kevin Hasset then has to go through an approval process in in in in the Senate. I think uh and if he's not approved, then President Trump's got to go to the next person. Um or or or or whoever he nominates might say, "Well, thank you very much, but I don't want to do that. I'm really happy in my current job." So that's why we have a list of you know Walsh Hasset Waller Bessant other people. Um so you know should anything happen to the whoever becomes the next uh Fed chairman uh you know President Trump could still nominate somebody else before the end of his term on January the 20th 2029. >> Yeah. So this one is a much longer situation a little bit of a different thing than others. For example, the one we were talking about earlier that I was mentioning, which is much more um timely. We'll call it, you know, timely is um will in fact, let me go find that again because I just had on my on my screen. Uh it was under >> probably under financial markets. >> No. Well, no. Uh it was whether or not the the Fed is going to reduce. Let me see if I can do this. >> [music] >> No, that's not the one. I'm looking for it. Just bear with me one second. I think it's economic indicators. Yeah. Uh here, this one, for example, this one uh is going to end on I believe I believe the 10th of Yeah, it's going to it's going to expire on the 10th. And this is will the US Fed funds target rate be set above 3.625% at the F FOMC meeting. ending December 10th. Okay. Now, now recording this a little bit earlier than it would be on the actual day of the which is next week on Wednesday. That's next week on Wednesday. So, if they essentially here's the response. If they cut um then the no would get the nod here. >> Correct. >> So, this is an upside down question. So, let me just read the question again. Will the US Fed funds target rate be set above 3.625% 625% at the FOMC meeting in December 10th, 2025. So, this essentially says if they don't cut if they don't cut, that's a a no. >> No, excuse me. It's a yes. Pardon me. It's a yes. So, I don't Sorry, I'm confusing myself. It's a yes. Um, and if they do cut, it's a no. So, basically by a quarter point. So if you are inclined to believe and as you said you were expressed your opinion and your belief that the Fed funds uh the Fed Federal Reserve will be cutting you can buy uh a contract here or prediction uh on this uh as as the no. >> Right. Right. So if if you think they're going to cut um the the prevailing Fed funds rate is 3.875. So a a cut to 3.625 625 means that um they uh >> 25 basis points. Yeah, >> 25 basis points. The no at 92 cents is worth a dollar at uh at after the meeting on. >> So if you believe for whatever reason that they are not going to cut, you can make a wallpaping amount of money with a couple bucks. >> Yep. Eight cents buys you buys you a dollar. >> Yeah. >> Yeah. If if that's the case, >> pretty good. >> Yeah. >> Pretty good. >> Yeah. and and and and and what's interesting is that um this market was about 43% no say 10 days ago. >> Yeah. before maybe maybe 12 days ago before um the New York Fed chief started talking about um yeah I I can see I can see there being rationale to cut interest rates and then we've had subsequently we've had a couple of weak data points I think the PMI or the ISM and um the unemployment report >> unemployment rate was the ADP report showed a loss of jobs right yesterday >> and then and then and then you have the other problem with this whole thing is that the actual jobs report is delayed until the 11th, the day after or two days after 12th maybe the day after uh the actual decision. It's a very interesting situation. Who is this for besides everybody? Who is this? Give me some scenarios that you believe these this particular circumstance and then we can of course looking that uh because you could you could actually break this down. There's other things like okay another one Fed decision you know it's going to be unchanged um uh any FOMC member disscent will there be any any disscent uh number of FOMC members dissenting I mean there's a lot of different uh ways to predict this now the question I ask you is um let's take a scenario build me a scenario for someone aside from the fact they just want to earn money potentially on their their their belief who What else can these be used for? >> Well, I'd answer that question by if if you think on on Fed day, you get all these talking heads on the television um saying what they think the likelihood of something an event happening is, but they they can't really with any certainty predict the impact of that outcome. So yeah, that you know we think the Fed might cut rates on on on Wednesday, but if there's a number of dissenters um or the market reacts badly, then you might want to look at that that uh FOMC members descent contract or you might want to look at the 15-year mortgage rate or the 30-year mortgage rate or any other uh tre treasury note because you you so you you can predict accurately the [clears throat] outcome and which which the market currently says is going to happen with a 92% certainty. So, so maybe there's no value me me um making a wager on that. But if I think that I'm trying to understand what the stock market might do as a result afterwards and I don't want to take a short position, I might take a a yes on the number of dissenting members. Um because if that happened um you might see the stock market react in a particular way, >> right? And so the so so there's there's outright in uh you know prediction uh speculation there's outright uh ability to hedge positioning. So this could work in a number of ways. Are there limitations on contracts and how how how how um how much volume are on these things? >> Um we measure that in terms of I I think um I think we got to about a million contracts a day. uh and and that that may have quietened down a little bit, but certainly over the recent election period at the start of November, uh we were seeing a lot of interest in the um in in those election contracts and um what's the other thing that we're seeing a lot of interest in? Um c certainly as you mentioned at the outset, Andrew, uh the the Fed decision is is a big one. We're also seeing a lot of interest in temperature in or the high temperature in Los Angeles, San Francisco um as well. And now you can kind of extend that analysis into I think you know we all know what happened in January in Los Angeles with the with the wildfire spreading. I think there's there's some areas of the country where you can't even insure yourself anymore. And so you can potentially use these contracts to look at a way of ensuring, you know, if if you if you if you think that the temperature is going to get hotter and it's going to cause um a an an event such as a fire, but you can't insure against that and it might impact uh an an element of your portfolio. Um then then you could certainly take the yes on the on the high temperature. you will the temperature exceed, you know, 78 degrees or 84 degrees or whatever it is. Um, and you could get paid out. So, it's equivalent to having an insurance contract uh on on the weather in a place that may may even be lacking insurance. >> So, is it also possibly good for things like farmers instead of using futures contracts? >> Uh, again, similar situation there. Yeah, they they they they could certainly look at that uh type of scenario where there's where there's a lack of insurance. Interesting. >> I mean, I I think it'd be difficult to get farmers to kind of look away from traditional futures markets. If you if you're a corn or a soybean or a wheat farmer, um and you wanted to, you know, protect set a floor under your price, you'd probably be better off using a futures contract. But certainly I can see, you know, climate related events as not not not not not getting out of control, but certainly um having an a related undue impact on their farming activity and they they they could certainly use them too. I would suggest. >> Interesting. Interesting. All right, let's move on um to some other things I want to talk about. um some of the new things that you have because you mentioned um some smart educational tools, but let's branch over to what everybody wants to know about because you re I'm sure you're refining this from the last time we talked and that's some of the AI driven and AI powered tools that you have. Um there's there's there's a lot of really interesting things that can give you insights into your current portfolio but you've gone a little bit further than that right? >> Yeah. Yeah. So the so we I think that the the categories uh which you can query now if if you have a portfolio of um you know stocks stocks options and um ETFs bonds wi within the the portfolio metrics you can compare performance against benchmarks and identify valuation changes over time so that you can see periods of under or overperformance. Um you can analyze the sector exposure. You can do some allocation analysis and you you can compare the returns across asset classes uh and and assess by uh performance by industry type sorry instrument type. >> Mhm. >> Um holdings expirations you can identify the top positions you can have. Sometimes that's a little difficult if you're holding multiple ETFs and they they tend to you know ven diagram they cross over one another. um you you can identify those top positions, look at the geographic allocation and find out which which um securities pay the highest or lowest dividends. And you can track your activity. You can review trade history, uh monitor interest and fees that you're paying. And you can analyze cash inflows and outflows. >> Now, you're not thinking about putting me out of business, are you? >> Um no, not [laughter] trying. We we try we try and provide as much as we can for free. So I think I think >> No, no, no. That's I was just kidding because that stuff No, a lot of those things are are obviously very beneficial not only to the client but to advisers as well if there is an adviser on the account. >> Yes. >> So there's a lot of really good things on there. Where where are you going? What what what's what's what's lurking in the back there that you're working on? >> Um what have we got working in the background? Um well, we're going to expand in the education offering. We're going to expand um [snorts] our insight on cryptoreated um market commentary, podcasts, webinars, and um and video material. >> That's cool. >> Um we're going to we're always pushing the uh the the the generative AI applications um including intelligent question completion. Um, so we're, you know, in your drop-own menus, you can allow clients to select parameters such as benchmarks, time frames, and accounts. Um, so, so there's a lot going on AI wise for us. Cool. I wanted to mention, um, couple other things. I know you have a new Visa card. You have a whole cash management program that's going on there. So, there's no foreign transaction fees, which is kind of interesting because that is something that can be really beneficial when you're traveling. Um, yes, and and under underrated by the way >> by a lot of people not thinking about that. But that that's an important thing. You're out there doing your thing and you want to grab some cash from an account and you get a good currency conversion hopefully and not no fees, >> right? >> Or limited fees. Um, I want to talk about the um the the RAIA, the registered investment advisor client survey results because um you you put this out, you do this um this this um um these these surveys, if you will, by professionals um and you came up with um well, they came up with more than 51% of the financial advisors are bullish on US markets. Is that a big difference than you've seen? It's usually about 50/50, isn't it? >> Um, so so more than half are now bullish and and I think that um 59% have changed their views since June. 29% have become more bullish and about 30% uh have t turned more bearish. Mhm. >> And I think what's kind of if you dig into the weeds there, there is growing optimism, but there as ever, particularly with markets at highs now or towards all-time highs, the advisor seem to remain mindful of the potential risks of a market correction. That's the top concern. Um with with uh client clients more focused on the impact of volatility on their investments. Um, one of the biggest surprises for for advisers this year has been the unexpected rise in gold prices. Um, >> and how about silver, huh? Forget about gold. >> Silver's up 70%. >> Yeah, they've all skyrocketed. I mean, these are the things people always talk about as as, you know, assets that you should have in your bottom drawer, just a little bit in your in your portfolio. And here it is. It's it's it's come back. I I you know I've never been a fan of that but it's here it is >> hit me between the eyes >> right this year well you know once in a while it's it's just like you know the emerging markets discussion that every year for 10 years I had people coming to me and talking to me about how this is the year for emerging markets I'm like okay great and every year it's like gh didn't work out but they're there the next year pounding the table and you have all the gold bugs silver bugs and all the people there saying you know gold gold um I know people that finally gave up on gold about two years ago Unfortunately, um >> well, I I I I think some of that is probably wrapped up in the appetite for cryptocurrencies, too. >> Yep. They changed over said that would be a better deal. Meanwhile, look at this year's results. >> Uh clearly favors the hard metals versus the cryptos. >> Yeah, absolutely. >> Pretty amazing. >> So, I I it's a little difficult to understand to be honest. Um >> well, I mean, I think they think that what are you going to do with gold? How do you transact it? They've been trained now by all the crypto bros. It says, you know, you know, what are you going to do? You know, you're going to take your piece of gold in the and and you know, after the radiation fallout subsides, you're going to come up for air and how you going to trade, you know, what what are you going to do? How you going to use it? You know, you can always Now, they don't talk about the fact there won't be any internet and stuff like that because everything's, you know, been decimated. But, um, the theory is that, you know, how to use it. Now, the other side is saying, well, it's always available. It's in my hand. I can hold it. I can touch it. I can feel it. I can move with it. So stop there. I want to just going go through this other part. Um the full update of the 2025 interactive brokers advisor insight study also revealed that advisor more confidence in the markets as you mentioned in the spring. 59% of the advisers have now changed their view on the market stance since June. 29% have become more bullish. 30% reporting uh turning more bearish. So kind of uh back and forth. Um but I I agree the whole I think everybody's waiting for advisors and you you know you mentioned advisers waiting for correction and investors you know worry worry about volatility which depending on your your time frame they're the same thing >> right? Yes. >> A correction is just volatility in a long time frame. >> Yeah. >> A correction in a short time frame is disaster. One one of the most notable things um about 2025 uh we we we look at what in aggregate customers are doing on a daily basis in which names in stocks and options. or worker calls bought puts bought calls sold puts sold and in aggregate it it's it's been astounding that on every pullback this year investors have been net buyers. So e even in even even in um April when we had the massive selloff due to the tariff uh the tariff announcement in the rose garden um investors continued to buy into stocks. I'm absolutely blown away by that that that insight and I I think it's um something that's been echoed by other brokers too. So it's there's nothing nothing special about >> is people it's they've been trained to believe that selloffs are buying opportunities in every case because they have been and you look at all of this all we see are V's we see quick downs that are exacerbated due to the fact of heavy margin. I think uh I spoke to somebody and maybe it was you somebody was talking Oh, no. I think it was in your earnings release and then you I looked at a variety of other brokers margin brokerage margin in accounts. It was an all-time high. >> Always happens. >> Yeah. And that then what happens is the volatility is is exacerbated uh in the selling. >> Yeah. >> So, you know, we and and the amount of options that we have playing right now also probably has a bit to do with it. But the zero dated options, everybody's looking for a, you know, a hail mary. Uh, you know, they they want they want a touchdown every or home run, I should say. Every sing every time up at bat, every ball that's thrown, they want to hold run. That's what they're that's and they're not holding back. >> Yeah. But but I mean, going back to April, there was, you know, you mentioned that people have been trained to buy the dip and I don't disagree with that, but in April it did very much feel like this could be different this time, >> right? I agree. 20% down. But it also is a it's a function of of how how fast it happens. I find and this just makes sense if you think of it intuitively. A a very sharp drop down is met with almost an equal and opposite reaction on the you know up. It may take a little bit time, but generally it it will it will >> move back up. And as it moves back up, >> um you have the shorts covering very quickly. >> And as opposed to a long drawn out just, you know, corrective market, bare market doesn't have to be 20% down in a day. It could be down half percent flat, up a quarter, down 3/4 of a percent, but but stairstepping down. uh that is met with a much different, you know, and you do that over a 6, 8 month, 10-month period, it's met with a much different and and I think a little bit more uh concerning eye from the investor and from professionals. >> Yeah. Yeah. >> So, you got that there. Well, we're going to end there. Andrew Wilkinson, I want to thank you. Have a happy holiday. Have a happy season. I wish you a wonderful uh uh end of year, and we'll pick it up again uh next year. I want to hear all the good things that are going on. >> Brilliant. Thank you very much for having me on the program, Andrew. It's always a pleasure. >> Okay. Thanks so much. Cheers. >> Cheers. Bye. >> And that's a wrap of this episode of the Discipline Investor podcast. Thanks for joining me. You know, a lot of things happening as we get through the holiday season towards the end of the year. And we saw things like at the end of the week last week the PCE number come in that was by some measures a little bit hotter than expected at 3% and 2% or 3.3% uh which would equate to 3.6% over the next year and then also don't forget we saw that there was a core of.2 two better than expectations, but still in all and all a higher level of inflation that has been very sticky that looks like it could start moving higher. And what we get from there is what? Well, that horrible word that we all don't want to see printed on any particular economic forecast and that is stagflation. Maybe something that happens very infrequently, talked about frequently, actually occurs very infrequently, but something to be aware of. I want to thank you for joining me. Make sure to go over to Amazon Music, Apple Podcast, Spotify, even uh YouTube, which we don't have a big audience on YouTube, but we'll grow that uh in the future. But nonetheless, make sure to tell your friends, your family during this holiday season. Give them the gift of the disciplined investor. By the way, we have books uh that are that are available. We'll give some away next year. But also the audio book is available of course on Audible on Amazon and I think you'll really enjoy that. The discipline investor essential strategies for success. Thanks again for joining me. I'll see you again real soon. This podcast is intended forformational purposes only and does not constitute personalized investment advice. Investing [music] involves risk, including the possible loss of principle and past performance is not indicative of future results. The views and opinions expressed are those of the host and any guests [music] and may not necessarily reflect those of Horowits & Company Inc., an investment adviser registered with the US Securities and Exchange Commission. Registration with the SEC does not imply a certain level of training or skill. Advisory services are only offered to a client or prospective clients where Horowits Company is properly registered or is excluded from registration requirements. Any mention of thirdparty companies, products, or services is provided forformational purposes only and does not constitute an endorsement. Hypothetical scenarios or forward-looking statements are for illustrated purposes and should not be viewed as guarantees. Content is intended for US residents only and may not be applicable in other jurisdictions. Listeners should consult a qualified financial advisor before making any investment decisions. Please visit our website for additional information, disclosures, as well as a copy of our form CS. Advertisements are not related to the host or affiliates and are not considered [music] recommendations by the host of the show or any affiliates or Hollywood. [music]