In this solo six-pack episode of The Derivative, Jeff Malec makes the case for showing up to your kids’ games, especially when the final round of high school golf ends one stroke short of state. Then it’s off to the CTA Expo, where systematic strategies may be yesterday’s novelty and discretionary macro is having a moment. Jeff also digs into the Lakers sale, insurance float, and the tax perks that can come with owning a sports franchise, before wondering whether ultra-luxury resort communities are becoming self-contained mini-cities, and whether their plumbers and caddies could be among the workers least threatened by AI. Jeff checks the early evidence on AI and jobs: entry-level knowledge workers are showing some warning signs, even as the broader employment picture remains unsettled. He wraps up with listener mail on getting more RCM voices on the podcast, making managed-futures strategies easier to compare, and bringing tail hedging back into the conversation. Expect sports, markets, tax quirks, big questions about the future of work, and a few strong opinions along the way. – SEND IT!

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From the Episode:

• BLOG POST: When Skynet Writes a Substack: The AI Doom Piece That Moved Markets
• PODCAST: AI, Markets, and the Profits of Doom with Adam Butler
• PODCAST: Painting Corners to Protecting Portfolios: Former MLB pitcher Scott Karl on How Athletes Blow the Money, Alts, the Mental Side of Performance, and the NIL Era
• PODCAST: This City Trades Different: Yogi, the Floor, and Building RCM

Check out the complete Transcript from this week’s podcast below:

The Fall Solo Six-Pack: Sports Games, the Return of Discretionary Macro, & AI Coming for Your Job

Jeff Malec  00:09

Welcome to The Derivative by RCM Alternatives. Send it. Hello there, welcome back. You’ve found the derivative brought to you by RCM Alternatives, where we part of the sponsors, the CTA Expo here in town this week. I’ve been at a bunch of kids golf events, regionals and sectionals. More on that in a quick second. So we didn’t have a guest last week and messed it up this week. So you get me on a solo six-pack here to start October. Hard to believe it’s fall already.

So where do we start? Wanted to start out with youth sports. Six-pack number one. Open that beer. I was told by a kidless friend. Is that how I say that? A friend without kids. The other day, I turned down an invite to something to head to a kids’ softball game, and he said basically, you know, you don’t have to put them in all these travel teams. Your kid’s probably not going to go pro, as only a good friend could tell you, and the kid will end up all right if you don’t go to every game. So, few things to unpack here. One, I know my kids aren’t going pro, and I agree. The prevalence of travel teams and lessons and training has gotten a little bit out of hand. We talked about that on a pod with Scott Carl earlier this year. We’ll put that in the show notes. It is ridiculous. Yet the team’s called Going Pro, Pro Prospect, Future Stars Elite, and such. It’s like they’re selling the berry flavored vape pens to preteens. Worst part is a lot of parents believe in this scam. I’ve talked to some who say that’s their college savings plan. Scary, but that wasn’t me. That’s not our family. But we still do it. So why? It’s nuance. Kid wants playing high school. The high school picks people up to travel teams. The kid wants to start. Wants to play. That’s extra lessons, extra works. So is it evil? Yes. Is it also maybe necessary to play sports in high school, big Chicago school? Also yes. But to the other half of the friend’s comment, you don’t have to go to every one of your kids’ games. I like going to the games. I love going to the games. I’m a sports fan in general. You’ve heard me talk Bears and Cubs on here, and this is the ultimate sport to be a fan in, right? You get to be courtside on the field, walking inside the ropes, whatever you want to call it. You get to hear what the coach is telling the player. Get to see the player recover. You get to see the training. Get to see the mental side. But there’s another bigger piece that this is finite, right? It’s econ one and one. There’s only so much supply of your kids’ games, and then it’s done. You can’t make your kid 12 again and scalp some little league tickets and go watch them. Imagine if the Bears were ceasing to exist as a team in two years. Maybe that’s a bad example because they are looking at moving to Indiana. But imagine if, ignoring that, imagine if they were never going to be any more Bears games. The tickets would be astronomical, right? You’d drop anything and anything to go get to as many of those games as possible before they were gone, which is what’s happening in your kid’s sports, right? There’s only so many of them left, which brings me to the sad start to this week. My son’s a senior on the golf team. He made it through regionals, played in sectionals. He was one under through nine, and in second place, everyone was cheering. Top 10 make it through, then a double bogey, then a couple of pars, then a three putt bogey, then another. And before I could get my heart rate back under 130, was over. He missed going to state by a stroke. So why do I go? Because I’m a fan of my kid, a fan of sports, and there’s only so many games left. And sadly, this week no more games left for my senior. So if you’re listening to this, buddy, love you, proud of you. Was fun watching you over the years. All right, that was a sad start. Let’s let’s get a little cheerier here. But thought that needed to be said.

Jeff Malec  04:00

It’s a weird thing for people to be like, “Why do you go to your kids’ sports? All right, number two, open it up. I was at the CTA Expo yesterday. It was conference that was around dozens years ago, maybe a dozen years ago. Took a few years off, now has come back. But it’s fun to see a lot of the same characters, people I’ve known for 20 years or more. I did a panel. We titled it “Buy Builder Partner. RCM sponsored the event. Basically, everyone said it’s dumb to build in today’s world. There’s so many ways to outsource everything and anything compliance to sales to trade execution. I agree. That’s why RCM is here. That’s what we do for so many clients. But anyway, I typically don’t like to prep for a panel. And actually, I sent an email to the fellow panelists last week. Said there’s a few things I hate more in life than panel prep calls. Parentheses: Green Bay Packers. Slow drivers in the left lane, people who take their socks off on the plane. So beg them that we didn’t need to do a call, and I think the panels go better that way. It’s not that you’re not prepared; you can prepare on your own. You can tell them kind of some of the things you want to talk about, but without like this set questions, it comes out more natural, feels more like a podcast than a boring conference panel, and can generally can ask follow up questions for things I don’t understand, things that interest me, or I think would interest the audience. So anyway, conference rest of the conference had a bunch of talk about liquid alts and futures and ETFs. There was one on AI. General consensus there was it’s not there yet. I disagree. One of my main takeaways was that discretionary macro is kind of the new emerging strategy du jeur. These conferences used to be filled with quants talking quant things, dazzling with stories about machine learning and models and custom risk logic, all the rest. But it just feels to me like all that is table stakes now, right? Like nobody’s impressing you with how they use the computer, how they use data, how they use this even with AI. It’s like okay, everyone’s doing that. So it used to separate you and make you different from the original discretionary futures trader guys. Used to make you feel more safe, but now it feels like we’ve come full circle, right? And any manager has instant access to sophisticated programming and testing and trade tech and risk metrics and all the rest that don’t raise any eyebrows anymore. And in fact, I think there’s a bit of a feeling that anything anyone comes up with in a systematic way has already been done. It’s already out there. You can get it at a bank risk premia desk. You can get it in a multi-strat. You can get it any one of these places. I think is some of this feeling, and that one of the only original trade generators left is the human brain, right? And so, kind of this new bevy of discretionary guys who maybe think just like the old ones, but just different enough, and fortunately in an unquantifiable way, that they become interesting portfolio pieces to people who’ve kind of done that, been there with all the systematic pieces. So it was interesting to see a few of these guys around the conference, and seems like I’m seeing more and more of this. Might just be anecdotal evidence, but sure seems like a zag from 10 years ago when it felt like there’d be no discretionary guys left and girls, and that would be all systematic. Maybe that is a preface for what happens to AI and the rest of the economy. All right, number three-that Laker sale a few weeks ago, month and a half ago. So I’m a little late on this. I was trying to get a few guests to come on and talk about it, it’s kind of interesting. A bunch of different pieces intersecting: hedge funds, float, tax, all of that. So, wanted to just spend a little time on it. We’ll start with the seller, Mark Walter. This is all over the news. You can Google it, go find out.

Jeff Malec  07:55

But when I first heard it, and people were getting mad that he was using insurance float to purchase assets, investing the insurance premiums of little old ladies. I was getting mad because that’s what Warren Buffett has been doing and trumpeting for decades, right? He’s considered the king of this. So I’m like, wait, why is this anyone different? Everyone’s selling options, getting premium to invest elsewhere, and that’s the whole game, right? That’s what insurance is used for, from an investment side, I get it. People didn’t think they’re buying sports teams with it, and it seems, you know, nothing’s charged, nothing is proven, but seems Mark Walters went a little crazy with it. But right, they’re allegating that he was basically loaning monies to affiliates to buy all these teams, or to pledge that capital to buy the teams, right? He bought the Dodgers, Dodgers TV, the Lakers, Chelsea. So anyway, all that is rather interesting, and he was subpoenaed. All this stuff’s coming out, and he had to sell the Lakers. The flip side of that, the interesting side now, the buyer, right? Sure, there was a poor seller, but conveniently, SpaceX stock gets unlocked august 6, and the new buyer comes in and purchases august 12. So that was Iger and Kushner’s brother. But did you know under the tax law they can amortize the current value of those player contracts over the next 15 years, so I had Claude do some math on that and showed me, take it for what it’s worth, but showed me that that’s about $800 million a year in deductions. So for two guys sitting there, right, and they’re big in the I don’t have the name of their firm in front of me, but venture slash private equity that got into SpaceX got into OpenAI, another company that SpaceX purchased. So two guys sitting on a few billion dollars in unrealized gains that they could perhaps be unlocking soon. OpenAI’s delayed their IPO, but for sure one day happen. So it’s going to save them a ton of tax, right? They get that 800 million. Deduction. They’ve got all that SpaceX AI money coming in. So, and then they get to own the Lakers after the fact. Steve Ballmer, who’s himself in trouble for skirting some of the rules, did all this when he bought the Clippers. Again, some cloud research there shows about 600 million or so of losses on those tax returns, despite the value of the franchise going up. So, cool story to me. They weren’t just buying a scarce trophy asset; they’re buying a deduction and tax savings also. And right, what’s that worth to someone with that many gains? And then also makes me think, just right, if half the brain power and money and time spent all the time on saving money on taxes went into curing cancer or doing something more useful, we’d have licked that many many years ago, probably without AI. All right, number four. Speaking of billionaires, I was lucky enough to join some friends for a Utah golf trip, playing at some rather exclusive resorts. Not to brag, but it was fun. Came across the story of Promontory out there. We played that. Long story short, the developer who was the founder of Pivotal, which has been big in real estate in the Southwest and up into Utah, as I read the story and did some research, they borrowed about 350 million or so to do the project. Then GFC came 2008, 2009 had to default lots weren’t selling all the rest. It went back and forth between lien holders, debtors. Nobody could agree what to do with it, so it went to auction. Nobody showed up at the auction except for the Pivotal owner, and Pivotal bought it back for just $30 million in ’09, after defaulting on 300 million or so. Not a bad deal, especially when we were talking about it over dinner out there that it reportedly did over 600 million in home and lot sales in 25. So as interesting as that story was, there’s lots of deals to be had at the bottom in 2009. A rather famous Chicago prop firm guy bought up a lot of real estate in that period with some of the gains from his convex trades.

Jeff Malec  12:14

Speaking of right, why do you want to have convex and have money when the markets are selling off so you can buy stuff at discounts like this, but it’s interesting. And all that was the a bit of a different take I walked away with. You know, as you’re walking these courses or in the carts on these courses, and you look around, there’s just 10 million, 20 million, $30 million home one after the other, lining every fairway. And so my brain goes, “So how does that $10 million second home bonanza end, right? Like New York City, others are trying to tax those second home, second home tax. I’m an alternatives guy, right? So I’m always thinking this is a bubble. I’m looking up at these houses; they’re mostly empty, and saying, you know, just what happens here. I’m thinking the money’s too easy when I see all that. Where did it come from, and where is it going next? But surprisingly to myself, then I said, “Well, hold on, maybe this is an opportunity, right? Maybe this is the tip of the iceberg, and we see more and more of this. This place out there is unbelievable. They’ve got multiple golf courses, movie theaters, bowling alleys, beach club, biking, hiking, golfing, skiing, hot air balloons, hunting, fishing, gyms-basically whatever you can think of. I was talking with one guy. He’s like, we’re trying to get a reservoir and get a big lake where they can have like actual water skiing and boats and whatnot. So made me think: the is this a movement? Maybe I’m just late to realize. I’m going to talk about it, but do we see more of these kind of mini cities where the elite of the elite don’t need to rub elbows with the rest of us, and just have their 1020, $30 million home. Probably by the time this all happens, be 5070, $100 million home, and they don’t need to go out. You know, I think they’ll miss the dive bar, that new restaurant in town, a Bears game, too much fun stuff outside of a planned community. But also think you know in this winter take all AI economy and trillion dollar IPOs and widening wealth gap and all that sure makes sense that you don’t just live anymore in the big house on tons of property in whatever town that you basically just go live amongst your centimillionaire peers fish engulfing going for hot air balloon ride, which then makes me think the caddies, the fish guys, the plumbers and roofers for those homes-that’s probably the AI-proof job market of the future in the walled resorts of the AI ballers. Number five, on number five already. All right, number five. We just talked AI on the last pod. I’ve mentioned a few times already in here, and that last pod, the story of how the models escaped the sandbox to hack into Hugging Face was crazy. So if you haven’t listened that, go back listen to last pod with Adam Butler and get to that story because that’s crazy. But that’s world we live in. Got to talk AI. So I mentioned at that panel, consensus was sort of like the work product’s not good enough. They don’t trust enough yet to be put in front of clients. Sort of a general this won’t take our jobs vibe. As you know, I disagree, and have been weigh in on that Citrini research piece. I think it’s right, even if the timing’s not right, but we’ll link to a blog post of that in the show notes. So, as I’ve said before, I’ve been trying to build out a dashboard to track the metrics in that piece. Stanford, ADP, a few groups have beat me to it. A few more respective groups have beat me to it. So they’ve started to put some of this out there, which is cool. So actually, I did build that dashboard. It’s not quite yet ready for prime time to share the link with you guys, mostly because I don’t know how to tell the AI to automatically update it yet. So that in and of itself might tell you the end. It’s not near, but I’ll just share some of the findings here with you from that. So anyway, right? Citrini laid out a thesis that there’ll be a step function improvement, AI cost, capability, speed.

Jeff Malec  16:03

We’ll have this employment destruction that follows. So we’ll check the receipts from these sources. So first thesis is macro data won’t show up until it’s too late. We’re kind of seeing that the ADP September report 90,000 plus private sector jobs, median pay up 3.2% Job changers getting a 4.8% bump. Stanford, as I mentioned, their tracker looks at 12 macro indicators. Seven of the 12 are neutral. So if you’re one of those guys on the panel saying nothing’s happening, the macro view, right? Basically, you’re right. The top line data agrees with you. Go back to your PowerPoint. Congrats. Next, the thesis says the market will misprice us until the damage is real and undeniable. Looks like that way, right? We had the this piece came out. We’re talking about Satrini. Everyone said like, “Wait, what if this kills Salesforce? What if this kills all this stuff? Prices went down. If we look at IGV software ETF, was down. I can’t remember, but now has rallied back. So it’s basically just up a little bit on the year, five to 7% or so. So, kind of speaks to the thesis. The market hasn’t priced it in yet. It is pricing in some confusion, right? Nobody knows this. Are we early? Are we late? Now, more to the more interesting one. Citrini thesis says entry level knowledge work will get wiped out first. This one’s a bit of a bingo. ADP and Sanford, as I mentioned, they built the Canaries dashboard, right? Canary in the coal mine. The bird dies first. Cheerful stuff. So what’s that showing? Workers 22 to 25 are the most AI exposed jobs. We’re talking software, data, finance, entry level, they were down 4.3% for the year and are showing 33 consecutive months of contraction going back to 23. So that’s not quite a blip. I checked those; looks correct. So the same age group in the least exposed jobs, which right that’s the plumbing and all the physical labor kind of stuff we’re talking about is flat to up. So this is where you see that higher paid entry level knowledge work instead of physical work is getting a little bit decimated, while the physical work is staying flat. So if you’re 23 and you code for a living, data has some news for you. 23, and you’re a plumber. Good for you. Elsewhere, the ages aren’t really showing it. Ages 26 to 30 down 2.6% Next thesis: There’s a massive gap between what AI can do and what it’s being used for. Recent data shows for computer and math occupations 94% could be used, and only 33% of it is used. This gap is what, and this is what’s in the dashboard. This gap is kind of a metric for between that capability and deployment. That’s kind of your timeline, right? As that shrinks, the timeline is going to get shorter. Next, the thesis right is that this hits the professional class more so than the working class, which is fueling most of the economy. This is a bit dead on. Anthropics data shows that the most exposed workers are disproportionately female, more educated, four times more likely to hold a graduate degree, and earn 47% more than unexposed workers. So, not a story about factory floors yet. Story about the people on that panel. Basically, they just don’t know yet. All right, I’ll I’ll rifle through the rest of these from the dashboard. Basically, one of the these is that people say they’ll restructure before you see mass firings. That’s what the Dallas Fed found. Texas job postings were down, but it’s different jobs. Basically, they’re rewriting job descriptions, telling you everything’s fine. Thesis says layoff wave will accelerate and go mainstream. Probably not happening yet, but there’s been this one group tracks 529 AI layoff events, 418,000 plus workers, 54% of all layoffs, and 26. AI or automation, but you had 1.7 million new AI complementary jobs created. So it’s not shrinking; it’s reshuffling. Whether you end up on the right side of that is the big question. And now the ones that aren’t ticking, thesis says should be spreading up the age curve by now. All right, now a couple that will keep me honest, Trini. The thesis says they should be spreading up the age curve by now. That this is going to take older people’s jobs-that’s not happening.

Jeff Malec  20:26

Anthropic came out and said it’s small and insignificant overall, right? And if it was while it’s screaming for under 25, if it was in the top 10% of everybody, we’d see you know unemployment at 13% and whatnot. We’re not seeing that. So anyway, where does it all stand? I think we’re seeing like six of seven predictions tracking, not necessarily flashing and not necessarily accelerating. So I’d say that’s a bit of a wash, even though they’re on the track. Kind of the spread into the broader workforce is the one that matters most. Is probably the one we’re not seeing yet. So that’s good for the world, good for the economy, bad for my thesis. But if I lose my thesis and the economy wins, people have jobs. That’s good. Last one. Finish up a few of the mailbag items we got. Remind you all to send us some more. Tell me I’m crazy. Tell me I’m great. Tell me why old suck. Why Bitcoin will never go back above 100k. Tell me something, and we’re gonna make it easier for you. New email for you. [email protected]. Mailbag rcm a m.com and we’ll still have some rcm swag some hoodies some quarter zips what everyone wants financial bro quarter zip that we can send out to him all right email from Mark T in New Jersey speaking of New Jersey did anyone see the Mount Carmel football game on ESPN like beginning of September probably they’re a beast of a football team here in Chicago, and they played a New Jersey team. Speaking of Mark D, they were down 30 points, came back and won the Chicago team. But I was watching with some guys and told them New Jersey guys are tough. I remember hitting some of them on the football field in college in New York was like hitting a brick wall. So Mark T, I’m assuming you’re one of these tough guys. Anyway, Mark T says, “Why don’t you have more of the RCM team on the podcast? Hmm. Good question. I’m not sure if that’s a shot at me, but good question. Answer is they’re busy. Maybe they’re shy. We didn’t think of it. Somewhere in between all those is answer. We did have Bobby Schwartz on as a guest earlier this year, so check that one out. But maybe instead of one of these solo six packs next time, we do a little mid year review, which strategies are doing well, which are struggling. I kind of like it. Might see in 27 bring on like John Cummings or someone who’s in on all the different strategies. All right, next had one asking about why there isn’t a morning style box for different managed future strategies. I’m not sure where he’s talking about on our website. He said there it’s long term, it’s short term, it holds these markets. He says it’s very confusing without getting into all the strategies how to just quickly view them. So I like it. We do do something like that on the database side of the RCM website. Maybe this is an AI project we can tackle. But what we mostly do, and this is probably why AI is coming for all us, because this is what we’ve done for the last 20 years. But right, our team knows 20 to 30 managers really, really, really well. Like which trades they did last, and which markets they dropped four years ago, which are their new markets in really well, the next 100 or so we know well. But really, what we do is meet and talk with the investors, detail all those specifics, answer those questions, and then of course put you in touch with the manager. I can see this question is like, hey, before I get to that point, how do I just quickly sort these? So, good question. Don’t have an easy answer for you. Try and figure that one out. And then one from Todd W here, who says we haven’t had any talk about tail hedging in a while. You’re right, Todd. Let’s fix that. We can solve that with an upcoming guest. But it brings up the complacency in this market. Like that even shocked me. I went back and looked. Yeah. So when even the podcast has probably had the most tail hedging guests and content of any podcasts out there.

Jeff Malec  24:23

When even we haven’t done one in a while, how complacent is this market? And ready for a sell-off? It seems a good tail. It’s like a reverse magazine indicator of has the derivative had a tail hedge guy on in a while. All right, that’s it for the pod. Thanks for listening. Keep those mailbags comments coming. Mailbag at rcmam.com. We’ll be back with a second human next week. You don’t just have to listen to me. But I’ll thank myself for hosting and guesting here this week. Thanks to RCM for sponsoring. Thanks to Jeff Burger for producing. See you soon. Peace.

RCM Alternatives  25:04

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