Recorded live in Puerto Rico, this special episode of The Derivative features host Jeff Malec with guests Brent Johnson, Jason Buck, and Mark Tower exploring how alternative investments are behaving in a world shifting from globalization to de‑globalization. The panel covers why some managed futures and volatility strategies haven’t delivered as expected in recent crises, the growing stress in private credit and liquidity mismatches, and the evolving roles of gold and Bitcoin as hedges against instability and fiat risk. They also dig into de‑dollarization versus continued dollar dominance, the power and data‑center boom tied to AI, and the coming capital wave into defense‑related technology and critical minerals. Finally, they debate whether AI is a truly transformational, deflationary force or just another tech cycle, how it may reshape portfolios, and how Puerto Rico’s unique tax regime influences where and how to run active trading strategies. SEND IT!
Asset Management One Disclaimer: Asset Management One USA Inc. is a New York-based investment advisor and a part of Asset Management One Co., Ltd. group, a global asset management company headquartered in Japan. Asset Management One USA Inc. is jointly owned by Mizuho Americas LLC (MALLC) and Dai-Ichi Holdings. Asset Management Group consists of AMO USA as well as Asset Management One Co., Ltd and its subsidiaries including Asset Management One Alternative Investments, Asset Management One International Ltd., and Asset Management One Hong Kong Limited. The views expressed in this recording are the personal views of the participants as of the date indicated and do not necessarily reflect the views of Asset Management One USA Inc. itself. This recording has been prepared solely for informational purposes only and should not be considered investment advice or a recommendation of any specific security, strategy, or investment product. Nothing in this interview is intended to be, and you should not consider anything in this interview to be, investment, accounting, tax or legal advice.
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From the Episode:
When Skynet Writes a Substack: The AI Doom Piece That Moved Markets
Check out the complete Transcript from this week’s podcast below:
Status of Alternatives – A Live Recording from Uncorrelated Puerto Rico
Jeff Malec 00:17
Hello there. Welcome back to The Derivative brought to you by RCM Alternatives, where we sponsored different alternatives conferences around the world. Did so down in the Caribbean last week at uncorrelated Puerto Rico, where a lot of the content was on why investors and managers and the rest should move their lives down there and run their businesses from the island. It’s not just about low taxes. They said, although my takeaway was mainly in my meetings outside of the conference with other investors and whatnot, that it’s definitely about the low taxes anyway. Leaving that aside, I hosted a panel on the current state of alternatives there, and after telling everyone I don’t like where you go down the line and do introductions, and everyone spends five minutes doing their own bios, taking up all the panel’s times I sort of botched the intros and just got right into it. Called everyone by their first name, but when you got your own podcast, you can redo it, and that’s what we’re going to do here. So here we go. Little more fun joining me on the panel today, the pirate himself, the cockroach loving, slipper wearing vocab professor, Jason Buck, founder and CIO of Mutiny Funds to his right, the volleyball spiking, dollar milkshake drinking Puerto Rico resident, Brent Johnson, CEO of Santiago Capital. And last but not least, the big wrestling fan with a unique look. We’re talking Ascot hats and custom printed shirts. Mark Tower, Executive Director and Head of Business Development at Asset Management One USA. Send it.
Jeff Malec 01:53
All right. I’m Jeff Malec, host of The Derivative. So we’re just gonna get right into it. But Brett, you live here? Do you ever get sick of this view? You ever get sick of this beer? No, it’s fantastic.
Brent Johnson 02:05
And I’ll say I moved here five years ago, and it’s been a fantastic mood, not only from a personal and business level, but my family note here, I have a 17 year old son now who absolutely loves it. And anybody wants to think about it and reach out to somebody who’s actually
Mark Tower 02:21
done it, I’ll not be able to talk.
Jeff Malec 02:22
Love it. Jason, you come visit me in Chicago and tell me this is the best place of the country, including our super high taxes and non community feel. Can you should we spend a little time ordering Chicago versus Puerto Rico? Or no, Chicago
Jason Buck 02:36
versus port picker? Yeah, obviously, Chicago summertime, Puerto Rico, the rest,
Jeff Malec 02:41
all right? And Mark Jersey versus Puerto Rico, any contest.
Mark Tower 02:47
I mean, you know, I’ll defend Jersey all day long. So, I mean, I got jersey that
Jeff Malec 02:52
we’re about. Love it. Swear to get started. Kind of goes through a bunch of different alternative investments that all of us up here deal with, I’m going to start with what I deal with most day in and day out, which is the Managed futures, global macro volatility space. Last year with the Trump terror this year with the war. You know, we set those up to be non correlated, to kind of perform when everything else is in the in the dunks, and they haven’t quite done that the last two crises. So whoever wants to jump on this first what’s, what’s those specific alternatives working the way investors perceive they should be working?
Brent Johnson 03:34
I’ll target. So I needed you money for individuals, which is a little different than managing for institutions, but I’ll tell you some of the things that we think about when it comes to alternatives. The biggest single factor is always the liquidity associated with it, and some alternatives have good liquidity, and some alternatives have longer term liquidity. But anything that’s longer than two years, we feel you have to be extremely highly convicted on that basis. And the reason we say that is kind of multi faceted. So if you get stick with me, it is kind of a three pronged answer of why. But I think for the last 20, 3040, years, we got used to an environment where everything eventually reverted to the meat. Whenever there was a crisis, whenever there was volatility, whenever there was an adverse event, the world worked together for the most part, to bring that back to the meat. But we think that was the reason is that was back stopped by a longer term mark of history towards globalization and cooperation. But we think that that is over. And we think the art of history is now swinging back towards de globalization, nationalization or regionalization. And as a result, that cooperations that always brought things back to the mean we think is gone, and we don’t think it’s coming back. And so we think that a lot of things that have worked for the last 20 or 30 years are not going to work as well in the next 2030 years. And I think. That’s why they haven’t just worked as well for the last two or
Jeff Malec 05:02
three Jason’s is violently waving his hand down there, as my uncle is a man in polka dot slippers.
Jason Buck 05:08
Can I piggyback on Brent sent like he’s saying he was looking at the present the future. But to ask answer Jeff’s question, specifically, we manage an ensemble of volatility, tail risk at commodity strategies, and specifically think about volatility historically. If we go back to the tech law of the 99 2000 it took years for volatility to come back in. Similarly, with GNC into that 72,008 it took years for volatility to come back in. They would come to covid. It takes months for volatility to come back in. And then we were just joking. The tariff tantrum last year was one of the quickest mean reverses we’ve ever seen on volatility in the markets. And then I believe this morning, we’re back to all time highs again from what’s going on in Iran. And so once again, these events are compressing and coming back to all time highs faster than we’ve ever seen before. But like brand setting is that, like a Hyman Minsky, like moment, like stability breeds instability, and everybody’s buying the debt and expect the things to come back until things break. Cat plays MC Lee, and we go on a new regime ship for the coming decades, and we’ll see nobody
Jeff Malec 06:08
really goes, what do we think it’s a symptom or a cause, right? Like part of me thinks, Okay, I guess the question will be, why? Why is that happening? Is there more option selling? Is there more selling the the tails every time they have it. Or to
Jason Buck 06:23
Minsky, like I said, really beats instability, right? You got structured products. You have all these also, like ETFs now and everything. And those are becoming larger and larger in size, and that’s creating these barriers to the market. That is that buy the gift and that meaner version quality that we see to the market, and they could do really well for long periods of time, until you break out past the two sigma event and, you know, volatility flicks, and you have air pockets and things, people start scrambling for the exits. No one
Brent Johnson 06:49
wanted to throw the taco train in.
Mark Tower 06:50
Then, well, maybe I’ll start off. Since I, you know, I, I work for from gold asset management, one, which is a asset management firm on my Zuo bank entire life. So since I’m owned by my company’s own, my bank compliance disclosure, these are my thoughts, not that of as a military broker,
Jeff Malec 07:09
as you owe. And I was supposed to say, this is on the record. If anyone says yells out something crazy in the crowd, you’re on the record before.
Mark Tower 07:17
But you know, I don’t know about the taco trades, but you know, one thing that I think we’re seeing it in the any liquid hedge fund grows, drives them their spots on, is, you know, March was boy bash, and it was a lot of dispersion to its strategies, all the way from all January to Abro. And one of the worst before maybe mountain, he goes back to January 22 is what I did have only one of the industry UX and and then, yeah, to, you know, the point, then you guys just need, now everything’s all the way back up. So I don’t know if it’s necessarily the taco side, but it’s definitely everything in the last year where this with this administration, where a tweet, you know, a war tariff can turn the industry kind of upside down fairly quickly, if you’re on the systematic side, and AMC signals before it could really rehab upon portfolio. But then once things kind of settle and, you know, the world isn’t falling, always seems to be coming back. So I don’t know if that’s something that’s sustainable. Is definitely not great for everybody’s
Jeff Malec 08:25
blood pressure and what, what do you tell an investor, who’s you know, I invested in this stuff, because it’s supposed to do well, when everything else is struggling, it’s now you’re struggling while things are struggling like, are they throwing in the towel? They’re just gonna say, I’m just gonna buy Dorado real estate instead, seems a safer bet.
Mark Tower 08:43
I mean, if it’s all coming down at once, yeah, you might have to go get other, you know, uncorrelated assets within light real estate. So we’re on the issues. It’s not working in use you’re seeing, you know, January, February. You know, for a lot of the hedge fund strategies weren’t great, but then sounds still fantastic. Marks and Chloe and edible that now April is looking decent, awesome.
Jeff Malec 09:13
Anyone want to put a silver lining on my, my, my cloudy outlook here
Jason Buck 09:20
you’re referencing marks of the best is like, is last month was one of the worst months for multi strategy hedge funds and their everything for years. And then, to Jeff’s point, you’re not seeing that kind of pop in volatility. To give you an idea, that implied a Realized spread last month was, you know, on average an eight handle got up to 15, meaning you are overpaying for insurance. And it didn’t really come in. So if fear priced in the market is much greater than the moves we saw, which is surprising, kind of giving what happened in March. And so people give up on their negatively correlated tail rate strategies and everything, usually right before they need them most. So it’s kind of a countercyclical process. But at the same time, if we’re talking about other strategies, like commodity trend following that provided those uncorrelated. AOV quarterly returns in 2022 and we’re seeing them start to produce returns again this year. They’re a good concept or Outlook for a market where you’re having a regime shift, or you can’t necessarily predict the future of what the headlines are to create on a day to day basis.
Jeff Malec 10:14
It’s fun being invested in commodity trend because you’re massively long B energy complex at times like this. So you’re at a party talking with people complaining about $5 gas in Chicago. You’re like, I hope it goes to 678, I’m bulk.
Jeff Malec 10:39
Now let’s go to some less liquid alts, PE and private credit. I used to always do this off my phone, on these panels, but my eyes are are not what they used to be. So bear with me as I try and read this. So right, all the big family offices, institutions, everyone’s in private equity, and they started moving into private credit massively. But the environment we’re starting to see gates. We’re starting to see mode distributions, all those publicly traded let’s see what not blue owl are all down. What’s the what’s the environment? What do we see there? No.
Brent Johnson 11:14
So it’s funny, private credit has been one of these. You couldn’t call The Black Swan, because, literally, everybody’s been talking about it for two or three years. It’s a really, it’s Ray rhino is in a right and really slow, some image. I mean, we wrote a piece on it, I think 18 months ago, you know, and we weren’t the first to do it, and there was some mini subsequent to us throughout on it, everybody kind of knew that we could get into a situation like we’re having now, right? But yet nobody can stock it. And so there was kind of into this interesting phenomenon. Everybody knew it was just a matter of time, but it was also so much money was being made, it was impossible to resist for many people. And the I don’t think it is as as large a systemic risk as kind of the 2008 time period, even though the numbers are in some ways just as big, because, you know, in 2008 it was the banks, and it was their public equities that could be liquidated in order to kind of get out. And a lot of these private credit funds have 510, year maturities. They don’t have the same liquidity structure that was present in 2008 and I think it’s mainly the private credit funds who offered liquidity in order to gain more assets under management are now paying the price, because they’re the ones seeing the large redemptions. And so I think it’s going to hurt, but I don’t know that it’s going to become as big a systemic event as well as
Jeff Malec 12:44
back then, I think Jamie diamond, just yesterday or two days ago, said there’s no cockroaches in the private equity world.
Brent Johnson 12:53
Yeah, I think it might be a few cockroaches, but they may be enclosed in the illiquidity fashion.
Mark Tower 12:58
Yeah. Yeah. I mean, look, I agree with that. I think when you’re waiting to that true to drop on Fiverr, right for five years now, and it just kept getting bigger and bigger. And even though we all saw the liquidity mistage, not to Brent’s point, it’s not a way. I mean, wait, you had money market funds that were illiquid indeed. So the car is like that, but we’re expecting this. And I think, you know, the good managers, they’re still gonna be ground, and they’re still gonna make during the right rates. I think it’s the query mismatch of how they were sold, when it sold downstream to indeed, the retail side, you know, expecting monthly liquidity on something that’s obviously multi year lock assets that’s not good for so, you know, once that kind of works itself out and and it gets back to into the proper alignment, I think, with the with the investors and managers and the terms really understanding, oh, there’s a gating feature here for a reason, you know. So, yeah, monthly, you might not be able to get it, because he’s gonna be washed to the door and never seen a 12 degree. So now, with anybody that’s done for a reason. So now, I think now that this work itself out, creates an opportunity for look more liquid alts so brave for last time stage it earn those pieces, mate. I think long term. How many
Jeff Malec 14:23
out there are invested in private credit? How many are worried about it? Okay, for the listeners we had, maybe 20% were actually worried
Jason Buck 14:36
about you magic. I’ll address in two ways. I think it’s interesting the because we think about creative fund structuring all the time and what we do. And so a lot of these have been stuffed inside interval mutual funds, which are, you know, an interesting way of putting a wrapper around this product to provide some liquidity for an illiquid product. You know, typically you were locked up for 10 years and you had no liquidity. Well, in the interval mutual fund wrapper, you can have 5% pro rata redemption score. Quarterly. So it always said that on the tin, but now people want 15% pro rata redemptions because they’re trying to get their money out. And now they’re all crying about it, but they all knew it was only 5% and so now the news begins hyped to get up that they’re gaining redemptions and everything, and they’re not. It’s just structurally, part of having a nerve of a mutual fund. And I’d rather have that 5% quarterly liquidity than being a 10 year lockup. So that’s one fair thing, I think, for the industry on private credit fund side, the one thing I’m maybe a little bit more dubious or circumspect in the systemic risk there is we actually stumbled out of this years ago as we’re looking at structuring things. And I was trying to figure out what Apollo and Eldrick were doing and how they set set up their products and everything. And so everybody knows they have their annuity companies now and everything, but it’s starting to come to light, and I think Brent’s even probably talked to others too, is they also own the offshore reinsurance companies that are reassuring the annuity products. So it’s not necessarily the private credit hedge funds or interval mutual funds, I’m worried about. It’s the lack of collateral and the lower margin when the reinsurance is underwriting the same company that’s providing the annuities for Americans at this point, and so there’s a cascade there that you know maybe could potentially be systematic risk or a systemic risk, excuse me, but at the same time, I’ll say the nuances. Apollo is very smart, and so they know what they’re doing on the underwriting side. But as we’ve seen historically, there’s been very smart people. When you reduce margins, reduce collateral, increase leverage, sometimes it, you know, you might get your actuarial table off just by slightly, and then we have a real cascade,
Jeff Malec 16:31
drop what? What’s everyone think? If there is a cascade, where do you want to be?
Brent Johnson 16:37
So we’ve sold this for several years now, and we don’t think this has changed, and in fact, we’re even have a higher conviction on this is that we have a strong concentration of all our assets, even if we’re diversified in the United States or in Martha Middlebury. We do not believe in the de dollarization trend. That’s very popular. We do not believe that the BRICS are going to rise up and take over the world. And we think that the extra return that you could potentially get by investing overseas is not worth either the capital risk or the liquidity risk, which we see as a result. And so, you know, we’re, we’re fairly diversified, your real estate, equities, commodities pulled, but we do it all are almost all focused in the United States, including Puerto Rico, including port right? Puerto Rico, we’re part of the events.
Jeff Malec 17:28
So yeah, but that’s almost a great right? You kind of get a international investment feel with the dollar base rate. To be a piece, I was going to ask one more thing that. So you’re, you don’t believe in the de dollarization. There’s just an article on Saudis, kind of are moving away from their dollar sales. Do you believe that, like the whole petro dollar is going to die pieces?
Brent Johnson 17:50
I think it’s largely nonsense. To be honest, I really took too much ball. I think what’s going to happen? Let’s see. This is a little bit of a tangible tangent away. It’s a podcast. We’re definitely seeing a de globalization effort, and there will be strong efforts by governments around the world to de dollar US. But with the invention of stable coins, I think we’re going to see an increased adoption of the dollar by citizens. So I think the real battle is going to take between is going to take place between foreign governments and their citizens, not between the United States, he was out of countries with the evolution of US dollar stable coins that allows foreign citizens to hold us dollars by the touch of a button on their phone, rather than dealing in local currencies, which, even though the dollar may be bad, their local currencies are even worse, creates a mismatch between demand for local currencies and the needs of the local government outside the United States. So I think we’re probably going to see more dollarization from the dollar exhibition,
Jeff Malec 18:50
like a cleanest, dirty shirt theory, basically. Oh, and don’t anyone in that smell break. Go look at my Google YouTube, dollar milk shape theory. Did you coin that? Yeah, I did. Do you get some T shirts? Man?
Jeff Malec 19:15
So you touched on crypto? I have it on my notes. I can’t read as under real assets. Is that right? But we’ll pretend for now, it’s a real asset, and it’s under there. So real assets. Gold ripped last year. It’s undoing that this year crypto, let’s just start there. Gold and crypto. Give me your thoughts. Should those be in a portfolio? What are their function like? Just trading vehicles, or should be in the portfolio? I think
Brent Johnson 19:41
that gold should be the cornerstone of everybody’s portfolio. Everybody should own bull price, $10 price, $10 now, you don’t have to have 100% of your portfolio in gold, but I think a healthy allocation of anywhere from 10 to 20% was very
Jeff Malec 19:54
appropriate from a And mainly, and I
Brent Johnson 19:59
don’t really even care. What the price does. It’s more of like a long term hedge against instability. And I kind of think of gold as a put option against the certainty of politicians as simple bankers, and when they screw up, bullet tends to do pretty well. And in many ways, I feel like Bitcoin is the inverse of gold, although it has many of the same qualities. But what I mean by that is I think Bitcoin is the purest play on global liquidity. If liquidity is plentiful and speculation is high, I think Bitcoin will do very well. I think the minute liquidity starts to disappear, and the speculators in risk assets disappear, I think Bitcoin falls. So I don’t put them in the same category. You know, they carries many of the same characteristics. I think gold requires or deserves a much bigger allocation in a portfolio, but I don’t have a problem if you have a speculative part of your portfolio, I don’t have problem with Bitcoin
Jeff Malec 20:55
beating them. I’m gonna throw a question. You can wave it into your answer, Jason, but what have you seen with investors chasing Right? Like going tons of people flooding into gold, of like, this is I’m increasing allocation, and then right as it sells out. So what are you saying in terms of alternative allocations,
Jason Buck 21:15
Brent and I’ve always been kind of aligned on this position sizes in gold and Bitcoin. But also to point out, just like you’re saying, you said, is it a hard money real asset, or is it trading sardine? And right now they’re kind of both, right? And so in the interim, we have to worry about price run up, etc, maybe trimming your positions or rebalancing. And you know, I always like to, you know, I love Austrian hard money in theory, like communism, it’s great theory. It just doesn’t quite work in the real world. And unfortunately, we probably need of elastic and inelastic monetary systems. But you know, our flagship product is called the cockroach fund. So you can have a general idea what we do, but we try to protect our clients assets and make sure they stay rich over multiple generations. So as part of that, we do hold a significant amount in both gold and Bitcoin as a form of Fiat hedge. Because when you do have those interim periods, when we do go back to what is collateral, what is hard money, and before we go back to in the last you know, tip back to elastic money, you want to have those in your portfolio, just in case. And so what that is, in the size is nobody can do it perfectly, but you can imagine what gold does in very cataclysmic environments. Or you could imagine, if the Bitcoin Maxis are right, you know what is going to be the return on that asset class, and all you’re really trying to do is maintain your purchase power parity and just not go girl
Jeff Malec 22:29
and Jason spun actually, there’s some physical goal in Texas, and we were going to do a little YouTube short. We were talking about flying to Switzerland, like going with the gold from Switzerland to London to JFK, down to Texas. However, that works, but next time.
Jason Buck 22:44
But part of that is a good example, though, is like we all try to predict the future and make sure we’re going to be okay the future with all of our investment portfolios. But prior to covid, we looked at having physical gold in locations all over the world as product diversification, but then we found out in covid, we couldn’t get our gold back to United States. So if 90% of our flying base is in the US, we probably have to have 90% of our physical gold with any triangle pole location.
Jeff Malec 23:08
And what cyber inside was gold, right? Russia, attack Ukraine. It came out they had moved much of their reserves to gold before that, which seemed like a great trade for them when there’s some murmurings that all these central banks are de dollarizing Brent sign and moving into gold. So is that just more hot air, that’s noise, or do we think that’s what drove the pricing?
Brent Johnson 23:29
I think I think that’s legitimate, and I think central banks around the world and countries around the world are trying to diversify, and that is what’s driving gold higher. I don’t necessarily think that gold will lose out to the dollar. I just think other foreign currencies will lose out to the dollar. So I’ve talked about the dollar and gold rising together versus other foreign currency.
Jeff Malec 23:51
And Mark What as just, what did you call Jason a trading sardine?
Jason Buck 23:56
You’re trading sardine. Well, I mean, does anyone know that term? It’s an old Wall Street term is basically everything we’re trading is like trading cans of sardines, and eventually somebody wants to open to eat the sardine. That’s not there for it’s there to trade sardines at trade prices. You don’t open the sardines.
Jeff Malec 24:12
All right, love it. You also, and you have what’s on the tin. I’ve never understood that.
Jason Buck 24:17
Sam, that’s like whatever it says on the tin. That’s what you’re like if you built a phone, that’s what it’s supposed to do, do what it says on the where’s the tin?
Jeff Malec 24:25
It’s like comes from a coffee can or something.
Jason Buck 24:27
It’s old Folgers there, or something like that.
Jeff Malec 24:28
All right, anyway, from you guys, pure trading wise, like you’ll go anywhere. Would you get into crypto futures, directed liquid
Mark Tower 24:39
for our quad business, it’s, it’s pretty much all futures option is, you know, listed securities. I don’t get really the exposure about the cryptos on there. I think our division that does invest in the external managers, and some of them are starting to kind of, you. Started research process on on crypto. I don’t think they’ve done anything yet, but I think they’re, they’re starting to kind of put themselves, and I don’t know if they’re gonna do a crypto pun, or they’ll, they’ll try to find, like a manager that does the exposure wall, we’ll find,
Jeff Malec 25:18
and then I’ll throw in, in the real asset world, which is not what any of us do. So of course, we’ll talk about it right? The the power play with all the AI, with all the data centers, that’s really been the, the biggest real asset trait of funding data centers, getting the land any anyone have thoughts on that is that a short term phenomenon? Is that going to be a good trade moving forward?
Brent Johnson 25:40
So I’ll take this because I think there’s a there’s a related thing that we’re involved in, this kind of ancillary to this. But I think largely a big power competition between the United States and China was really a technology race. And whoever wins that technology race, I think, will overall win the big power competition.
Jeff Malec 26:00
And what do you mean by power competition,
Brent Johnson 26:03
Geo, for geo, world geopolitical position unit, or global chess
Jeff Malec 26:08
board type, because we’re talking about data centers in here. That’s our physical power.
Brent Johnson 26:13
But that’s world power. That’s right. And the interesting thing is, is to win the technology race, you need power, as in an energy power to power the technology that then helps win that race. And we think whoever wins that race will be able to design kind of the global technological architecture for the next 56 to 70 years, much in the same way the United States did for the last 56 to 70 years. And as a result of this, there’s an area that’s kind of an alternative asset that we’re heavily involved in now, that is defense related technology and minerals. I think that in the next five to 10 years, this is going to be the biggest capital wave anybody in this room has ever seen go into defense, capital and natural resources. And I can tell you, from an institutional perspective, from the United States government perspective, they intend to win that race, and they’re going to spend an incredible amount of money to do, sir, I don’t know as they will win, but they are going to try. I know that for a fact. And we think the money to be made by being part of that is pretty astronomical. How do you where they’re going to
Jeff Malec 27:21
spend an incredible amount of money. They’re already in incredible amount of money in the hole with the dollar thesis, right? So like, hey, they’re just going to keep spending to make this happen. Does that hurt the dollar thesis, or you kind of have it as a hedge?
Brent Johnson 27:36
Good. Either way. I don’t care. I the dollar very possibly loses value in purchasing power turns, but I don’t think it loses out to other foreign currencies.
Jeff Malec 27:47
You said that three times. Man, I did it on the fifth. Man, yeah.
Brent Johnson 27:50
And well, whatever you think, whatever you think the national debt is going to I will take the over, because I think it’s going to go much, much higher. And I don’t think it matters right now, it will matter, but I don’t think it matters right now.
Jeff Malec 28:13
Jason, you were nodding your head on minerals or something, or Luca
Jason Buck 28:16
or defense as a brand same day. There’s plenty of companies you can look at the US that have rare mineral rights. And it’s not about if you’re a bear, it’s, it’s the refining of bears and that that takes a strip of the pen to change that overnight. And that’s kind of what Brent’s alluding to there on the other data center thing. I mean, that’s obvious trade. I think we all know about, I was trying to think about, what’s the tangential trade related to that? So we were looking at things like, or from this caveat that bears is not trading advice. We were looking at things like finance, FTR, financial transmission rights on power grids, like if you but at the same time, if you’re looking at like the Texas aircraft power grid, you could have a real problem in winter, and maybe that has nothing to do with data centers. So you’re just trying to think of tangential plays. And Brent and I were talking about last night, if you know, a lot of the energy crisis on the physical side that’s going on with Hormuz. Now, a tangential play is obviously they need to spin up coal plants, whether that’s for day setters or just powering UK. And a related trade to that, I think is ironic. It’s long carbon credits is essentially a long, full play, because they spin up those coal plants in the UK, they have to offset it by buying carbon credits. So it’s just a interesting tangential play that I always find kind of ironic.
Mark Tower 29:23
It’s kind of just Yeah, yeah, something
Brent Johnson 29:24
on there. The other thing that Jason and I were talking about last night was this a Law of One trucks, and most of us, I thought you were gonna say it. I wasn’t gonna steal your thunder.
29:35
I’ve been waiting for you to say it
Brent Johnson 29:37
so, you know. So I’ve been doing this for 26 years now, and for all of my career, commodities around the world, for the most part, traded at the same price, for whether you were in Asia or South America, the United States or Europe, there’s always been little differences, but they have, by and large, been in the same and as a result, the challenge was always defined. Who could produce the widget at the lowest price and deliver it at the lowest cost, but because we think the world is fracturing, and because we think it is de globalizing, and because governments will throw up tariffs and trade restrictions in geopolitical alignment, we don’t think the law of one price is going to hold. We think commodities, the same commodities, will trade at different prices in different reaches. And what that means is that the input costs, or your preferred company or asset or sector is going to need to figure out where they get those inputs and what price they’re willing to pay, because just going with this cheapest option we don’t think is going to work anymore, and I don’t have the answer to it. I’m still trying to figure that out, but it’s a big problem. Let’s receive
Jeff Malec 30:50
Microsoft, buying Three Mile Island, or whatever that deal was, things like that, or securing their own resource. Mark, man, throw it to you. You guys are systematic. Shop. Quan, like, do you hear all this and like, it doesn’t matter, right? It’s going to show in the quant, it’s going to show in my model, we’re going to trade it, yeah? And I think that’s in a good way, right? That’s a posse,
Mark Tower 31:11
yeah, that’s puzzle, yeah. I think that’s, that’s how our team is. Now, we do be a, you know, a Tokyo based firm, you know, kind of big picture? Yes, a lot of reverse inquiry for people looking for exposure into Japan. That’s not for our quantity. That says for our two of our lowly DMT in Tokyo, the young the it is Sunday, we’ve seen trying to pick up a bullish maybe look a lawyer on the system Ax side, yeah, it does not.
Jeff Malec 31:41
I always tell these AI trade infernal, like, you need an AI to just make up what the trade was for the clients, because people still want to know the store, right? So do you have trouble with that, with investors, of like, well, why’d you put on that trade?
Mark Tower 31:54
You know, I think when they’re having a conversations with us about that, it’s kind of baked in that, you know, it’s, it’s systematic. It’s not a trade that we’re putting on. It’s, it’s, you know, if it pretty, in fact is so there won a rationale around it. We can, we can dig into God a real quick with the here, with Ian stuff,
Jeff Malec 32:17
top in the weeds for a second, kind of the the tariff last year, the war this year, when markets went a little bit wild, it wasn’t, oh, wait, but they were right. There were periods they were ball was screaming, oil was green. Liquidity wise, like your guys on the train desk, the traders there are there, saying no problems, or if anything, like red flag of like, hey, if we have, if we have, if this went a little further, would have started to become
Mark Tower 32:43
a big problem on the British side, no progress. That’s something that we’ll be going to as far as I’m lawyer. But yeah, it did delay wire, because a lot of these things never happened. So you know, when you build your model to account for everything that’s ever happened before and and suddenly had, you know, tariffs opposing the entire world. Okay, there’s nothing to look back at in the say, Okay, how do we counter this? Well, never happened. And then, you know, as it was being drawn out, you know, it wasn’t able to get self correct, because of all this stuff hadn’t happened before, once things start settling, yeah, you didn’t see the rubber band come back, and you end up having pretty good run. You know, across many markets, a lot of different strategies, and my share end up being a pretty good year. I think collectively, in hedge funds, right? Everybody was the best since four or five years. But q1 last year, if you remember, wasn’t good. Well, very choppy. And every strategy they expected to do well, was it? And actually, one of the bigger winners was market nature. Market neutral ended up being a broader win last year, across the edge, one space that wasn’t anticipated. It was supposed to be, no long short, it was supposed to be, you know, you know, healthcare was supposed to be a discretionary napro, multi strat, systematic macro.
Jeff Malec 34:03
So sticking on the liquidity, something that has looking like tons of liquidity growing the prediction markets. Is this a threat to alternative investments? Is it a benefit to alternate investments? And anyone started to work it into portfolios, or had investors asking about it?
Brent Johnson 34:24
Anyone? This is your Well, this is area I follow on up. Like, quite honestly, I just don’t have any answer. Farah, because on the one hand, I think it could become extremely large, especially with, like, tokenization of assets now, and kind of the combination of prediction markets of tokens, I could see it growing really, really bit. On the other hand, are you really going to allocate billions of dollars towards whether John Trump is going to tweet something into the end? I don’t
Jeff Malec 34:51
know if you know he will.
Brent Johnson 34:54
Well, in this, if you know he will, there’s a lot of money to be made. And obviously that’s been happening. Yeah, right. That’s part of the. I’m like, they’re unregulated. Should institutional capital allocate money to that type of thing? That’s that’s modern. My bigger question, right?
Jeff Malec 35:07
Well, that’s my No, that’s my course.
Jason Buck 35:12
Simmon print until the liquidity is there. I mean, like, ibkr is finally going out their product, you know, SIG is making markets on call sheet, so, like, they’re going to grow over time. But I think it’s just another tool in our toolkit, right? It’s a way to maybe have some binary options that are alternative hedges that make you can’t get into more traditional,
Jeff Malec 35:30
limited markets. I We had a sorry market. I was just,
Mark Tower 35:34
you know, I put that almost akin to some of the roles in the online medic. And you we see, you know, the the legalized betting, you know, for sports across, you know, the US and in certain states now, and this is kind of that next step further, you just gotta wonder how it regulated and how it could be manipulated, because it still is. It’s pretty easy then, to kind of even have some male, you know your manipulation and cheating and inside information,
Jeff Malec 36:04
I’ll tell your clients are either gonna love it or hate it. We had a programmer from Spain, and he built a whole dashboard. He was pulling in from Poly market and Cal sheet API. We were just looking at one basketball game, Miami Heat versus Toronto Raptors. And there were 120 line items or something, right for like, is this guy gonna have this rebounds? It’s the first quarter score, it’s the first basket. And I’m like, supposedly, all these, I’ve heard a couple things of housewives using Claude to throw that all. And I’m like, no way they’re not putting 7000 things in the cloud and asking for prediction murder, I bet. So I’m with you. It’s, it’s interesting right now, but, uh, I don’t know, but in the in the Chicago we’re getting a little scary, because it’s kind of encroaching on our futures, futures world.
Jeff Malec 37:01
What alts make sense in this Puerto Rico tax world?
Brent Johnson 37:10
I don’t know why I said it so slow. Are you asking to invest in Puerto Rico? What alternative assets and blah?
Jeff Malec 37:18
You’re just in our kind of toolkit of managed features, or you’re holding a long term real estate play, or something like, what, what makes sense to put in a wrapper to get down here? Where do you get the most bang for your buck?
Brent Johnson 37:29
So the way you get your most bang for your buck is you move your business here, and then you do business all five. That’s where you get the biggest bank group up. Whoa. Well, Lisa ranset, like
Jason Buck 37:39
we primarily take 1256, contracts which have preferential tax treatment in the US. But obviously, if you’re in Puerto Rico, you don’t have to worry about any of that. So pack gains, regardless of the contract wrapper doesn’t really matter. So I still think alternatives are incredibly important. But I’m obviously preaching to the choir in my own book, just for hedging your portfolio and enjoying no matter what kind of happens in the macro panic landscape you would afford, but like, an
Jeff Malec 38:04
active strategy would be more beneficial
Brent Johnson 38:07
to hear, right? Oh, without question, being an actor you’re an active trader. Being here is, it’s Harry’s so
Jeff Malec 38:14
why was it paradox pairings in more ways than one?
Mark Tower 38:18
Mark, yeah. I mean, look, my view on this was developed last night during the welcoming reception, and I got to meet a lot of folks that have moved their businesses down here, that have moved their lives down here, and just, you know, the tax credits, the in the no capital gains. I mean, it just see, like it’s a no brainer. If you want to come down here and you want to trade, if you want to build your business down here, only real estate down here. Yeah, that’s, that’s a pretty easy answer on
Brent Johnson 38:48
quarterly you know. Also know him. I’m gonna tell you. I am not an expert on this, and I only recently pick it up this, so I might not have exactly right earlier, there was a gentleman up here named Alberto Baca, and he’s kind of like the godfather of economic development in Puerto Rico. He’s an incredible
Jeff Malec 39:04
guy, the guy who got the watch, yeah.
Brent Johnson 39:09
And so if you get a chance to talk to him, do talk to him. I recently learned there is a way that you can form, if you don’t live in Puerto Rico, you can become part of a company that’s located at Puerto Rico, and then that company, Puerto Rico, can get the tax treatment of having the same as if you did look here, and I think as long as the gains don’t get distributed to you while you are in the United States, you get the tax free gains. Now they can. I’m not exactly I don’t want to 100% understand, percent understand the structure, but I know that it exists. So if you and then there’s a company here called Green aisle capital that I know that does this. So if you bump into either of those two entities,
Jeff Malec 39:53
the ask their father, we’re gonna go into some new stuff. Ai, how many people read that citrini piece on the doomsday. And 011, guy, all right, you should all go read it. So that’s been my thesis for a while, that AI is massively conflationary, and we’re headed to a bigger session. We saw, we’ve been seeing the layoffs have been coming. Citadel came out with a rebel and said, like, this is just like the loon and the car. Everything else is just a new technology. People will pivot. So where does everyone stand on that massively recessionary or just another Tech?
Brent Johnson 40:24
I don’t think it’s just another technology. I’m one of the people who does believe. Think. I really do think it’s revolutionary, and I think it can have an even bigger impact on the world than the internet did, which I know sounds kind of crazy, where I actually think it’s possible, but there are going to be some deflationary side effects this big. So my guess is that one of the ways the society will try to deal with these problems is some kind of a universal basic income from governments. Because the worst thing in the world is to have a bunch of run employee, 25 year old kids, you know, with idle time on our units, and so they’re gonna have to, they’re gonna have to try to, they’re gonna have to, I think they’re gonna have to figure this out on a larger scale. This kind of conflicts with my, you know, personal libertarian means. But I just think that’s where it’s going, whether I wanted to or my,
Jeff Malec 41:16
yeah, yeah. I think Elon Musk is on your side there, right? That that’s the only answer for
Jason Buck 41:21
us, it’s like egg you’re saying buggy whips or whatever it was like. If we use historical context, in 1900 92% of Americans were farmers. Now it’s less than 1% you know, we were unbelievably creative at finding new ways for things for us to do, like, I mean, it goes back, everybody’s been talking about 20 to 30 hour work week for decades, if not half a century? Yeah, we all figure out how to work 100 hours a week either, where we get more efficient technologies. I also think this could be unique in the dislocated effects that we have without big boss and everything, but once again, it’s taking away tasks, not jobs, and it’s also a delayed effect. I don’t know how many of you have interacted with US healthcare system in recent months, but that’s not going to change in time for the near future. So all of this stuff’s going to be delayed and kind of spread out over years. So I’m not sure how great the deflationary effect will be. One of the things I think about, I forgot to ask you this brand last night, BBO, take on this is like, if the hyperscalers are building out data centers and everything, AI, how do they not just become industrial REITs and those multiples that took a way down.
Brent Johnson 42:23
I think they’re becoming utilities. Yeah, explain that.
Jason Buck 42:28
Because they’re basically, instead of being technology companies, if you’re after build out the physical industry infrastructure for the data centers, repeat, essentially, you’re an industrial real estate way, and that has a single digit multiple compared to, you know, 100x multiples. I don’t think these
Jeff Malec 42:42
data centers right now are single digit multiples. They were, like, very high, but I see you mark. You got cuts?
Mark Tower 42:51
Yeah, they got, um, I don’t think the the world is following with the I come here, you know, either the terminator or the rising machines age a tool. I think it’s a very beneficial tool. I think it’s gonna help, you know, across all industries, but like, you can just break it down in the simplistic form, it’s still gotta get better. It’s still getting stuff home. You still gotta, you know, you’ve gotta check right? You know, it’s especially if you’re just using it for education or using it for I’d be just learning little factoids. You know, a lot of the trauma helped me write my business plan this year for my company. Help me my son write his resume. But then, you know, if you ask, wait on one of these tools, you know, I think I saw something on the internet. Oh, you know, what’s the, what’s the month of the year that has an exit. And the answer was December. So go. Okay. Are you sure it’s like, I’m sorry, go. It’s October. So go. Okay. Are you sure it’s like, Oh, I’m sorry. It was February. Oh, okay. So yeah, over three. So it’s not gonna replace you. No. Good thing. You got to still
Jeff Malec 43:58
check it, verify. It sounds like you’re using chat. GPT need to move over to Clyde.
Jason Buck 44:05
You get that part of it though too, is that as we’re doing too, we’re thinking about it through businesses and jobs. And I think maybe we need to shift our perspective a little bit and think about it as we’re all just entertaining with her. You know, going back to this idea of farmers, like in America, less than 1% of Americans are farmers, and less than half of 1% are in the military, defending that land for the farmers, the other 98 and a half percent of us are just entertaining each other. Now we think it’s, you know, very sophisticated what we do. We run hedge funds and everything. But with 10,000 hedge funds out there, everybody’s just choosing their particular brand of vodka, whatever entertains them the most, or says the most about them. So, like, we’re just, I always think I’m not competing with you, I’m competing with Netflix, right? So I’m up here just a dancing jester, you know? I’m just trying to entertain you. So hopefully you find my entertaining interesting, and then you invest in my business, which allows me to keep entertaining people
Jeff Malec 44:57
be entertained. As Terry resilient.
Brent Johnson 45:00
Thus the slippers,
Jeff Malec 45:03
daring attendee Mike, and in your So wrap that into an investment thesis that you could any of you. So if it is recessionary, the hedges are in place. If it’s just another technology, who knows right to me the and I invested in anthropic, actually in the in the deck, it said the US labor market $60 trillion and their valuation they were raising money at was based on saving $15 trillion of that. So my grain went to like, what if you take $15 trillion out of consumers pockets to spend on the economy? That’s right, that’s a big problem. So I, I tangented there, if that’s a word, but are you using it in your investment process? Are you seeing managers you allocate? Right? Everyone was had those Twitter. I was like, five years ago, right? There were all these hedge funds that were just going to read Twitter and get the I haven’t seen many of those succeed. But is anyone you’re allocated to or in your own investment process using AI.
Brent Johnson 46:02
So we use them, we don’t use it exclusively. I feel like it’s one of these things. Well, yeah, AI helps smart people be a lot smarter, but it doesn’t make a stupid person smart. So we use it, but we don’t use it exclusively. I’ll give you an anecdotal answer here. I have a couple friends who are extremely successful asset managers personally would never have to work another day in their life if they didn’t want to. And largely manage their own money. And used to manage money for very large either hedge funds or private equity funds, and each of them have told me that in the next three to five years, the AI will manage 99% of their own the portfolio. And these are two of the smartest people I know, and you know, but we just met, just Yeah, but just No, but just absolutely brilliant. And my I think it is, is that these guys are not as smart as the AI, and they are going to trust the AI to manage their portfolios. That says something, because, I mean, they, in my world, they carry a lot of weight.
Jeff Malec 47:16
If I had one last liking round question, because we were talking about it last night. If your strategy was a WWE wrestler, who would it be? Mark’s a big fan, so I’m going to start with Mark. And sorry, Grant, I didn’t prep you for this one. I don’t know if
Mark Tower 47:33
you’re a fan. Great, great question. Jeff, so it’s WrestleMania week, so we have to talk about some of the supportive stuff. I mean, it’s gotta burger and he’s gotta be a luchador. So for me, it’s gonna be either Syria or Penton.
Jeff Malec 47:49
I have no idea what any of that meant, but Sander goes and you got some claps.
Brent Johnson 47:54
My wrestler would be Logan Hall being captain America English dancer. Yeah, he lets down the road. A little bit crazy, a little bit out there, but still the strongest and still the best.
Jason Buck 48:06
I’m light on my knowledge of wrestlers, but I do walk around my house telling my wife all the time that I’m Rick flair and you’re not. So maybe that. And look, Jeff, before he flows, I do want to point out something. I’m gonna gas Brent’s head up for a second. I find it really interesting listen the smartest things I ever hear, some of the most obvious things. And it’s like a bend while Mandelbrot, right? When you brought up fractal geometry and said, Look, those trees are not you put in geometry, they’re fractal, we go, Oh, shit. No, shit. I knew that my whole life, but nobody said it. So that’s a genius that Benoit have. I think people need to really consider what Brent said about the law of one price we were talking about last night. And even if you want to trade oil now, beach tree, versus Brent are going to have very two different, very different price structures and maybe term structures moving forward. And I think if you learn anything from these days here, and probably there are nothing from our panel, but hopefully you remember Brent’s brilliant comment about the law of one price that we lived under for the last probably 40 plus years. Maybe a shift moving forward, currently and into the future.
Jeff Malec 49:02
Love it. We’ll leave it with that. Everyone. If you enjoyed this, go listen to the barricade sound loaded and you do this on our phone. Thank you. All right, that’s it for the pod. Thanks to Jason, thanks to Brent, thanks to Mark. Thanks to Jeff Burger for producing, Claire with an assist this week. Thanks to the folks at Uncorrelated for letting us do the podcast down there and check out for Mark Brent and Jason, we’ll put in the show notes where you can find more info on them. Peace.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.
