Tracy Alloway: I think there's a chance you might have to re-record an intro or at least the intro might be out of date by the time the episode comes out.

Joe Weisenthal: That's how you know.

Tracy Alloway: That's how you know it's bad. That and when people start waving around standard deviations,

Joe Weisenthal: standard deviations

Tracy Alloway: and also when people start saying it's a healthy correction in the market, although I haven't seen that much of that.

Joe Weisenthal: It's pretty gnarly. Also, when we don't just say the date that we're recording, but we say the minute we're recording this at 7:04 a.m. on February 6th, 2026. All the signs are back.

Tracy Alloway: Joe, I want a t-shirt that says ruthless utility maximizer.

Joe Weisenthal: Black gold.

Tracy Alloway: Let's talk about losers.

Joe Weisenthal: Who cares?

Tracy Alloway: I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

Joe Weisenthal: Skulls Unlimited.

Tracy Alloway: Ooh, what's the ticker for that? No, I think that like in a couple years the AI will do a really good job of making the OddLots podcast.

Joe Weisenthal: How do I get more popular and successful?

Tracy Alloway: One day that person will have the mandate of heaven. We do have

Joe Weisenthal: the perfect guest. [clears throat]

Tracy Alloway: Welcome to Lots More, where we catch up with friends about what's going on right now

Joe Weisenthal: because even when Odd Lots is over, there's always lots more.

Tracy Alloway: And we really do have a perfect guest. But it is weird, isn't it? Because it's, you know, it's a little different.

Joe Weisenthal: It's been a while.

Tracy Alloway: Very strange. It's a surreal It's a surreal type of market environment, especially over the last week.

Joe Weisenthal: Right. So, if you've been living under a rock, markets have been tanking. There have been a bunch of different things going on, but first of all, gold and silver and the metals complex started plunging.

Tracy Alloway: Then you had like basically a slaughter in software stocks. What else? There was one. Oh,

Joe Weisenthal: and crypto.

Tracy Alloway: Crypto. Crypto is a big one. So, Bitcoin is like down to 66,000 something like that.

Joe Weisenthal: And I think it hit 60,000.

Tracy Alloway: Oh, wow. And that's the thing. I can't keep up anymore.

Joe Weisenthal: It doesn't matter.

Tracy Alloway: And also, there's concern about private credit because private credit has so much exposure to software and they basically lent all the money at the top of the valuation cycle, which I wrote about in the newsletter yesterday. But anyway, there's a lot to talk about in markets. Who do we call when markets are moving? That's right.

Joe Weisenthal: Sup, Charlie.

Charlie McElligott: You guys are amazing.

Tracy Alloway: So, this is Charlie McGeligette. Of course, he is the crossasset macro strategist over at Namora. I'm going to start with the the simple question. Maybe it's not an easy question, but what was the approximate catalyst for all of this because you have a bunch of different things going on, including, by the way, the nomination of Worsh at the Fed. So absolutely part of the feedback loop

Charlie McElligott: and but these things are never singular input you know in a world of thousands of macro factor variables in this case and you know I'm an ambulance chaser that's kind of what my gig is a grave robber a carpet bagger [snorts] you know all those things I try to reverse engineer car accidents yeah and kind of the qualitative starting point of that is to locate consensus positions that tend to then crowd in positioning when trend trades develop that's usually accompanied or requirement or requirement being low volatility to accumulate those kind of smooth trends. So point being I think there were a number of market narratives that got a little lazy.

Charlie McElligott: You know, for instance, Q4 of last year, as we recall, I think there was, you know, somewhere 3 to four months ago, there was still a fair bit of concern with regards to this idea of like labor cracking, you know, and there was still a lot of feedback with regards to Liberation Day

Charlie McElligott: and the policy volatility dynamics, you know, before things really got hot with policy volatility most recently. Um, and that was leading to some, you know, some skepticism and as it relates to kind of the equities world, what did you do? You just stuck in the stuff that kept working. And that was that same dynamic we spoke about a number of times last year. You know, that crowding into secular growth, mega cap tech, AI, they just keep growing earnings, profitability, all of those metrics, and they took up this massive part of the market. That's part of this positioning that set you know at some point in Q4 run hot starts happening. you start seeing data upside surprising again, right? He starts openly and more recently transitioning into January talking openly advocating his weak dollar policy.

Joe Weisenthal: Europe is playing along Trump, right?

Charlie McElligott: You know, so you you start having these things where people were really accumulating around effectively a lot of short dollar trades.

Charlie McElligott: And when I'm sitting there and I'm seeing like how do these narratives go wrong? How does this crowding go wrong? And I'm seeing, you know, gold and silver being attributed to this debasement narrative or this ddollarization narrative. There's credibility in those arguments, but I'm also a skeptic with regards to the flows and the actual like singular catalyst of those. But I start seeing those positionings really overshoot. We're not talking like linear projections like bending off the curve type of, you know, price performance of late. I see EM equities crowding. I see cyclical equities because everybody owns secular growth and nobody had enough economic sensitivity. So I start seeing these kind of positioning overshoots, you know, that's all the work that we do internally. And it just said if the dollar starts agitating and it stops going lower and you start losing these short-term trend windows and then you get, you know, maybe a little bit of wow, we didn't get the max doubbish hasset trade, right? Oh, we start seeing upside surprise data. When everybody is short dollar and thinking rest of world growth and actually US is maybe leading to the upside again or reacelerating dollar starts performing, people start monetizing and you start taking money out of these trades and that turns into a bigger derisking.

Charlie McElligott: Obviously, we want to get into like got to get into everything including like the software selloff and its connection to silver etc. You know, it occurs to me speaking of the software thing and I'm glad you brought up a liberation day. One of the memes of 2025 was just this idea that well look we don't really know what tariffs are going to do. We're not really sure what effect they're going to have on the economy. But one thing we could be pretty sure of is that it's only going to affect the sort of physical goods economy and not the digital economy. And so tariffs in a way sort of seem to embolden the software maybe crypto digital trade because it's like this stuff is borderless. It doesn't it's not going to get held up in customs. So let's lean into this and then so it's interesting to hear you know then you get this big reversal.

Tracy Alloway: Can we measure it when you talk about like how leveraged and how consensus these trades were whether we're talking about software or whatever. Can we measure how crowded those trades were, how levered these trades were?

Charlie McElligott: Absolutely. I mean, I I'll I'll look across, you know, we we we have internal money that we run within QIS businesses where there's billions of dollars behind, you know, very sophisticated, not like naive toy models from trend to risk par, you know, vault control, target volatility. So, I look at where those gross exposures are and like period point blank grosses were too big, right? If you look at a snapshot of a model risk parity portfolio, four assets, long only using leverage to allocate your volatility, right? Long only in equities, bonds, credit, commodities, different waitings based on different economic scenarios like very kind of generic risk parity.

Charlie McElligott: We're seeing on a let's say a 5-year look back 99 spot 7 percentile gross exposure. It just so happens, right, you know, Goldman Sachs prime brokerage data with regards to equity hedge fund grosses as of last Friday, 100 percentile on a 5-year look back. So like these are these are synonymous. Now now gross exposure is not purely a function of trailing realized volatility, right? Different strategies deploy different leverage. different strategies, you know, will try to amplify a market neutral versus a net lean or a directional lean, but by and large, the grosses were too damn big. It's like the guy that used to run for mayor. And when you see grosses being that big and you see prices bending off the curve and you see the the thesis behind it, and this is where I I'm pumped to tie in like the Bitcoin read, right?

Tracy Alloway: Yeah. if debasement was actually what people are saying it was right this idea that in darization you know moving away from fiat you know US policy volatility US fiscal deficit which by the way okay like same with Europe same with Japan now you know with their little trust moment you know Europe is taking the austerity break off that's a global phenomenon with fiat currency so like okay I can get with that to a certain extent but like why didn't Bitcoin participate if that's what people kind of claim is, you know, Bitcoin's a shape shifter as is gold. But, you know, my story and my skepticism with regards to that debasement or that deolarization was the way that Bitcoin absolutely did not participate when it was gold and silver. And I and look, you know, I sit in an options business. I see just outrageous call SKs and demand for upside and people, you know, keep putting on keep reloading into these, you know, the call spreads and upside trades in SLV and GLD. The options volumes are massive. We became a speculative macro touourrist retail type of a trade on top of all this.

Charlie McElligott: Bitcoin kept going lower and I started seeing one if people are grabbing people clearly have this preference for real assets you know physical assets right now in this world of debasement of fiat of fiscal deficit spend perpetual issuance all those things Bitcoin is trading like software it's trading like SAS which is going through an existential crisis right now for really justified reasons especially with regards to valuation right and the funny thing is when we were talking about, you know, how AI was actually going to I was making the point kind of Q4, start of Q4 last year, there's two major tailwinds for equities that become potential headwinds in 2026. They're very well socialized, but they still ring true. Ironically, we kind of got a back door on it. One was that the capex spending with regard to AI, you know, was burning your cash and you were moving through the cash so fast, right? and the cash that made these companies so preferred.

Charlie McElligott: So, you know, screening is quality and profitability and all these great things. They're liquid. They're big. You can move in and out of them. They only go higher, you know,

Joe Weisenthal: and they did a bunch of buybacks.

Charlie McElligott: Well, that's the trick, right? So, like you aggregate kind of like the MAG seven or like, you know, maybe the 12 biggest kind of like AI contingent types of players. You're talking like 20 to 30% of the overall S&P 500 buyback. So, that's a huge point for me because I've made this before. Buybacks are like seven to eightx the largest source of demand for equities over the past 15 years.

Joe Weisenthal: Wow.

Charlie McElligott: And it's a vault suppressor.

Joe Weisenthal: Yep.

Charlie McElligott: Right. I mean, you are a

Charlie McElligott: you're a passive bid under the market on a Vue up order or more importantly, when there is a draw down, that's when they get most active. So, it's like long gamma. It's like synthetic long gamma market. So, one, you're burning through your cash and you're no longer doing that. two, you're burning through your cash and you're no longer buying back stock as this v shock absorber and passive bid into the market from kind of sort of a quarter to a third of the overall S&P's buyback that you're then too having to take on this new debt. You take on new loans, you know, to a certain extent, you're trying to lever the balance sheet, but you know, more importantly, what does that mean for credit? Credit has been this perpetual kind of va bleed.

Joe Weisenthal: Yeah.

Charlie McElligott: Because spreads are so tight, credit,

Joe Weisenthal: people have been issuing to fund buybacks as well.

Charlie McElligott: Yeah, 100%. I mean, ironically, that's a probably a separate podcast. But remember, we used to kick and scream like, "Ah, QE, this is crazy. Like this malinvestment, like they're bringing debt for buybacks and they're not doing, you know, R&D and they're not spending capex, they're not building plans." Well, here you go. You know, Duck said something like this, you know, many years ago in an interview. He's like, actually, when you start to see, you know, the cash turn into capex spend, there's usually kind of a point of agitation. It's not always in the right direction for equities, let's say, right? And in this case, I think we're starting, obviously, we're starting to get that, but the credit point is critical because the pace of the capex kind of prisoner dilemma that we're still seeing right now with like yesterday's earnings releases. The magnitude of that supply in the investment grade market is simply going to widen spreads. Tech is a big part of that. Now, this is the punchline.

Charlie McElligott: bringing it back to software, bringing it back to Bitcoin as we were all kind of watching this potential for, you know, the credit markets to become a headwind. Not in a shock, not in a freeze, you know, not anything close to a systemic dynamic, just too much supply with spreads too tight. You're not being compensated for it. So, like there was kind of this general shortened credit because guess what? The whole world is watching one in like baby footsteps. Can Oracle get their funding done? That was the one day we had a sigh of relief this week by the way. They got 25 billion of investment grade done plus converts

Joe Weisenthal: with like 129 billion of demand. The market huge exhale. But guess what? OpenAI is still in the background somewhere. We're like kind of sort of in the next two months they got to come up with like anywhere from 100 to 200 billion bucks. And that is still a major point of skepticism.

Tracy Alloway: It's not a funny punchline, is it?

Charlie McElligott: No, it's not. it doesn't make you feel really good. But here's the thing as Anthropic has done their thing and I mean bang you guys are in in it right now with regards to claude and the implications of vibe coding and you know a whole reset with regards to certain industries and taking out even if it's just the basic level of like legal compliance documentation and we've seen it start to hit bottom lines with regards to earnings mentions and things like that that is happening so fast that software is going through this existential crisis and here's the deal those dudes are stuffed on restricted shares. They're stuffed on RSUs in the concentric circles of VC boys and tech boys and SAS bros and Bitcoin bros has a lot of overlap.

Joe Weisenthal: It's all the be boys and bros.

Charlie McElligott: It's not a ven diagram. It's just a circle.

Joe Weisenthal: It's kind [laughter] of like straight up overlap.

Charlie McElligott: And you know, in this sense, you can't sell. you're kind of being haircut 10% it feels like every week right now with regards to do I have a job what are the prospects where is this industry going

Joe Weisenthal: and what do you have to sell you know

Charlie McElligott: and I think that that's why it is trading tick for tick year to date with SAS software and it's quite remarkable and that to me as I step back to this large conversation it's not really about the basement right this is a digital phenomenon this is a liquidity crunch with regards to this the idiosyncratics of that sector really coming under attack.

Charlie McElligott: And by the way, now it's also become a backdoor credit story where it's not simply the spread widening from the hyperscalers. It's people worrying now about private credit, private equity, the BDC guys which are, you know, sitting on a lot of this stuff with, you know, really tricky valuations and not a lot of like buffer room on, you know, with gross covenants and things like that. So, you know, it's become a huge macro story. They kind of did the endound with regards to where we thought it was going to come. But we can handle a couple things at once. You know, you all of a sudden you get a little bit of a surprise with regards to the Fed chair. Dollar stabilizes. You already had people in all these short dollar trades. People start taking money out of, you know, gold upside, silver upside. They start taking off some EM upside. And at that point, like last Thursday, I'm looking at grosses. I'm looking at our CTA trend net exposures in commodities and metals 98 percentile. I'm looking at our net short dollar exposure 0 percentile. Look at our net equities exposure 97th percentile. I'm saying these are the qualitative things I need to see where profit taking and monetization turns into a riskmanagement exercise.

Joe Weisenthal: So speaking of selling what you can and not necessarily what you want, one of the reasons that yesterday, February 5th, I guess, was so painful is because we started to see the places, the few places where people were able to hide start to go down. So consumer staples for instance, it wasn't a big drop, but still they'd been surging earlier in the year

Joe Weisenthal: as people sort of switched out of software and into consumer goods, but now it's not quite clear where they're going to go. So correlation seems to be picking up, right? Like in a market crash, correlation goes to one, but at the same time, I can't figure out what's going on with implied correlation because if I look that up, it's still pretty low. So this is you know absolutely topical and it's something that you know we continue to get questions on over the last few years you know that generic like why is V so low right you know and low V or high V is incredibly subjective it's about the you know the V surface it's about skew it's about where the starting point was where you've moved from how quickly all you know it's it's art plus science the part of the problem with V in general certainly being sticky and I think it comes down to where the money has flowed with regards to the hedge fund space is that you know maybe 101 15 years ago the long short universe you know running net exposure

Charlie McElligott: was I don't want to say you know necessarily dollar for dollar like axed or necessarily larger than you know the multistrats at the time but like they ran net and they would lever up positions or they would hedge their longs and there were you know generally speaking there was buyers volatility with those guys to a certain extent you

Charlie McElligott: If you look back kind of on the sort of let's say five at 10 years of dollar flows into the hedge fund space with regards to all new flows multistrats are conservatively 80 cents of every dollar in

Charlie McElligott: and then if you actually include outflows from other strategies you're legitimately through $1 of. So the point I'm making here and multistrats are unbelievable with regards to their low volatility with regards to the consistency of their returns with regards to the the disciplined risk management the tight stops model yeah

Joe Weisenthal: the non-correlated returns which is the whole story why people keep allocating into them

Charlie McElligott: they've proven to be such an absolutely undeniable force hence all this dollar flow but think about it like this. We don't see the core ones anymore. And this is like

Joe Weisenthal: core ones.

Charlie McElligott: Core ones meaning like when things shock, everything trades up together or down together, right?

Charlie McElligott: And that was kind of the old state of the world. But now what we tend to see, and this is exactly what we saw earlier this week when you had, you know, and of course financial market returns are not on a normal distribution, but for you know,

Joe Weisenthal: I hate people that point that out.

Charlie McElligott: It's like it's like like something in a pharmaceutical ad.

Joe Weisenthal: Yeah. like you have to include it cuz otherwise someone annoying

Tracy Alloway: don't take this drug if you're allergic to this drug. Yeah. So the point here being that you know you would see kind of like a risk on risk off type of core one phenomenon you know in past era. Part of what is happening now in my mind, you know, with these, you know, little bit of fragmented, you know, bullet points, you know, triangulating here is the fact that the dollars and the leverage controlled by the market neutral multistrat equity space are so overwhelming in the sense that when you get when you are forced to derisk or degross,

Charlie McElligott: you know, the tilts go wrong

Charlie McElligott: that you have the offsetting short on the other end, right? It's not just you stop out of your net longs or your crowded longs, right? It's that you're also, you know, theoretically an equal dollar amount on the short side being covered. And what ended up happening on like the two big down days this week, it was like 250 stocks were up, 250 stocks were down. So, you're getting this like reverse dispersion.

Joe Weisenthal: Yeah.

Charlie McElligott: Right. very much the opposite of what last year was which is this crazy concentration of like top decile bottom decile just spread 99th percentile on like a 10-year basis which feeds into why people are loaded into momentum right the higher stuff keeps going higher it's human nature this is like fine French this is factor alpha you know commoditized alpha so these things I think due to this kind of where the dollar flows have been the market neutrality the fact that there's always this offset against it you're not getting core shocks and when you don't get core shocks necessarily at least initially because V did not really react until just like two days ago and yesterday volav

Charlie McElligott: you need correlation as an input to higher vault to like sustain and you're just not getting that you still have low core now the trick is to your point D is very interesting you mentioned the defensives right

Charlie McElligott: the reversal that we saw when people said look I'm I'm too much exposure in secular growth mega cap tech AI I which gives you a lot of momentum exposure a lot you know you know unintended kind of exposures that when people said I need more economic sensitivity I'm taking up my cyclicality right the three best performing sectors kind of year to date for most of the year have been like energy materials industrials right right stuff that people have kind of been underweighted for the longest time

Charlie McElligott: in the absence of a hot economic cycle you know but also too when you started seeing defensives join in that rotation like it was this massive value overgrowth trade and that's the three four 5Z score types of moves that you're talking about where people didn't have that stuff on and your longs go against you and your shorts go against you and and that is also amplifying you know these kind of moves because look it's not just the market neutrals like they're not boogeyman here they're unbelievable they barely lose money ever on a monthly basis they just have very disciplined tight stops to to get out of these leans and tilts

Charlie McElligott: hard and fast unemotionally and but guess what it's you know retail it's all the story stocks all these themes that's why I pointed out for the last two years of the boom in leverage ETFs like 82% of the assets in leverage ETFs which act like synthetic negative gamma right the higher you go the more you have to buy at the end of the day the lower you go the more you have to sell you know massive pool of aum now because of like retail you know tilted speculative leverage behavior are tied into that concentric circle of AI mega cap tech semis you know disruptor crypto so we're super overweighted super overindexed to that stuff which amplifies when you have the tight market neutral stopouts, you know, with all that leverage with all that AUM, you know, to get their factors right because at the end of the day, those guys are not trying to make factor bets. There's scenarios where you maybe run even a little net if there's like a big, you know, economic reaceleration trade or something like that. But generally speaking, the idea is like we don't want beta to the S&P. That's the point. That's why people pay us. Stop comparing us to S&P returns. So all these things are part of this like backdrop plus the narrative overshoots. To me

Tracy Alloway: that was fantastic and it's very intuitive. I mean there is already good theoretical ideas for thinking that the multistrats were huge drivers of all this. And then when you add in the fact that the staples like the sort of underloved areas or energy materials are the winners very intuitive to your point on software you know no one really knows obviously the degree to which AI is going to obliterate these business obiate these businesses no one really knows but like from the perspective you mentioned the tight stops that each manager has within these firms. Can you give us like some sense of how much is it like look I just want to keep my job here and this is the ugly stuff that's going on and so I'm just going to sell now and ask questions later. Like how much does that play into on a week like this?

Charlie McElligott: Well, we're we're talking about wide swaths of strategies and active, you know, systematic versus, you know, field directional trading. And, you know,

Charlie McElligott: you know, tight stops are, you know, typically that, you know, down 2% kind of down one and a half% maybe even in some cases. But you know that's why it is managed so microscopically and you're extracting these you know basis points of alpha in your longs and shorts and then you know using leverage like a you know a market neutral is probably 200 300% gross by and large like long short was always kind of like 50 net 150 gross something to to that extent but they're just not as big of a player anymore but you know that's the trick here like when I start seeing I always love the systematic stuff because it's so tied in it looks a lot like the options market And market structure by and large feeds momentum now, right? You're not scaling out of positions the more they trend. You're loading into them. So like whether it's target volatility or CTA or you assign a an exposure target you know a leverage target and if the volatility is five and your V target is 10 you got to lever that two times or 12 you know like and that is ironically the lower V goes the more you need to add leverage onto that position right to match your target and that's why that's the problem we create crashes because all of modern anybody who's like on a VAR model is actually a momentum trader, right? You have to delever when V goes higher by and large. Now, of course, if you have a high conviction bet and V goes higher, that's actually going to be part of your potential return profile. You know, that's great. And God knows people have learned to like, you know, sell Rich V and buy, you know, buy dips. It's become conditioned. These time horizons are like hours at this point. But like

Joe Weisenthal: some people have made an entire career out of doing it once.

Charlie McElligott: Yeah, for sure. And I mean, you got to have a titanium stomach. Like I've been talking to a buddy all week at a multi, you know, this absolute madman and there's many others like him. You know, he's been shorting silver the last two weeks. I'm like, "How you been sleeping, dude?"

Charlie McElligott: You know, he's like a little better now, but you know, there's

Joe Weisenthal: the silver moves are unbelievable. Yesterday was like 16. I mean, these I've seen two people I've spoken to say that the silver move specifically may have been the crazy one of the craziest moves they've seen their entire career.

Charlie McElligott: It's crowding plus the trend plus the optionality plus the leverage ETF. You know, the optionality is leverage in and of itself. And it's high beta, you know, as is to regular, you know, big brother gold. So, these moves are, you know, wild. But we know that in the era of the speculative era, you know, people seek the movement. That's the opportunity. You are not going to retire 4% in cash. You know, that's just the way this world works right now. Now, you know, do you necessarily need to be like shorting V or things like that? That's not the way to do this. But people yolo. It's that financial nihilism that we've spoken about, you know, many, many times. You seek out the movement. You want the stuff that's moving. And generally speaking, and this is where it's so interesting, like you try to press moves by and large, certainly like the retail cohort, the world is not built the vast majority of the time for mean reversion anymore. Value is mean reversion. Like something is rich, something is cheap. It's this counter kind of like a gamma type of a flow, you know, long gamma type flow. we feed moves now because of the riskmanagement dynamics and especially too just like market structure how much trend there is built into the market leveraged ETFs options things like that you know particularly the way that people tend to use them which is kind of to to feed into prevailing moves

Charlie McElligott: so all of this kind of changes the behavior and the expected outcomes where you know momentum has been you know this remarkable factor

Charlie McElligott: for you know academic history studying these things because of like greed and fear and things like that and moves can extend longer than you think. Just because a trade is crowded doesn't mean it's the wrong trade. But when you start to layer in, as I said, the positioning data, the overall leverage data, the kind of the conversational qualitative, how many people are buying into this, but then you see, you know, some like divots here and there and like the story and it doesn't actually make sense. And actually, this thing is starting to stall and now I got people taking money out this thing and I got trend this loaded into it. This is going to unwind hard. And I sent that note Thursday, you know, started unwinding hard. Friday, doors got blown off. And guess what? It waterfalls. So other crowded trades go. Cosby, everybody was like, you know, no-brainer into that. Japanese bank longs, right, which are short JGB proxy, macro tourism. Like people start coming out of these trades because they're noncore, but they were high sharp,

Joe Weisenthal: right? So flows before pros, but now the pros are chasing flows and that's hurting the bros. [laughter]

Tracy Alloway: That was good. That's really good.

Joe Weisenthal: That's incredible.

Tracy Alloway: Thanks. Um, okay. So you just touched on this, but what stops the bleed?

Charlie McElligott: I think you're, you know, you're getting certainly some relief here. I mean, look, people will say, you know, at some point on a smaller growth, you don't really have to do anymore. You don't have to reach for hedges, which get dealersh gamma, right? Because you're you don't, you know, have as much exposure anymore. That's the first step. People then have to monetize their hedges. It's the way all of these reversals happen. you take off your hedges or you take off your directional stuff, whether you're shorting futures against the moves or you're buying downside puts, you're buying VIX calls, you start to unwind that and guess what? Like now the dealers got to take off their stuff and you got delta to buy. And then some people say, "Oh, everybody's taking their hedges off around the street. Market's starting to rally off these lows. I'm going to buy some zero DTE calls." And you know, then you create more delta to buy.

Joe Weisenthal: We're back to the races.

Charlie McElligott: And and and V starts, you know, V starts rolling over and guess what? Then the systematic the v supply people come out of the woodwork and they feel comfortable to come back in lean into this and that's de facto by the dip right so th this is the cycle and the world that we live in there's too many assets this is a final point that that may be tangential here but with regards to how these dynamics end it's not necessarily about like back in the days like Warren Buffett steps in you know provides some you know financing line or you know Toma Bravo stepping in doing some like deal

Joe Weisenthal: Satoshi Nakamoto is calling up Warren Buffett Yeah, I don't know if that's pulling up David

Tracy Alloway: offering 10% of uh

Charlie McElligott: it's more about you know these flows kind of stopping the bleeding but you know this is the other thing too like the V flows are so important with regards to the like the hedge unwinds and creating the turn in the market the inflection especially with the conditioning buy the dip sell the vault rip that like fixed income has been trash for five years since the tightening cycle since you know poor inflation still running too hot right so people said Look, this thing doesn't work for me. It's not helping my portfolio. My 6040 is awful, right? But I can't just be long equities, but I need some yield. I'm I'm boomer. I'm old. I need some, you know, some enhancement, but I want equities upside. And we've talked about this so many times, and it's true, you know, because the assets keep growing. All these yield enhancement vehicles, all these income vehicles, they're selling equity optionality. So, your long underlying equities, you cap that upside to a certain extent, but you're generating yield by selling options. That's the new fixed income. And those flows matter because those flows that when the kind of the coast is clear, they just come in and it's just Vegas supply and it just smashes all back down.

Tracy Alloway: Thank you so much for for coming on at short notice.

Joe Weisenthal: It's 7 in the morning.

Tracy Alloway: 7 in the morning. Thank you very much.

Joe Weisenthal: Midday.

Tracy Alloway: Yeah. Midday.

Joe Weisenthal: Yeah. Your day's over, right?

Tracy Alloway: Lots [music] more is produced by Dashel Bennett, Kerman Rodriguez, and Kale Brooks.

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