The Late-Cycle Contrarian Hi. I'm Ed Harrison, your host for Investment Ideas. Falling on Recession watch, we're going to be talking to Charlie McElligott who is a managing director for Namura for Cross-Asset Macro Strategy. He's going to be talking to us about the near-term volatility that we're seeing in the market and what it means in terms of this binary path that were going on between recession or potentially just a mid cycle slowdown. We're also going to talk to him because this is investment ideas, about what he sees over the medium term as well, say the 12-24 month time horizon. What is the non-consensus view that he has going forward? Hope you enjoy it. Charlie, it's good to see you back here again. A lot of things have changed and we're going to talk about what you earlier told me was the most underappreciated call that you could make over the medium term, but actually I want to go and talk a little bit more about what's going on now with regard to volatility. That's why people are talking a lot right now about the volatility that we've seen in the market and you're someone who's really well positioned to talk about that from a non-retail investor perspective. Talk to me first in terms of market structure, where we are, like who your clients are and what they're doing in the market. Sure. So sitting on numerous equity [inaudible] desk as a desk strategies, not a publishing research analysts, gives me an interesting perspective with regards to a much more tactical view, a much more tackle framework, exposure to the flows of our trading clients. It's both as an advisor to our risk management as well as the larger consultancy role for our client. So these are institutional players, but certainly particularly heavy within the hedge fund community, but also with hedging programs for real money for insurance companies, for pension companies. So you get a really interesting look under the hood with the moving parts and then I worked very closely because it's the toggle that central banks have pulled on with our rate business. We have a fantastic rates business both linear and involved and there too we get exposure to the macro hedge fund community, similar overlap with our equity Derivs desk but also to the asset liability managers and the asset liability managers from the perspective of what happened this past one month plus, with that duration grabbed that we saw. Play a major role in that. Right, yeah. So you're talking not just of hedge funds but long only asset managers, long-short funds, the whole gamut but its skewed towards the institutional side? Yes, entirely institutionally. In August, where we are right now, we saw a huge tick up in the VIX and volatility in equity index is VVIX, the volatility of the VIX. What's going on with that? So over the course of July, we started seeing very notable behavior and the VIX complex and not just the UX and the futures, but also to with [inaudible] , with VVIX, with skew, just generically speaking say the richness of downside to upside from a percentile perspective over last X number of years. My view towards the end of July, it really picked up late in July, my view in the end of July as we're entering August was that don't be 'caught short gamma' in August. It was like this theme. By the way for retail investors, gamma is? It's to make it as layman as possible, the idea is that hedging an options dealer is selling optionality, whether it's a higher or lower in an asset and you are short options. The idea being that, if you're short gamma and the market's crashing, perversely you have to sell more, the lower it goes and vice versa, you have to buy more the higher it goes. So it's not a linear relationship, there is a curvature to the relationships. Right, so this is the same, short gamma is the same concept as negative convexity in the bond space which again when I said don't be short gamma into August, you saw the exact same phenomenon even though different players different catalysts within the raid space, which was this negative convexity type move which was the same driver of this volatility move in August and more specifically with regards to all what drove that signal in [inaudible] , what drove that signal in the VIX complex that the market was telling us, we're really going to crash up or crashed down. In this case we did both and I believe it was particularly due before we had, where I'll get to, which was the macro catalysts to set it off, but in this particular case there was one outsized flow in the market from an entity who runs a hedging program that bought and grossly outsized the amount of volatility supply in the VIX calling. So meaning a low-probability crash type of a move which would have showed up in the VIX complex. We're seeing the VIX, at this time we we're 11, 12 or 13 VIX up in the upper teens into the mid-twenties. Where we've already gone. Where we've since traveled to temporarily for a period of time. By the way as you say that, I have a smirk on my face because there's a name that this bond or this group has gotten in the market. What are they called? They're colloquially known as fifty cents because so many of these trades, this was a long-time hedging program in the market in 2017 into the start of 2018 before the VIX event in the leverage VIX ETNs in the end of February, known as fifty cents, because they were buying this cheap lottery tickets on these crashes, because they determined that it was an effective use of hedging for this crash scenario for their long only portfolio. The thing is that back in the 2017 [inaudible] days of short volatility, target managers are retiring because they're trading short volatility in the retail portfolios. There was this massive supply of short volatility particularly within the leveraged VIX ETNs had daily rebalance at the end of the day and we knew that if there was a risk catalysts and it ended up being there was a macro catalysts in the form of an inflation overheat scare word. We added the fiscal stimulus to an already above trend economic cycle, and that was the macro catalyst for the interest rate sell off that then metastasized itself in this huge movement VIX on February 5th, 2018. After that event, and after that hedge paid off, there no longer was that supply of short volatility in the market. Because people got burnt on that. People got burnt by that and those leveraged VIX ETNs went away. I mean, it was an extinction event. So that short vol supply was no longer in the market. You couldn't put those trades on because you would never squeeze in VIX to that extent. So they went away. Lo and behold, 2nd July this year, $0.50 showed back up. That's why over the course of July, we started seeing VIX and particularly vol of vol and skew makes such moves. So like 95th percentile in one month skew. Meaning, again, just think about it as richness of what people are willing to pay for downside versus upside protection. That was ultimately this trigger for once you got the macro catalysts at the end of July by Donald Trump's tariff tweet, unexpected, off the grid, people thought we were going the right way, boom you gap down and you have this short Gamma event in the VIX space, short Gamma event in the S&P space, S&P downside, and it was also this stimulus for this negative convexity event in the fixed income space. Negative convexity is short Gamma in the equities terminology. But now you are saying that August and actually also September, our months one and two in terms of watch out traditionally in terms of Gamma. Explain why you think that's the case. August is on a monthly basis the largest monthly positive return for VIX since its inception in 1989, September is number two. So that seasonality matters. What is that seasonality picking up? I think it's picking up the illiquidity profile of both of those months frankly, with regards to managers, PMs, CIOs, traders. Both buy-side and sell-side being off desk, it's certainly been exacerbated in the post-crisis period with regards to regulatory restrictions with regards to trading desk risk budgets and risk limits, vol tightening both buy-side and sell-side which is just a vicious cycle. Less liquidity, smaller depth of book, more price impact. So that was also part of the calculus as far as don't be short Gamma into August. Then once we had the macro shock down, then you bring out dealer short Gamma dynamics, then you bring out buy-side negative convexity dynamics in the rate side, then you bring out synthetic short Gamma events with say the systematic community, and you see these extreme moves that to a fundamental retail investor, you might take a step back and just say, ''Wow, you're really pricing in the end of days here.'' That's the danger where it's not necessarily an illusion, the catalyst was the right catalyst, but with regards to the extent and the magnitude of the price extremes, that's why we got to where we got to. Ironically, if you'd take it back to the 0.50 cents stuff. So you talk about this vol of vol told us we were going to crash down. So anytime vol of vol, VVIX is over 90, 95. It's like at 110. Yeah. It's 110, it's pretty sticky right now. My spidey senses is up. My vol trader Tommy says, ''VVIX never lies.'' We started seeing that downside fear trade really accelerate. There is ugly global growth data piling onto the tariff fears, this idea that the tariffs are going to drive the end of cycle trade into an outright recession. But what ended up happening, and I think this is part of our larger message by the end of this discussion, was that we never quite got there. So those upsides strikes the cawing in VIX, we never quite crashed out because what we've learned to be Donald Trump behavior, the equities market vigilantes swung back and they spooked him. So over the course of that week and a half ago period, or week ago period, you got that CEO conference call with the banks heads, you got that dinner with Tim Cook, where Tim Cook emphasized the negative implications of the tariff. Then lo and behold, you've got the tariff extension. So once you didn't get those strikes to trigger, all of a sudden dealers are looking around days from the expiry, days from VIX settlement long so much crash. That liquidity dynamic effects dealers too. We have to go find other dealers to find VIX upside trades or to find S&P downside trades or they have to go out and short S&P futures themselves. Now, all these trades need to start getting unwound. Lo and behold, the low print of the VIX was, and we made this call that we're going to trade higher meaningfully so into the VIX exploration because all these dealers have to puke their crash protection. All those VIX, all the short futures, all the short S&P futures covered. All of that VIX upside had to be puked in the market, VIX ended up trading down to almost like 14 handle at some point. That was the low point VIX, and now here we are again agitating off the back of this latest tariff retaliation scourge. I wanted to get into September but you mentioned something that I find interesting, is that it almost seems like a rinse and repeat type of activity, because you look back yet you talked about the February 2018 VIX buy, we had October, December, then May we had another one. Then finally in August, it seems like every single time we had this spike, then on the other side you have the people coming back into the market. What's the dynamic for that? I mean, I was talking to you before and you were talking about Donald Trump as being basically, an option, he's creating optionality. Yes. Donald Trump is a human option. So in a world constructed in the post-crisis period, or central banks' unwritten mandate is to control financial conditions, suppress volatility whether it's rate cuts, asset purchases, forward guidance and the growth of strategies profiting in shorting volatility and the risk adjusted returns that those strategies have returned, and as the asset growth beyond those strategies and the larger role they play and daily markets. For him to be this optionality introducer into a market, that short optionality, makes total sense. It's completely rational. So if you're talking about what rhymes, here's a perfect example. So you have macro catalysts shocked down, Trump tariff tweets in end of July. You could even say, this latest escalation tirade on Friday. You end up, typically, dealers options investors such as ourselves or our other competitors, in this post-crisis regime, because people have found it profitable to sell volatility in a grinding higher equities market. We're actually getting long Gamma, because the former buyers of hedges, the former buyers of tails, the biggest players out there, real money asset managers, pensions, are now sellers of volatility, right? Yield enhancement strategies, overriding strategies. There's plenty of systematic strategies, right? VIX roll down, just playing shape of the VIX curve, that are the sellers of volatility. What ends up happening is that, in a shock downmarket though, in a world where a lot of people have taken for granted the way that central banks step in and smooth, there is all of a sudden this grab into protection and the deal always gets short gamma. We're short those options that we're selling people. So you have this short gamma dynamic, rush for protection on the macro gap down the dealers are in. So the lower futures are going, the more futures we have to sell to remain hedge because we're short these downside options. Then two, you have dynamic hedgers, right? Clients that might not have a constant hedge overlay program, but as and when, they will manage their exposures. So market begins coming off, they're pressing their single name shorts, they're pressing their ETF shorts, they're shorting futures. Also exacerbating the move to the downside. It's like 1987 portfolio insurance, right? Then there's the source of synthetic short Gamma in the market, and that is that other subset of strategies that are systematic, right? So target volatility, risk control, CTA trend, risk parity to a certain extent although I remove them because they're slower moving. What ends up happening is that, these strategies in the post-crisis world, where it's just been a perpetual grind lower flattening if you will of volatility, in order to maintain their exposures, their target exposures or in order to allocate their leverage and allocate their exposures, the lower the volatility goes the more you have to load leverage onto a trade. So in this case, those strategies, let's say in stocks over a 10-year period, volatility is going lower and they have to deploy more leverage onto that trade. When you get a vol shock, these strategies are built to systematically and emotionally de-lever those traits, and these are not insidious hedge fund entities necessarily. Although certainly like a CTA trend fund might speak to that, but these are products sold by asset managers, insurance companies, variable annuities, right? So these are, I mean everybody is in these things they just don't realize it when they're selling it to you for this fee. There's this package mechanical de-leveraging type of trigger based on a preset arbitrary target volatility they are trying to maintain in that portfolio. So that's this other source of selling pressure on the gap down, right? Where they're just mechanically de-leveraging because the realized volatility trigger has been surpassed. That's where the cycle begins to turn though, because of this world that we've created with central bank, I'm going to pretend central bank interventionism which is not going away. You end up having these strategies as we spoke to that come in to take advantage of that. First of all, people want to monetize their hedges, right? So whether it's discretionary clients that had put spreads on that want to take those off and lock those in, whether it's retail via VIX ETNs now who are net long Vega since February of last year net long Vega like hundreds of millions of dollars of long Vega that want to take advantage of these elevated attractive levels to sell volatility before market soothing comes and before the central banks, or President Trump's tweets, and that's part of this conditioning that we've developed. Then two, the same with these other kind of real money type strategies, overriders as we said, yield enhancement strategies, those types of things. So let's talk about another source of stabilization in the market after these crash downs. You know, there's another entity called the put bomber in the market, right? The put bomber comes out on these elevated volatility scenarios, attractive places that their models are telling them to sell volatility again and they come out and they lace the street, dealers such as ourselves with a bunch of downside which gets us synthetically short the market. So we have to go out and buy hundreds of millions if not billions of dollars of Delta of S&P futures to buy, to hedge ourselves which creates this insulating factor, this shock absorber. I would go so far as to say that, the growth of these yield enhancement strategies, yield short volatility strategies for real money entities is just as impactful from a flows perspective, from actually being there to support the market in these drawdowns as any central bank. Another expression of this are buybacks. Right. Corporate buybacks which have been incentivized by the yield regime, by what central banks are pushing, issue paper for free to buy back your stocks, strike your options, your stock investors are asking you to do this. You're getting rewarded for it, right? What that does is it completely skews supply-demand. It shrinks the float, creates this artificial source of supply and we know looking at the largest buyback that's on the street, the biggest corporate repurchase that's on the street, they get most active in these shock down scenarios. So that's another stabilizer. You mentioned the buybacks and that's a good segue into what I was thinking about in terms of September. We can segue into the macro themes with regards to the Fed but also with regard to what September is setting us up for, because we talked about this before, we're talking about a buyback blackout because of earnings coming forward. Well, we're talking about options expiring, we're talking about the ECB and the Fed coming out with their decision-making. So that's a lot of potential errors that could create more volatility going forward in September. So talk to me about what those dynamics are looking at. So it's the right segue because once you get those shock absorbers, market starts going, vol keeps bleeding, or those same systematic strategies now need to begin adding back exposure. This short fall out from all the dynamic hedgers. So we've hit back up. Today in some ways is an expression of some of that crash down, crash back up. It's not purely based on some sort of optimism around Trump's wording from a phone call that may or may not have happened, right? You know, a lot of this is quick monetization of hedges, Delta buying, forced re-leveraging, all those things happening in full speed. I have said though over the last week, we now have to get ready for the window for another equities pull back in September. The way that, September is particularly relevant especially with regards to this discussion about Gamma, and short Gamma because it's the serial OpEx, it's serial options expiration meaning it's one of the big quarterlies, it's a big quarterly expiration. We saw something similar with prior serial expirations this year, where there's a historical seasonality trade up into, and trade down out of, and part of the way that we rationalized that rhymes, again, with the set up in September. Right now you have the smoothing effect, right? The reversal of the macro catalysts, right? Trump trying to de-escalate, China talking about calm. You know, we still want to proceed with the phone calls even though the tariffs are going to go on September 1. So tariffs going on September 1, I think people are base case there. We're not solving this between now and then, right? It's about the tone of the meetings going forward, things like that. But then you are, you're laden with these both event and flow risks. The event risks are obvious, tariffs one. September 12th ECB rates decision Fed on the he 18th, clearly there is a chance that we could have interest rate volatility there in the sense that, if the Fed or the ECB is unable to meet incredibly high dovish market expectations. This cornering that the Fed is, and in particular with regards to trying not to look like they're cratering to the demands of President Trump, who some think is playing 40 Chess which is a joke goes, with regards to pushing this tariff deal to get his rate cut. So those are the macro of any rates. But then you have these flow dynamics, part of the reason that we seasonably trade up into these rural quarterly op options explanations is that, it's partially due to what I spoke about earlier. In the money calls from over writers get rolled, which creates a bunch of dealer delta to buy into the exploration, so buying a futures, and at the same time on September 17th per our desk estimates, our analysis shows that 75 percent of S&P 500 companies will be entering their buyback blackouts. Right. That's for the earnings that are coming out in October? Right. That's for Q3 earnings. Right. So it's not as black and white as buying stock, can't buy stock. There's things called 10B5-1 that allow flexibility around that, and most of these corporates have that, but the idea is that it is absolutely a form of a flow perspective. It incubuses the process of buying back stock. So directionally, change of direction, the buyback impetus is not there. Right. So you have this demand vacuum coming at the time where we have this potential gamma event and all of that delta buying from desks from the overriders rolling there in the money calls, creates this trade up into and then those two sources of demand drop-off thereafter. That's this idea that you have, two potential macro catalyst. You have now created a situation where, and actually already we we do a particularly job focusing on the CTA community systematic trend community on the desk and we've developed a great following for that working with our quantitative investment strategies group. What ended up happening actually, Friday and the shock down of the China retaliation before the Trump tariff, we actually never triggered CTA deleveraging. So those CTAs are still long right now. Which in my mind I looked at that as the opposite signal, they're teetering on the line of having to deleverage still. So this is that idea of clustering, this is that idea of rhyming. You're going to have a gamma event in the market, you're going to lose two big demand flows mid month, and then you have this potential's still sitting out there looming with CTA deleveraging in play on a shock down. Here we go again. Right. That's why I think it's like there's potential for two weeks straight up into and then thereafter trade down again, now that can be looked at two ways. If you're looking to buy the market on a pullback those last two weeks are probably the time you want to do it. If you're looking to sell strength, these first two weeks of the month or probably the time to do it. From a retail investor perspective obviously none of this stuff is obvious, because these are market dynamics that are going on outside of the underlying market. It's actually happening in the derivative market in terms of hedging and so forth. Now, we've been talking a lot about equities here, but there's a lot of event risk as you were saying with regard to the ECB on its wealth, the Fed on the 17th to 18th. Right now, a lot of people are saying that 50 basis point, they're very dovish. But from where I'm sitting, there's a lot of what I would call reflexivity there in terms of the trade that people are talking about in terms of, convexity, creating this need for duration that makes it seem like people actually are more bears and they actually are. Then we have the expectations put upon the Fed, which are partially due to the technical fact. Right. Can you talk to me about that interplay and what that means in terms of whether the Fed is going to go 50 in September? So I think that right now the Fed has signaled to us, and this is one of the per year usage reflexivity, that they are at risk of missing what the market wants. Then purely speaking from the Jackson Hole, Powell speech perspective, he really focused on the downside risk of the economy and the implications of of tariffs and to accelerate the slowdowns and certainly negatively impact Corporate sentiments spending. Nothing about the technical. Nothing about the technicals. Not from a negative convexity technicals perspective, but from a technicals of the plumbing perspective, and that where there is a lot of consideration going on on the particulars of money markets right now of signals of stress. Obviously it's already a month-end we've seen month-end. Funding stress is just a regular feature of the market certainly see it in quarter-ends and certainly seen on year-ends. There's large part of the Q4 environment. Certainly the December trade was how big the year end funding dynamic played into the overall quantitative tightening phenomenon. But right now, there's a number of signals whether it's for all I asked or Fed funds effective trading above interest on excess reserves, that are telling us there is issues within the dollar funding market and the dollar is the world's reserve currency and the dollar lubricates the global economy. That is particular being set off right now into year-end September onward, with this massive catch-up to replenish the cash coffers for the for the Treasury posts the Debt Ceiling extension. So there's like $800 billion of paper coming, that in and of itself is hoovering, is extracting dollar liquidity from the system, which is why a lot of market participants most wired into money markets and the plumbing, say this isn't about asset purchases. This isn't about restarting QA. This isn't even about Standing Repo Facility which would Band-Aid some of this dollar funding stress. This is about needing to shock rates lower. So we've seen big trades going through the market the last couple of weeks, that are playing for one year out, one to one-and-a-half year out, US rates at zero. Right. Because eventually, even if the Fed is missing the plot right now, they're going to have to violently cut rates, because the Fed never knows the difference between a mid cycle adjustment or the beginning of an Easing Cycle before it's too late, and I think that's the challenge in the market right now. That's sort of a reflexivity trade in the sense that it's not necessarily the, I mean, because when you look at the economy 3.1 percent Q1, 2.1 percent in Q2, GDP now from the Atlanta Fed is saying 2.3 percent for Q3, there's nothing on the horizon that says that the recession is coming right now. But people are saying that reflexively, if these numbers are, we're looking for you to cut and behind the curve, then you would have to cut even more aggressively going forward, and so they're pricing that in. Right. It's a vicious noisy feedback loop with the third entity being Trump trying to use market forces to pull the Fed along, in that complexity with regards to not looking like you're being dictated to from the from the political realm. So there as it used to be the Bond Vigilantes. Now, it's almost Trump in the Equity Vigilantes,but Trump himself just continuing to hope on the Fed, and you're getting this added negative convexity component where the speed of the duration rally has been so extreme that it's catching insurance companies, pension companies, asset liability managers shorter duration targets. It's catching mortgage players negatively convex so you have to buy more treasuries the lower yields go. That's that danger or false optic that we're talking about, where everybody's reading maybe the wrong signals, and it's spiraling this thing into a car wreck. I think this gives us a chance to move because obviously this is investment ideas to the longer term, and we're looking at like 6 to 24 month time rise, and that's what we're talking about, this reflexivity spiral that we're talking about, really is about a lot of people think that we're sort of at a crossroads here. So either the market isn't really telling us what we think it's telling, because there's some technicals involved in that in terms of people needing to get longer duration because rates are coming down and all this other stuff. Or actually, bad things are going to happen either just because reflexively that does happen or the numbers just keep deteriorate in the real economy. So that's where we are. I think that that's the macro view. The question is, how do you play that from an investment perspective? Because it seems like there's a binary outcome. Right. So we've discussed these on prior visit but I'm operating in this one week reversal, what's going to tip over, what's crowded, very tactical framework. But if I were just to take a step back and say, where's the most crowded narrative? What is the most crowded narrative? What is the most crowded positioning? Without a doubt, it's this ongoing belief that we are accelerating into the recession with this the trade tariffs as a stimulant to accelerate this move? That's been the right trade and it's a reason it keeps working and as discussed in many of my notes for the last six months, it's not just the rates trade, it's duration in equities, it's long Defensives, which are Bond Proxies, it's long and secular growth tech, which grow regardless of the hotness, the cyclicality of the economic cycle and its short cyclicals, energy, financials, materials, industrials, which have just been cratered. So like it's pure momentum. It's pure momentum both with just this ongoing duration rally. It's pure momentum within equities, long-duration sensitives, short cyclicals. That also is this opportunity on just the under-pricing of the chance. The "What if we get a trade breakthrough?" Donald Trump's time horizons for pain right now are getting shorter and shorter with regards to the markets slapping him on the hand. The close and close we get to 2020. These election pressures are going to ramp up and he's losing the farmers. Like I think some of the calculus is changing here, and if you just get that sort of relief with regards to the amount of crowding into fixed income and the amount of crowding into fixed income which is crowding people in the defense of equity, is crowding of people in a secular gross stuff that doesn't need the hard cycle and short cycle goals. On any bonds sell off, you're going to get a really convex move with all the stuff that people are underweight meaning the cycle close and vice versa. I think the fact of the matter is, by far it's still the base case that this already is an end of cycle phenomenon and no Fed cuts are going to be pushing on a string. At that point. But from an operations perspective, from an institutional client perspective, it makes sense to me to own some out of the money payer, some one year out of the money payer, deep out of the money payer on the chance that this kind of 50 Cent lottery ticket that you actually don't see the end of days trade, that you do get some relief some sort of move towards the middle because maybe trump feels the election slipping. Or maybe Germany and China turn around. Yeah. Many facts sort of. Then you get this kind of PMI pivot off the bottom and by the way US data, the surprise index is actually moving sharply higher like in the post of territory meaning that we're getting more beats than misses on average. That it's not that bad, you could just get a really magnitude, a convex move sell-off in bonds that can see these equities expressions trade the other way. The way I'd want to do that is not outright, I don't want to be short bonds but I want to do it via options so that I do capture if you do get that lottery ticket and that lottery ticket triples in money. So that's a one-year out of the money payer which is basically a short treasure, is a short rates expression. I think what's really interesting, and this is certainly the lower probability of just getting the turn but is this kind of political turn in the United States. So let's take the opposite side of that for a second. That is the doomsday scenario actually does happen. There are two possibilities; the doomsday scenario happens and it all falls apart and we go to zero. So everyone, they were right to pile onto this trade, but there's another scenario there. A lot of people are talking about MMT, they're talking about helicopter drops whatever it might be. What happens in those scenarios? Yeah, just speaking pragmatically as far as where are these biggest imbalances like the crowding into the rates tray the crowding into duration, if we get to such an extent of slow down of recession of Fed cutting, that it creates a political tremor. Trump loses the election, 22 of 23 democratic candidates at one point were advocating, MMT were advocating, living wages, universal income that type of a thing which is a reflationary impulse that we have never gotten our arms around in this country to theoretically the potential extent that we're talking about. The last thing in the world I want to be lever long in are bonds. Right, that's part of what's in the back of my mind saying like, I bet on a lottery ticket on this because it's a year out right now and this thing is moving in that direction where maybe he either feels the pressure to take the knee, we come to some sort of agreement, we relieve, people start adding back, and the [inaudible] goes income cells up PMI is turn. That's hopefully the outcome that this thing moves towards but if it actually goes so bad then we see this regime change. This regime change, the worse it gets the bigger it's going to be with regards to this fiscal stimulus move not just the US. But if we do it, you're **** sure the rest of the world's going to start looking at that. The Germans have already said. The Germans with these green bonds, now they're starting to bleed it out there, they're testing the waters. I mean, we already know what the Chinese have been doing with regards to kind of dripping in the infrastructure and the fiscal along with occasional monetary easings. But if you get the whole world behind this movement and nobody wants to be left behind because we're already as discussed earlier, we're already in this beggar thy neighbor currency devalued game. Again being levered long fixed income and in short stuff that's sensitive to bond selling off is a pretty dicey place to be. So I know that's sort of a speculative trade in the sense that you are talking about out of the money. However I think that in terms of the way that we're thinking about investment ideas that's the one take away from this. But the second take away for me has to do with a lot of the stuff that you're seeing on a tactical day-to-day basis shows that what we're seeing in the underlying market is driven by a lot of hedging activity, a lot of technical activity, and it may not be that what we're seeing in the market is representative of true convictions to the downside, we could actually have more upside. Exactly, there is those flows behind closed doors. Gamma is the most important flow in the market and that's the desk that I sit at, that's the desk that I see the impact of this, the fundamental story is secondary. In this case Gamma is the tail that wags the dog. We'll leave it at that. Thanks Charlie. Good seeing you. Charlie is a flow oriented strategist who sits on the desk and has a very tactical approach as a result. He sees all of the institutional flow from both real money fund managers like pension funds as well as hedge funds. What he's seen is a crowded end of cycle trade suggesting US interest rates are converging to zero with the rest of the world. The non-consensus view to take is the other side of that end of cycle trade either because we pull out of the global growth slowdown that we're in or because the policy response is super aggressive and inflationary. So Charlie recommends any positioning that is effectively short treasuries, short duration using out of the money options, and he's suggesting looking at instruments with a twelve month expiry. Welcome to the end of the video. We know that on average 85 percent of you who starts a video on Real Vision finish it. That's extraordinary on Facebook it would just be four percent. That's because Real Vision creates the most engaging content in the entire media world. Let us help you grow your business by making video content that really engages your customers. Email us at customvideo@realvision.com