1 is macro voices with hedge fund manager
2 Eric challenges the free weekly
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6 investors macro voices is all about the
7 brightest minds in the world of finance
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9 bullish or bearish no-holds-barred now
10 here are your home Eric townsend and
11 Patricks Arizona
12 macro voices episode 49 was recorded on
13 februari night 2017 as macro voices
14 turns 21 year old i'm eric constant one
15 year ago this week we launched this
16 podcast with macro investing legend Jim
17 Rogers as our featured interview guests
18 and to this day that episode remains our
19 most popular ever you can't top Jim
20 Rogers but we can bring him back for our
21 anniversary show
22 so Jim and I will be discussing
23 everything from china to Donald Trump to
24 the US dollar rally to the question of
25 whether or not the secular bond bull
26 market is really over or not to the
27 question of whether or not economic
28 conditions and government policies
29 elevate the risk of war all of that much
30 more is coming up in this week's
31 featured interview and on Patrick's
32 resna Eric at SMP 500 finally broke out
33 above 2300 is this rally for real
34 well it's going to be really interesting
35 to find out that's for sure
36 I've been saying to myself all week boy
37 it looks like we're trying to work off
38 round number resistance at 2300 and my
39 intention for this show was to predict
40 that we would break out above 2300
41 course the market beat me to it
42 so here we are I wouldn't be surprised
43 if we retreat back below 2300 just for a
44 day or two is some people are going to
45 hear that we got to 2,300 they think
46 that's going to be the top they're going
47 to sell and I wouldn't be surprised if
48 it just works it's way higher not just
49 to be clear on a fundamental level i
50 still think that this market is way
51 overvalued but on a technical level you
52 know breakout above round number
53 resistance oftentimes have legs and I
54 think that we're seeing the beginning of
55 that I wouldn't be surprised if it moves
56 considerably higher as for my own
57 trading I'm taking myself out of this
58 game and you know i probably sound like
59 I don't have a lot of value to add to
60 listeners on this equity market because
61 what I've been saying for several weeks
62 here is I have no clue if i can offer
63 anything in terms of an insight about
64 trading that might be a value you have
65 to really remember is a traitor that if
66 I kind of draw an analogy to sports game
67 like football
68 the players job is to be the best player
69 they can but the coach also has an
70 important job
71 which is if the coach sees a player
72 who's just not performing they broke up
73 with their girlfriend or their not on
74 their game or whatever they take them
75 out of the game and as a traitor you are
76 the player but you're also the coach and
77 you know I think that this market is
78 ridiculously overvalued and you know
79 what else I've been wrong about that
80 call a whole bunch of times in a row so
81 I'm taking myself out of this game
82 I'm not going to try to trade my
83 fundamental view which would be to go
84 short here but I'm also not going to go
85 along because I don't believe in the
86 market if I had to predict anything it
87 would be a return to volatility one
88 direction or the other this business is
89 just hovering just barely below 2300 not
90 really moving one way or another I think
91 we've had something that may be a record
92 number of sessions with less than a
93 one-percent intraday move that's going
94 to change one way or the other I think
95 we're going to see a big move here I
96 just don't know which way now I want to
97 move on to that US dollar the US Dollar
98 Index continuously is holding that
99 hundred handling this again trying to
100 break out is this gonna happen
101 well I think it will I mean I and I'm
102 not worried about it look at what's
103 going on here we're seeing a rally and
104 equities normally there would be an
105 inverse correlation there you would
106 expect some dollar weakness you are
107 seeing gold performing very well this
108 week that would normally pretend some
109 dollar weakness but the dollar is at the
110 high end of its recent trading range and
111 it looks like it's about to break out
112 even higher still so as we've discussed
113 in the last few shows i think what we
114 saw here was that when Donald Trump
115 despite his actions and his actual
116 policies being extremely dollar bullish
117 when he made some dollar bearish
118 rhetoric it cause the market to sell off
119 to its technical support level which was
120 just above 99 I had already doubled down
121 on my long position on the way down
122 through 101
123 I did consider doing that below 9950 I
124 at this point of course i wish i had at
125 the time I was kind of fearing just
126 because of the size of the positions at
127 how crowded this trade is I thought that
128 if it got hammered below 99 maybe that
129 could start an avalanche but I thought
130 the more likely case was exactly what
131 we're seeing which is that it would
132 bounce off of that
133 Michael support and start to move higher
134 that's exactly what happened so I'm not
135 concerned and again that the key here is
136 to understand that while the talk is
137 still dollar bearish the policies are
138 still dollar bullish all right now out
139 what I wanted to really ask you eric is
140 what's going on here with crude oil that
141 it was a big inventory build that were
142 crude oil drops down to $51 like a
143 hammer and then reverses and then it's
144 now trading around the 53 level where is
145 it going next year boy the market sure
146 is in love with this magic number of 53
147 I don't know what the heck is going on
148 there just to fill our listeners who
149 don't follow this closely and what's
150 happened it's been a real roller coaster
151 week
152 ap i first came out on tuesday afternoon
153 saying big building inventory people a
154 lot of people were skeptical that it
155 could be real it was confirmed by DOA
156 13.8 million barrel build on national
157 inventory that's the second largest
158 build in recorded history at the same
159 time
160 cushing oklahoma 1.1 million barrel
161 build on inventory so you see these huge
162 and unexpected that 13.8 million barrel
163 national build that was on the back of
164 about a 1 million to 1.2 million barrel
165 consensus expectation at the same time
166 the Gulf Coast saw a all-time record 10
167 million barrels in a single week on the
168 Gulf Coast alone and pad 3 that's
169 building to an all-time high in pad 3
170 inventories the the talk on the street
171 is that it's a last-ditch effort by OPEC
172 countries to export as much as they
173 could before the cut became effective
174 honestly that sounds to me like people
175 are making up stories to explain
176 something that they don't like gasoline
177 did see a relatively small drawdown but
178 a drawdown just the same of 869 thousand
179 barrels now keep in mind we were seeing
180 six million barrels a week builds in
181 gasoline inventories for three or four
182 weeks in a row so less than a million
183 barrels drawdown does not strike me as a
184 big deal
185 that's really the only thing that seems
186 to be maybe sort of kind
187 bullish in this story at all distill
188 it's where a 29 you know de minimis
189 29,000 barrel build on inventories so
190 the only draw down here is gasoline in
191 its on the back of weeks and weeks of
192 massive gasoline built III don't know
193 where the bullish news is but if you
194 look at the tape action what happened in
195 incidentally we also have production up
196 the rig count is up i mean it's all
197 hugely bearish fundamental factors
198 what is the price do it gets hammered
199 down on the actual inventory report but
200 20 minutes later the rally starts and it
201 just keeps on going and where all the
202 way back up to 53 bucks after almost
203 testing 51 even I think the low print on
204 WT i was around 50 120 or so and we're
205 back up above 53 is we're speaking on
206 thursday afternoon
207 it's easy to say well okay the
208 explanation for that is that with Iran
209 and the threat of more sanctions and the
210 potential for Donald Trump to be you
211 know threatening Isis whatever these are
212 all geopolitical risk factors yeah but
213 the thing is it's you know right on the
214 back of the inventory numbers which were
215 hugely bearish that's where the rally
216 started so it doesn't really make sense
217 to me at all but that's what we're
218 seeing in this crazy market
219 alright let's move on to gold gold was
220 actually having a pretty good week
221 continuously crawling up to that 1240
222 handle and then that would just as the
223 US dollar broke out we see gold coming
224 off the highs where you think gold is
225 going next
226 well I said a while back to several
227 weeks ago that it was going to be
228 interesting to see whether 1225 or 1125
229 came first and honestly i was expecting
230 another test of 1125 to come first and
231 we've got our answer and I was proven
232 wrong we're up to 12 40 here is this
233 really a breakout that's got legs
234 Stan Druckenmiller who had sold all of
235 his gold on election night very publicly
236 talked about that says that he's getting
237 back into gold a lot of the gold-bug
238 have really hyped up on Braxton Miller
239 is his bow actually if you listen to his
240 comments
241 he's not radically bullish what he said
242 is that he wanted to get some currency
243 exposure
244 he was trying to decide what to buy and
245 figured the gold actually made a little
246 bit of sense here considering that have
247 been hammered down he wasn't saying this
248 is you know the buying opportunity of a
249 lifetime it sounded like it was kind of
250 like a cow by something so i'm still on
251 the sidelines i am extremely bullish
252 gold in the long term but i think that
253 this dollar rally is likely to
254 accelerate from here when it does it's
255 going to produce a headwind for gold
256 does that mean we're going to get to new
257 lows below a thousand or something I
258 don't know but do I think that we're
259 headed to 1500 next not in the face of
260 the dollar rally that I think is coming
261 so I'm going to continue to play the
262 long dollar position i'm going to look
263 to hedge that with a long gold position
264 at some point but I'm trying to leg in
265 starting with the dollar long and i'll
266 save the gold long until I think the
267 dollar has gotten a little bit closer to
268 its next major resistance level and I
269 don't think we're there yet Eric those
270 10-year treasury bonds are now below the
271 240 level on the yield what do you think
272 it's going next
273 yeah we're looking at two spot 38 as we
274 tape the show just after four o'clock on
275 thursday afternoon
276 some people think this is a short
277 squeeze that we're seeing here a lot of
278 people who had taken the words of Bill
279 grocer jeff gundlach i would say out of
280 context because what those guys said is
281 when you see the move past 260 or three
282 that's where you know the bear market is
283 in play I think that people were putting
284 shorts on maybe they're getting squeezed
285 out of that position lower gasoline
286 demand although of course with this
287 week's oil inventory number maybe we're
288 not seeing lower gasoline demand after
289 all but it's been looking for the last
290 few weeks like there's been lower
291 gasoline demand that could be signaling
292 an oncoming recession that could be
293 helping and I think it's a wait-and-see
294 trade for me the trade i care about is
295 not being long treasuries it's being
296 short Treasuries and I don't think it's
297 time yet bill gross and jeff gundlach
298 make excellent points but all paul also
299 made excellent points i'm not sure yet
300 who's right when we get to the next
301 recession the one that maybe pulls us
302 even below one
303 sent on the 10-year treasury I think
304 that's going to be a secular turning
305 point where you want to be short
306 strategically treasuries expecting a
307 major return to higher interest rates
308 this idea that it's already begun that
309 the secular bear market and bombs is
310 already upon us
311 maybe could be but I'm not persuaded of
312 it yet
313 thanks for the market update Eric
314 quantum fund co-founder and legendary
315 macro investor Jim Rogers is back as
316 this week's featured interview guests
317 please stay tuned after the interview as
318 Eric and i'll be back to talk about how
319 options trading strategies can be
320 applied to some of the views Eric
321 expressed in today's market wrap Eric's
322 interview with Jim Rogers is coming up
323 as macro voices continues right here a
324 macro voices.com and now with this
325 week's special guest here's hedge fund
326 manager Eric childhood
327 join me next is a man who needs no
328 introduction investing legend Jim Rogers
329 gym when you appeared on this program
330 one year ago
331 macro voices was brand-new we had no
332 name no reputation and no following yet
333 despite having no regular audience
334 following at that time that one
335 interview remains our most popular show
336 ever
337 with more than half again as many
338 listener downloads is our next most
339 popular interview with fund managers you
340 Henry much more recently so
341 congratulations on your top billing
342 status and I have no doubt that she'll
343 set a new record today whatever they got
344 you hang up now and that's a lot of my
345 head
346 are you kidding with a record like that
347 introduction like that i want to stop
348 Bob well on my head
349 well before we let you go let's start
350 with an equity markets then because we
351 spoke a year ago you and I were both
352 very concerned about markets being
353 overvalued you went out of your way to
354 say that you didn't know whether it
355 would happen in 2016 2017 2018 but you
356 felt that significant downside was ahead
357 for the markets eventually and if i look
358 back just six months ago a lot of
359 industry luminaries whether we think
360 about guys like Great Valley
361 Stan Druckenmiller Carl Icahn these guys
362 were all casting bearish views for a lot
363 of the same reasons that you and I were
364 then Donald Trump was elected president
365 and suddenly all of these guys turned
366 super bullish ray dalio seems to be
367 backing away from that enthusiasm in the
368 last week or two but the fact remains
369 that some super talented people all
370 turned bullish super bullish after the
371 election
372 forgive me Jim I'm just not seeing the
373 logic to this are you
374 well yes and no how Mr truck instead
375 he's going to some wonderful things he's
376 going to cut taxes which is always great
377 for any society in any country he said
378 he's going to rebuild the infrastructure
379 which American desperately need and it's
380 good for America he says she's going to
381 bring home the three trillion dollars
382 u.s. dollars which American companies
383 have a overseas holiday these things are
384 wonderful wonderful thing and if he can
385 do it Eric
386 wow he's going to be great but mr. Trump
387 is also said he's going to have trade
388 war with China Mexico Japan Korea do
389 other people that he has named he swore
390 that on his first day in office he would
391 impose 45% tabs against China it's been
392 three weeks to three weeks and he hasn't
393 done it yet but you still got it in his
394 head I'm sure maybe it's just another
395 politician like all the rest of them and
396 says one thing it doesn't mean it at all
397 but he does have at least three people
398 in high levels in his group were very
399 very keen to have trade wars with China
400 and other people if he does that Eric
401 it's all over
402 I mean issues very clear that trade was
403 always lead to problems how often to
404 disaster sometimes even to the real war
405 shooting war so i don't know i'm not
406 sure mr. truck note he said so many
407 things and many of the things a
408 contradictory now if he's not going to
409 have trade wars with various people and
410 chances are for a while
411 happy days are here where we spoke last
412 year you anticipated even more strength
413 for the US dollar
414 Iran as is usually the case the market
415 has proven you right but you were
416 careful to say that it's not because the
417 true fundamentals were bullish but
418 rather you went out of your way to
419 emphasize that people would continue to
420 buy dollars because they didn't know
421 what else to do
422 and you thought that it could even turn
423 into a bubble so how have your views
424 evolved a year later do you still think
425 the dollar has much higher to go and if
426 so how much higher from here but still
427 own the dollar the dollar fortune is
428 having a correction now can you know all
429 full markets need correction corrections
430 are good i haven't sold any I may have
431 even Baltimore for all I know
432 no I still see the same thing that
433 whatever happens in the world there is
434 going to be some turmoil somewhere along
435 the line we are already seeing it in
436 some places the euro still having its
437 own version of turmoil is going to have
438 a lot more this year so the dollar is
439 going to be quote a safe haven as we
440 discussed last year it is not a safe
441 haven but he just received as a safe
442 haven and an impact with some countries
443 it is a safe haven compared to state the
444 euro our other other currencies so I
445 still own the dollar the fundamentalist
446 have only gotten worse but the
447 fundamentals have gotten everywhere have
448 gotten worse everywhere except maybe
449 Russia so I still own the US dollar
450 some people have suggested that the
451 strength in the US dollar could cause so
452 many problems for emerging markets that
453 we might eventually see something
454 let's call it like a plaza accord
455 version to point out where governments
456 around the world conspired to
457 intentionally weekend the dollar to
458 prevent or contain those adverse effects
459 do you think that that's a possibility
460 do you see that coming in is that just
461 something far out on the horizon or
462 something that could happen soon how you
463 see that I've been around long enough to
464 know that anything is possible no matter
465 how weird it may sound in fact the
466 weirder it sounds more like it's
467 probably going to have them I i doubt it
468 is going to be applied to record this
469 time around it's more like this that the
470 dollar is going to go higher and higher
471 on its own volition put some of the
472 reasons we discussed it will get too
473 high it will it will cause serious
474 credit problems for some people that I
475 got a lot of people that Bart a lot of
476 dollars it would also make many American
477 companies less competitive so the way
478 it's going to go to high may turn into a
479 bubble at which point i hope i'm smart
480 enough to sell it because at some point
481 market forces are going to cause the
482 dollar to come back down because people
483 are going to realize oh my gosh this is
484 causing a lot of turmoil economic
485 problems in the world and it's damaging
486 the American economy at that point the
487 smart guys will get out I hope I'm one
488 of them
489 you said last year that you were long
490 dollars and could easily see the bubbles
491 forming but you went on to say that you
492 could not imagine still owning dollars
493 in 10 years time so now we're down to
494 nine years
495 do you still see that this has to come
496 to an end you see any sign posts or any
497 anything on the horizon that would tell
498 us you you mentioned just a moment ago
499 that you hope you're one of the guys
500 who's smart enough to get out in time
501 what signals which would be looking for
502 to tell you when the time is that the
503 dollar rally is played out and you know
504 the blow-off top is in or whatever it
505 may be and it's time to get on the other
506 side of the trade
507 well if it turns into above all bubbles
508 what's the same now that no matter what
509 country what period of history what what
510 assets and now everybody scream /
511 screaming it's different this time
512 you don't understand you old man you
513 just took them out understand why
514 everybody needs done under own dollars
515 so the sides will always be there signs
516 along the way will be some of the things
517 i mentioned you will start seeing
518 bankruptcies by companies are countries
519 that are extended overextended in US
520 dollars and cents dollars going higher
521 they cannot repay their debts you will
522 see American companies and American
523 balance the trade getting worse because
524 of the high dollar the signs would be
525 pretty clear that four different simple
526 science they've been around for hundreds
527 of years thousands of years
528 I just hope I'm smart enough to
529 recognize them and have the inside to
530 interpret them properly
531 we also spoke last year about the
532 35-year bond bull market you emphasize
533 that you didn't know for sure how long
534 it could go on but you said that it was
535 certain to end sooner or later in the
536 year since we've spoke quite a few
537 industry luminaries have come out and
538 declared that the 35-year secular bull
539 market bonds is over jeff gundlach made
540 that call but to his credit almost on
541 the very day that remains so far at
542 least the bottom and yields on the top
543 and price bill gross's said that if we
544 saw a 10-year treasury move over stupid
545 points six percent yield that would be
546 the signal in his mind that says a
547 secular bear market is underway ray
548 dalio has said that the credit cycle is
549 played out what you said last year was
550 that you were short junk bonds but you
551 thought at that point a year ago it was
552 too early to make a short column
553 treasuries what's your take now is it
554 time to go short us treasuries or is it
555 still waitin see all those guys are
556 smarter than I am so I I don't know I
557 anyway i'm not short bonds at the moment
558 certainly would have been a good trade
559 last summer as you pointed out that was
560 made a a higher interest rates made a
561 low long-term rates made alone they have
562 rallied sense but for my money right now
563 as we speak in favor of 2017 everybody
564 is bullish on long-term US government
565 bonds I've been around long enough Eric
566 to know that when everybody's on the
567 same side of the boat I better run to
568 the other side so I am NOT short in
569 government bonds i am sure your junk
570 bond still if and when the mood changes
571 and people are less skeptical of bonds
572 go down and everybody starts saying oh
573 bonds cheated me she lied to me they had
574 then I might be ready to short Rollins
575 again because we're certainly in the
576 process of making a top when that top
577 comes I don't know I'm smart I'm a very
578 very very bad market time as you know
579 I'm a very very bad short-term trader so
580 you should have those other guys to get
581 your timing
582 let's come back to the junk bonds you
583 and I were both short junk last we spoke
584 a year ago i'm still holding that
585 position today it sounds like you are
586 too and it was quite profitable actually
587 for a few months after we spoke
588 but since then we've given back some
589 profits is there room to think that
590 maybe we stayed in the trade too long or
591 is this just to pull back it's hard for
592 me and I obviously the recovery and
593 energy prices has helped junk bonds but
594 I can't believe this is over yet
595 how do you see it well I happen to agree
596 with you a hundred percent that the very
597 fact that I'm still so much junk bonds
598 but it means just that funny
599 the timing is wrong I no junk into when
600 interest rates start going up again
601 formerly when the when the bull market
602 really does come to an end in the
603 interest rates government bonds interest
604 rates are going to go very very high
605 very very high
606 I told you how I you would probably hang
607 up now and not listen to me anymore but
608 you know in 1981 interest rate
609 short-term interest rates in America
610 were over twenty percent was reeling
611 over long-term bonds feeling over
612 fifteen percent we've had these long
613 bull and bear markets in bonds in the
614 United States and we probably will again
615 when interest rates go higher the junk
616 bonds again it going to get destroyed
617 both by interest rates and by credit
618 default because many of them are in fact
619 chunk in other companies are not great
620 credit risk and they're gonna they're
621 gonna pay the price
622 I want to come back to that vessel point
623 of interest rates going much higher I
624 couldn't agree more with you in terms of
625 fundamentals that they should move
626 higher but i can't help but say hey wait
627 a minute in 1981 the US was nowhere
628 close to 20 trillion dollars of national
629 debt and now that we are it seems to me
630 if you were to go back to historically
631 normal interest rates even a six percent
632 10-year yield nevermind twenty percent
633 how could that happen without
634 bankrupting the government because it
635 can't service its debt and what I'm
636 trying to get my head around is if it
637 can't happen that does that mean that
638 the interest rates can't go higher or
639 doesn't mean they do go higher and the
640 government camp service its debt and it
641 leads to a major fiscal crisis do you
642 think that when we get to the point
643 where the natural market forces want to
644 push interest rates higher that
645 governments will somehow contain them in
646 order to keep their debts serviceable or
647 do you think it means that governments
648 are headed towards defaults and
649 bankruptcy when we get to the point
650 where interest rates return to their
651 historical norms and so why do you think
652 governments cannot go bankrupt
653 it's happened throughout history the
654 enormous for governments to go bankrupt
655 over in the extended periods of time
656 including the countries which are on top
657 after the First World War hundred years
658 ago UK was the richest most powerful
659 country in the world it was no number
660 two
661 well I can remember when the UK went
662 bankrupt in the nma two generations
663 later three generations later could not
664 sell long-term debt the IMF had to bail
665 them out
666 you're not old enough to remember when
667 the French were like that or the Spanish
668 for the Dutch you know everybody has
669 been on top without everybody but many
670 people have been on top one time or
671 another
672 they've all gone bankrupt why do you
673 think people cannot go bankrupt
674 oh I don't think they can't go bankrupt
675 I guess what I don't see is there's no
676 IMF to bail out the u.s. the u.s. is big
677 enough that there is no entity to bail
678 it out so the bailout doesn't happen
679 something else happens and if to
680 something else is a us sovereign bonds
681 crisis I mean holy cow Jim US Treasury
682 bonds are pretty much the safe-haven
683 asset and the reserve central bank
684 reserve asset of the entire globe so if
685 you have a crisis in you know
686 unserviceable US debt with the US
687 government cannot pay its bills and that
688 means the US Treasuries no longer have
689 that safe haven value what happens at
690 that point Eric I should suggest that
691 you do a little more research on
692 I don't think you need to look at you
693 you know you're very knowledgeable but
694 if you do a lot of research and become
695 knowledgeable about what's going on in
696 the world you're going to get very very
697 worried and if you get very very worried
698 you're going to I hope yet prepared
699 because we're going to have the worst
700 economic problems we've had in your
701 lifetime or my lifetime when that
702 happens a lot of people are going to
703 disappear 19 * 2008 bear stearns
704 disappeared their search has been around
705 over 90 years
706 Lehman Brothers disappeared me my
707 brother's been run over a hundred and
708 fifty years a long long time a long
709 glorious history been through Wars
710 depressions civil war they've been
711 through everything and yet they
712 disappeared so the next time around it's
713 going to be worse than anything we've
714 seen a lot of institutions people
715 companies even countries certainly a
716 government and maybe even countries are
717 going to disappear i hope you get very
718 worried i am very worried Jim and you
719 know it leads into my next question
720 because you are such an astute student
721 of history and you understand
722 longer-term trends and I i look at you
723 know of course Donald Trump has been
724 elected president of the United States
725 the UK has voted to exit the European
726 Union there are movements underway which
727 could lead to referenda in several other
728 European countries that could lead to
729 more countries abandoning the EU só in
730 history student Jim what is this global
731 rise in popular ism and rejection of
732 government authority around the world
733 telling us it almost feels like you know
734 the where we're headed down the road to
735 revolution and then things are about to
736 come unglued am I am i exaggerating to
737 think it's that bad
738 well let's just talk about some of the
739 things going to happen in the next
740 couple of years and then I think we can
741 draw further conclusions there going to
742 be more move much in Europe for instance
743 24 countries to split up and for
744 countries to leave the EU you mentioned
745 the France before their people in France
746 you want to split the
747 country of people in the middle in Spain
748 Belgium who want to split those
749 countries they are now going to be
750 encouraged by the fact that direction
751 was successful the Scots are going to
752 have another election about the
753 possibility of leaving the UK where
754 these things happen or not
755 Eric I I don't know yet i have used but
756 who cares but we're certainly going to
757 have the ongoing turmoil that these move
758 much are alive and well and will be very
759 active and vocal and visible for a while
760 now let's assume it's certainly less
761 prism for a moment of some of them are
762 successful will live if the europe in
763 Union starts breaking up with the euro
764 starts breaking up
765 that's going to throw a spanner and a
766 lot of people's work for nobody is
767 really sort of planned on that most of
768 the bonds of eurobonds none of that very
769 few of them now have any provision for
770 what happens if there is no euro I mean
771 really owns several billion dollars
772 worth of pond the closure Italy pulls
773 out of the euro and they suddenly say
774 okay we're going to pay you back in Lyra
775 well that's that's going to confuse a
776 lot of people can cause a lot more
777 turmoil you have the same sorts of
778 movements invasion that nearly as
779 powerful as vocal yet which you have the
780 same sort of every in them in the United
781 States as a movement now for California
782 to withdrawal from the US and by the way
783 in the u.s. a lot of people would like
784 to see California League the US so it
785 may work it may work both ways so when
786 you start having bear market as you have
787 sure well no one bad things happened in
788 another bad thing happens in these
789 things snowball just like in for markets
790 good news comes out and more good news
791 comes out the next thing you know your
792 flower six or seven years into a bull
793 market will bear markets you the same
794 thing and so we have a lot of bad news
795 on the horizon
796 I haven't even gotten to war haven't
797 even gotten to trade war or anything
798 like that but you know things do go
799 wrong
800 well that was my next question
801 is we spoke a year ago ago about a topic
802 that most people don't feel comfortable
803 talking about but I think you and I
804 recognize that it's probably the most
805 important question there is which is
806 history teaches us that when economic
807 conditions are like they are now usually
808 it leads to war either a trade war or
809 shooting more and you were outspoken
810 last year in saying that when you have
811 an economic superpower of yesteryear
812 that starts to become stagnant or even
813 begins to decline and you suggested that
814 the u.s. it certainly started to become
815 stagnant if not in actual decline that
816 that has all wall almost always led to
817 war so you went on to observe that it's
818 easy to stir people up by blaming
819 foreigners for all of our woes now those
820 probably sounded like crazy words to a
821 lot of people last year but look at
822 where we are now a year later we have an
823 immigration ban against seven countries
824 that seems to be heating up as one of
825 the most contentious and heated both
826 legal and political battles in US
827 history
828 so where do we stand in this big picture
829 gym where we actually headed towards war
830 does it start as a trade war or is it
831 actually begins shooting more what
832 issues and events are on your radar
833 screen in terms of important sign posts
834 that will tell us where this whole
835 situation is headed
836 well as we discussed before whenever
837 things are solved a hot bad and things
838 are going wrong people look for somebody
839 to play they always throughout history
840 wherever we are which whichever country
841 where disgusting the first people flames
842 are always the foreigners have different
843 color skin different languages different
844 religions different food they smell bad
845 their food smells best I cannot tell you
846 how many times I've heard people talk
847 about how oh those people their food
848 smells bad and they smell bad too so
849 it's very easy as always happen that way
850 to blame the farmers for better for
851 worse it seems it happens you point out
852 in the US again but it's also happening
853 you know the places that you are many
854 brands in many places
855 they're blaming the foreigners already
856 again it's even happening in Singapore
857 to some extent where i live nothing like
858 nothing like in Europe at the moment and
859 as you rile up against the forest most
860 countries historically have closed off
861 one way or the other they close their
862 borders they close their economies and
863 when you close the economy it leads to
864 economic problems and sometimes
865 eventually if you get real serious trade
866 Wars it needs to bankruptcy and even and
867 even worse you know it's great all right
868 I don't think ever in history that one
869 country started a trade well I and other
870 country says oh well that's too bad but
871 we're not going to do anything we're
872 just going to sit here and let you hit
873 us again and again and again
874 no the other countries retaliate
875 actually human beings are so country X
876 star trade within countrywide hits back
877 then country exits back and country why
878 it's back in the next thing you know
879 country c and b and e are involved as
880 well and everybody suffering and then
881 this economy's get worse more and more
882 things happen 1 more discrimination more
883 and more blame and then eventually
884 politics to start fly so now I I don't
885 like it all what i see happening it's
886 there many analogies that two previous
887 periods in history before the First
888 World War this sort of thing started
889 happening and certainly before the
890 Second World War this sort of thing
891 started happening it's been it's been
892 common throughout history and these were
893 know when they start they usually in
894 1914 nobody nobody could conceive of war
895 and then the next thing you knew it was
896 war and everybody said don't worry it'll
897 be over by Christmas well six months
898 later everybody was saying how did we
899 get into this world how do we get out of
900 this war it's absurd its Lucas etc and
901 that's been the case for many many most
902 words if you go back and look some
903 bureaucrat throws his weight around the
904 next thing you know another bureaucrat
905 throws his weight around and
906 next thing you know 20 year old kids
907 shooting each other instead of drinking
908 beer together and everybody is suffering
909 so now that my word I'm very worried and
910 I know enough yes you know that thief
911 thanks have all fun all find that your
912 real war
913 certainly you know we just had a
914 president who won the Nobel Peace trash
915 of all things we started more Wars
916 probably the most presidents in American
917 history of America seems to have a a
918 pinch for war and they seem to like to
919 get involved
920 well that certainly is true on a related
921 note to that let's talk for a minute
922 about us Russian relationships the
923 Democrats would have us believe that
924 Donald Trump did not win the election
925 but actually evil Russian agents hack to
926 the election and undermining American
927 democracy effectively throwing the
928 election to Donald Trump Nancy Pelosi
929 even demanded just this past week that
930 the FBI should launch a major
931 investigation to figure out what
932 information the Russians are holding on
933 Donald Trump in order to blackmail him
934 into bowing to their wishes president
935 Trump on the other hand continues to
936 reiterate that he has no ties to Russia
937 no business deals in Russia no personal
938 relationships with the Russian
939 government never talk to Putin doesn't
940 know Putin and so on and so forth and
941 he's been particularly outspoken in
942 saying that getting along with Russia is
943 a good thing not a bad thing that
944 Americans should strive to get along
945 with Russia that he hopes to get along
946 with Putin even though he says that he
947 doesn't know him in the president Trump
948 has suggested that is the Democrats who
949 are trying to start World War three with
950 all of their anti-russian rhetoric and
951 accusations
952 now you're the history and world affairs
953 guru Jim are the Russians really the bad
954 guys here are they being scapegoated in
955 order to facilitate an American
956 political rhetoric campaign against the
957 president
958 well I do know that during the last
959 administration mr. Obama
960 administration's you probably remember
961 us we started we tried to pull out a new
962 legal cool in the in your claim
963 you know we got caught at it huh what's
964 your name Victoria London's whatever the
965 woman's name the State Department a safe
966 there several of the pieces of evidence
967 where we know she tried to investigate
968 and the illegal cool then of course the
969 Russians out smartest and so the state
970 department started blaming it on the
971 Russians and the type against the
972 Russians gotten bigger and bigger ever
973 since after we started be4 tried to
974 start trying to instigate the illegal
975 coup in you in Crimea and Ukraine so yes
976 we we are certainly at that party some
977 extent and obviously you then when your
978 college
979 you got to keep the rhetoric up and keep
980 throwing more and more accusations and
981 so the State Department has done that I
982 know that before that illegal coo Obama
983 foolish everybody was trying to be
984 friends with the Russians rightly so
985 cold war ended long ago the Russians
986 wanted to be friends with America that
987 we didn't need NATO anymore who needed
988 the cold war etc all the money we were
989 spending on some of these her arms
990 manufacturers and and soldiers so until
991 the illegal took place we were all
992 trying to be great friends you remember
993 George Bush said I looked him in the eye
994 and he's a man i can get admire and and
995 work with head cetera so it now of
996 course the Democrats especially since
997 they lost the election of trying to
998 blame it on the hunger Russians it's
999 unfathomable to me how the Russians
1000 could have determined the outcome of the
1001 election maybe maybe they planted a
1002 story or two but so what
1003 it's inconceivable to me that the
1004 Russians could the influence much less
1005 determined the election i think if we
1006 start finding and the investigations of
1007 illegal voting I'm afraid we're going to
1008 find more for the Democrats and for the
1009 Republicans places big cities in America
1010 long name names but so far the few
1011 investigations that are taking place we
1012 find that the voting you Larry voting
1013 irregularities are in big cities which
1014 are democratic stronger
1015 old let's move on to precious metals
1016 next last year you said that you owned
1017 gold and you weren't selling it but you
1018 were also quick to say that you weren't
1019 buying anymore either you you thought
1020 that better buying opportunities might
1021 still lie ahead and you were holding off
1022 until they materialized
1023 what's the update on your outlook for
1024 precious metals in the months and years
1025 and the same way still on it by not
1026 buying anymore and you know it go
1027 more or less you went up went down i
1028 suspect Golda today is where it was back
1029 then maybe a little higher maybe a
1030 little lower huh i'm still sitting and
1031 watching I want to own more gold I want
1032 to own more silver but I want to own it
1033 at a lower price which I expect now Eric
1034 I repeat I'm the single worst market
1035 timer in the world so go may not go down
1036 ever again if it does I hope I'm smart
1037 enough to buy more if it doesn't I own
1038 some well repeat what i said one year
1039 ago which is I don't believe you're the
1040 world's worst market timer
1041 I think you're actually a little bit
1042 better than that as evidenced by your
1043 4200 percent and seven years track
1044 record when you were running your fund
1045 but let's second blue font from there
1046 whatever it was it was just a little bit
1047 that was a long time ago and second of
1048 all it was ten years it was seven years
1049 but it doesn't matter it's not that
1050 important
1051 it was a long time ago okay well I i
1052 still will add a little bit more
1053 credence than you take credit for it to
1054 your ears abilities in the markets let's
1055 move on to another topic that you
1056 mentioned last time which is you
1057 describe the desire of governments to
1058 outlaw cash because that of course
1059 allows governments much more control
1060 over the financial system they can
1061 impose negative interest rates do all
1062 sorts of other things and control
1063 everyone's finance needless to say those
1064 were very prescient words so many
1065 government officials and academics have
1066 come out in the last year particularly
1067 from Harvard University Ken Rogoff
1068 professor they're calling for an
1069 outright ban
1070 on cash in favor of purely electronic
1071 currency systems the European Union has
1072 already floated proposed new regulations
1073 that would limit cash transactions gym
1074 where is all of this headed and what's
1075 in store for markets as governments
1076 continue to wage war against cash
1077 everyone's always looking out for
1078 themselves first and that's just the
1079 same old thing you know Eric this has
1080 been going on for hundreds of years that
1081 the Indians recently did the same thing
1082 they out they withdrew eighty-six
1083 percent of the currency in circulation
1084 and they have now made it illegal to
1085 spend more than I think it's about 4,000
1086 US dollars in the in each cash
1087 transaction by any France if you cannot
1088 use more than I think it's a thousand
1089 euros many countries are already doing
1090 this some states in the u.s. you can let
1091 you make track cash transactions above a
1092 certain amount government's love it then
1093 they can control you if you want to go
1094 and buy her a cup of coffee
1095 they know how many you'd range where you
1096 buy him etc etc if they can all put it
1097 into electronic formats and they will
1098 you know the world is all going
1099 electronic my children will probably
1100 never go to a bank when they're adults
1101 from never they never go to up post
1102 office maybe even never to a doctor
1103 rarely to a doctor when they're adults
1104 so the internet and the computer is
1105 changing everything that we know money
1106 can certainly be easily converted to
1107 computers not to take crystal some
1108 people don't have computers and system
1109 is not ready for but it can be done and
1110 when it's done the government's going to
1111 be very very happy they gonna say that
1112 doing it for our own good Eric
1113 you know this is not for them this is
1114 for our good that they're doing this but
1115 it's coming and it's going to be a whole
1116 different world in which we live
1117 probably not different that we are not
1118 going to have as many free services we
1119 have now even though we already are
1120 losing our freedoms that a significant
1121 page
1122 well and i'm curious from your
1123 perspective on that because what
1124 fascinates me I agree with you
1125 lately we are losing our freedoms at a
1126 very rapid pace if I imagined human
1127 beings in a free society in a society
1128 that celebrates freedom losing those
1129 freedoms I would envision a lot of
1130 people you know under tyranny whining
1131 and complaining and groaning about how
1132 horrible it was that the tyrants their
1133 overlords were controlling them but we
1134 seem to have people cheering in the
1135 streets for this gym it seems like most
1136 people are duped into believing that
1137 this loss of freedom is a good thing the
1138 government's fighting terrorism and
1139 we're going to be safer as a result of
1140 forfeiting our freedoms
1141 what does history teaches is part of a
1142 cycle it is there a reason that people
1143 are reacting this way because certainly
1144 in other times in history people have
1145 been very you know willing to die in
1146 order to avoid losing their freedoms but
1147 they're almost cheering the government
1148 on in taking freedoms away now what's
1149 going on here
1150 well history shows that people always
1151 would like a little more safety and are
1152 willing to quote give up some things for
1153 its more safety and security i have not
1154 been human Franklin said well anybody
1155 who would give up 32 some freedoms for
1156 security is going to wind up with need a
1157 security north and north freedom and
1158 they deserve to lose boat and of course
1159 that's the way it is
1160 ok I'm not the first to realize that
1161 people have the rising to become
1162 dictators start taking away freedoms
1163 first in Germany they took away the guns
1164 it wouldn't let people have guns in
1165 sherman lots of places done that things
1166 like that in America now you and I
1167 probably remember when we were kids you
1168 have to have a search warrant now they
1169 can just break your door doubt if the
1170 future if they have a what they consider
1171 the enough good reasons they don't even
1172 have to go to the court and get a search
1173 marketing knowledge so it's already
1174 happening and if you said to somebody
1175 that you know they could break your door
1176 down there said and I got my door down
1177 I'm not a terrorist or drug dealer
1178 well that's how it all starts people say
1179 it's okay
1180 within the next thing you know
1181 breaking your door down too so it's
1182 already happening and to do i like it no
1183 I don't like it but I'm not the first
1184 what was your name Global's the Germans
1185 love you say something to people enough
1186 times they believe it no matter how
1187 absurd it is and what you and I have
1188 certainly seen it in the news in America
1189 you say something enough times people
1190 believe it and it becomes politically
1191 correct and then you can't even say
1192 something that's not politically correct
1193 in America anymore
1194 Jim you have achieved some utterly
1195 amazing things in your life when most
1196 people think about going for a ride on a
1197 motorbike they're imagining a trip
1198 around town
1199 you literally rode your motorcycle
1200 around the entire planet while being
1201 followed by a film crew and of course
1202 that story was chronicled in your first
1203 book investment biker when you decided
1204 to take your new wife for a drive in the
1205 countryside you had a customer Sadie's
1206 built and you took a trip through a
1207 hundred and sixteen countries that story
1208 of course forming the basis for your
1209 second book adventure capitalist gym if
1210 i'm correct you're going to be turning
1211 75 this October that's three-quarters of
1212 a century on this planet is there
1213 anything left that you haven't done that
1214 you still want to do is there any goal
1215 that you have and what have been the
1216 most rewarding and interesting
1217 experiences in your life right now Eric
1218 I am having a wonderful adventure that
1219 to look here I never wanted children
1220 when I was all my life that I've railed
1221 and advise people not to have children i
1222 explained the children were hard waste
1223 of time money energy i was never going
1224 to be so foolish as to ruin my life by
1225 having children like all those saps who
1226 had children
1227 well I was totally wrong eric i had my
1228 first child and I was sent to be my
1229 second when I was 65 and it is
1230 absolutely extraordinary these two
1231 little girls i hope that everybody
1232 listening to this who has not had
1233 children goes home today and starts
1234 working on having children you know take
1235 a day off if you have to
1236 you probably shouldn't take a day out
1237 these days that you
1238 archive but go home for lunch have a
1239 lunch hour with children you cannot
1240 believe how much fun and what a great
1241 adventure it is now I think in my case
1242 it's probably better that I had children
1243 later but had that when I was 20 or 30
1244 or 40 or something it would have been a
1245 disaster for me for the butter for the
1246 children but everybody has to figure out
1247 and do it on their own time but this is
1248 the most wonderful adventure what I've
1249 had so far so you as what i'm doing next
1250 what I'm doing next
1251 these two little girls right now and
1252 when they get older I want to take them
1253 to some more adventures but that's your
1254 young right now
1255 well I must say it has been exciting for
1256 me having heard your story following
1257 your work reading your books over the
1258 years i remember hearing those first
1259 stories of your decision to have
1260 children and your desire that they grow
1261 up in an environment where they could
1262 learn to speak fluent Mandarin and so
1263 forth
1264 watching your daughters youtube channel
1265 and seeing her interview you in perfect
1266 fluent Mandarin it's fascinating to
1267 watch the realization of your goals and
1268 I i would hope that her chinese is a lot
1269 better than your chinese is Jim I think
1270 that's my tits without I think my
1271 Chinese are not existed but when I show
1272 video so when I put them on the stage in
1273 front of Chinese audiences they always
1274 cast
1275 I mean they just gasped out loud and
1276 they're so shocked at how how good my
1277 imagined that my little girl speak is so
1278 that goes you know I i move to asia make
1279 sure my children's spoke with mandarin
1280 no Asia that part is work it will not
1281 make him a successful Eric just because
1282 you speak English in man who will not
1283 make you successful but if they're
1284 working in a Chinese restaurant Lisa
1285 going to be the maitre d instead of the
1286 dishwasher so hopefully they will have
1287 some kind of future that sounds really
1288 exciting i can't wait to hear about what
1289 adventures you take them on but before
1290 we close your latest book is called
1291 street smarts please tell our listeners
1292 what that book is about and what they
1293 can expect to learn from reading it
1294 my agent my problem here came to me and
1295 said I don't you do us to look at
1296 look on how you got from Alabama tell
1297 you are in Asia with two girls to
1298 reassure them speaking Mandarin had this
1299 all this happened must be something
1300 let's do a good story you've written a
1301 few stories about things
1302 why don't you put it all together and I
1303 said nobody would care nobody would be
1304 interested but to make a long story
1305 short with it many people tell me it's
1306 the best book that I've done so far i
1307 certainly enjoyed it puts a lot of
1308 things together
1309 I certainly am glad I did that so that
1310 my children will know if nothing else in
1311 the future it's a it's a memoir if you
1312 will
1313 I thought a little embarrassed to use
1314 that term about anything with me but yes
1315 it's a memoir
1316 well I certainly enjoyed reading it and
1317 I can't wait to read the next book about
1318 the adventures that you take your
1319 daughters on so Jim thanks again for
1320 another fantastic interview we really
1321 appreciated and metrics arisen and I
1322 will be back as macro voices continues
1323 right here at macro voices.com macro
1324 voices is the listener driven program
1325 please email request for specific future
1326 interview guests to request at macro
1327 voices.com you can email questions for
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1331 segment we also welcome your suggestions
1332 for how we can improve the program now
1333 back to your hope Eric townsend and
1334 Patricks resna
1335 what a great interview Eric you know
1336 again we have another great macro
1337 thinker that remains bullish that US
1338 dollar I could not agree more as well
1339 with the gym and yourself about junk
1340 bonds funny that several weeks ago I
1341 published a long Treasury short
1342 junk-bond trade caring for my signature
1343 training.com members
1344 anyway what's on your mind to discuss
1345 this week well last week we got into the
1346 topic of options with us focus on credit
1347 spreads we went into so much detail that
1348 we didn't have time to get to one of our
1349 listeners request which is that we
1350 discussed straddle on indices
1351 particularly the S&P 500 in the market
1352 wrap i said this week that i could see a
1353 big move coming in the stock market but
1354 i just don't know which direction so
1355 Patrick let's start from the beginning
1356 what is an options travel and why would
1357 a traitor employ the straddle technique
1358 well first off eric i personally find
1359 little appeal in the traditional
1360 straddle and strangle options
1361 combination because it generally is a
1362 cop-out to the fact that you cannot
1363 build a general directional bias for
1364 those unfamiliar with the strategy is
1365 incredibly simple concept
1366 it involves simultaneously buying a call
1367 option and a put option for it to be a
1368 straddle involves buying the options at
1369 the same strike price at the same
1370 exploration and the only differences
1371 strangle is that it has the same month
1372 exploration but has different strike
1373 prices the appeal is usually very high
1374 to the beginner because the market is
1375 fraught with so much ambiguity the idea
1376 you don't have to pick the direction
1377 that the stock or index must go seems to
1378 make the trade appear easier at the
1379 surface the real considerations are
1380 always the details in the fine print
1381 Patrick I couldn't have possibly agree
1382 more you know you hear so many people
1383 thinking all this is great i can bet on
1384 something where I'm going to win which
1385 it whichever direction the market goes
1386 in and of course nothing comes free in
1387 life in order to get that deal you're
1388 paying something for that optionality I
1389 mean face it you're buying two options
1390 here which represent opposite
1391 directional views so in a lot of ways to
1392 straddle sounds to me like you know
1393 let's go out and buy non reef
1394 fundable airline tickets for the exact
1395 same dates in February both to Miami and
1396 Vancouver so that once we make our
1397 decision on whether we want to go for a
1398 ski holiday at whistler or a beach
1399 holiday on south Beach we're gonna have
1400 tickets either way
1401 well that's traditionally it works well
1402 if you have a rich daddy who's paying
1403 for the the airline tickets so share
1404 with our listeners some of the
1405 substantive considerations and drawbacks
1406 and and why would this strategy still
1407 makes sense well the key is to anchor
1408 yourself on the fact that options are
1409 priced based upon probabilities
1410 so when you are buying a directional
1411 option you're already paying a premium
1412 that fairly accurately reflects the
1413 probability of you making money when you
1414 spend the money on both a call and put
1415 you are essentially paying double the
1416 premium knowing full well that one of
1417 the two options it will be a guaranteed
1418 loss therefore you're betting on a true
1419 outlier move in either direction
1420 more often than not it's a losing
1421 proposition and the times that you are
1422 profitable you need that much bigger of
1423 a move to make a big percentage return
1424 because you out late double the cost to
1425 open it to make it worse
1426 you've doubled your theta and your Vega
1427 risks so you're burning time at an ever
1428 faster pace if the movie doesn't start
1429 moving for you right away
1430 now as you just described when you buy
1431 these options you're buying a big Vega
1432 exposure and I just want to make sure
1433 that for those listeners who may be
1434 unfamiliar with that term
1435 what it basically means is that you are
1436 trading volatility so in this case you
1437 could use the Vics which is a gauge of
1438 the index volatility volatility of the
1439 S&P 500 stock index is what is measured
1440 by the volatility index or vix the term
1441 vega is used to measure the sensitivity
1442 of option prices to changes in
1443 volatility that really does have to be
1444 the driver of your trade
1445 let's look at an example so in example
1446 of using the SMP 500 we can open a
1447 straddle in anticipation that we're
1448 going to get a big market move while we
1449 can use the SMP 500 emini futures
1450 options
1451 in this example we're going to focus on
1452 using the SP y which is the as spider
1453 SMP 500 etf which is trading around the
1454 230 dollar and 88 sent level at the time
1455 when we did this example at the moment
1456 the April 231 dollar call option is
1457 asking three dollars and ninety-five
1458 cents and the April 231 dollar put
1459 option is asking for dollars in sixty
1460 cents that's an eight-dollar and 55 sent
1461 cost outlay to convert that into SMP 500
1462 points that's the cost equivalent of
1463 close to 90 s MP points without
1464 volatility expansion coming into play
1465 you would need to get close to a
1466 200-point move in the S&P 500 by April
1467 higher or lower to get a hundred percent
1468 return on the risk capital a
1469 considerable but not impossible move and
1470 not only do you have to make a 200-point
1471 move to earn a hundred percent return
1472 but you've got to earn a 90-point move
1473 and 90-point move that's a big move in
1474 the index just to break even and not
1475 lose money
1476 anything less than that and you're going
1477 to lose some money and how much money
1478 you lose can depend on how much less
1479 than 90 points of this so how much would
1480 impact the options if we saw the
1481 Volatility Index double in the next few
1482 weeks
1483 well that's exactly why someone we
1484 considered opening this type of a trade
1485 for comparative purposes let's use the
1486 last major spike in the volatility index
1487 as our base case in the weeks prior to
1488 the US election the Vics increased from
1489 october 25th low of 13 to an intraday
1490 high on the member force of around 23 or
1491 about ten point rise in nine trading
1492 sessions
1493 let's assume that the same type of rise
1494 was to occur in the next nine days when
1495 that scenario you could see as much as a
1496 sixty to seventy percent rise in the
1497 options without needing the price to
1498 change at all
1499 so if you are playing the straddle or
1500 strangle here you really want to have
1501 the conviction the volatility will pick
1502 up and pick up very quickly because
1503 you're getting theta killed on the time
1504 decay so now personally Eric because i'm
1505 a market timer
1506 I prefer to take a much more directional
1507 play on my bias and so when I do
1508 straddle or strangles i tend to raise
1509 your calendar them to express that bias
1510 okay but wait a minute what you're
1511 essentially saying is as far as you're
1512 concerned the only good reason to buy a
1513 straddler strangle is because it's
1514 effectively a way to play a bullish view
1515 on volatility in other words the VIX is
1516 going to increase dramatically and what
1517 you're saying is that's the only good
1518 reason to do this trade
1519 well if that's the case wouldn't it be
1520 simpler and more efficient just to buy
1521 VIX futures if you trade futures or the
1522 VXX etf if you don't well that's an
1523 excellent point but it brings up an
1524 entirely new conversation about the
1525 different ways to trade volatility
1526 itself when dealing with the VIX futures
1527 you have to deal with the term structure
1528 of the futures contracts and more
1529 importantly the huge negative carry
1530 that's built into them
1531 the worst is that for many beginners
1532 that turn to the volatility ETS like the
1533 VXX rarely understand that the ETS have
1534 to consistently roll forward the
1535 negative carry which is always bleeding
1536 them out of their net value
1537 ok we should probably stop there because
1538 we've got to introduce the concept of
1539 volatility is an asset class to start
1540 with you bring up quite correctly this
1541 Carrie issues that contango issues term
1542 structure issues there's a lot to
1543 understand here so let's do this let's
1544 table it for today and we will make a
1545 decision right now that the topic for
1546 next week's discussion after the feature
1547 interview will be volatility trading so
1548 we'll come back to the subject next week
1549 meanwhile we've received several emails
1550 from listeners saying that they like
1551 this option strategy coverage so we're
1552 going to keep that coming but please
1553 keep those emails coming my last
1554 question to Patrick about straddle and
1555 strangles was inspired directly by a
1556 listener email and your feedback helps
1557 us to keep this part of the program
1558 interesting for those of you who are
1559 really serious about this stuff
1560 Patrick is in the business of teaching
1561 people to trade and options trading is
1562 just one of his course offerings you can
1563 go to big picture trading dot-com to
1564 learn more about Patrick's online
1565 education programs thanks Eric
1566 I look forward to sharing many more
1567 insights with our listeners
1568 the weeks to come anything else you want
1569 to add before we close things up
1570 well I want to thank you patrick not
1571 only for those options coverage but what
1572 our listeners don't see
1573 behind-the-scenes is you have really
1574 been just knocking grand slams in terms
1575 of guests recruiting so we've got some
1576 fantastic guests coming up in the next
1577 month
1578 stay tuned folks to macro voices and
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1580 retweet us when we announce the show
1581 tell your friends forward your research
1582 roundup email to your friends and
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1586 financial website and the world has a
1587 macro voices player right on its
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1593 one of our episodes from this week's
1594 interview with Jim Rogers all the way
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1628 me you're going to want it for the next
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1632 are going to have significant handouts
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1634 get the links to those in your research
1635 roundup email
1636 meanwhile for this week Patrick what's
1637 in this week's research roundup
1638 well this week what you can find in
1639 their first of all the transcript for
1640 that interview you did with Jim now for
1641 those of you that are clicking on that
1642 link please recognize that it takes 24
1643 to 48 hours for us to update that so if
1644 you immediately are clicking on it
1645 you'll see that i'll just come up with a
1646 quick landing page and that you just
1647 have to wait until we upload it once
1648 it's fully transcribed now in addition
1649 to that we have a link to the Telegraph
1650 article by Ambrose evans-pritchard which
1651 had discusses Asia's top banks warn the
1652 Chinese capital flight is becoming
1653 dangerous to stay in that China theme we
1654 will have another bloomberg article
1655 where they discussing China's reserves
1656 edging below that three trillion dollar
1657 level as the one pressure continues as
1658 well we have a reuters article talking
1659 about the Union credit writedowns as a
1660 ringing the alarm bell for italian banks
1661 you'll find this and so much more in
1662 this week's research round up so that
1663 does it for this weeks episode we
1664 appreciate all the feedback and support
1665 we get from our listeners and are always
1666 looking for suggestions on how we can
1667 make the program even better for those
1668 of our listeners that right or blog
1669 about the markets
1670 we'd love to share your content with our
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1679 twitter at erica's countin on behalf of
1680 their accountant myself thanks for
1681 listening
1682 we'll see you all next week
1683 that concludes this edition of macro
1684 voices be sure to tune in each week to
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