334 · Andrew Perry - What $450M Portfolio Manager Learned From Paul Tudor Jones

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[00:01:22] [SPEAKER_02] Often they go to your returns and look at your worst day. Then they'll see how you behave after that in terms of returns. And if you go into your shell, that's not what they want. They want someone within the framework they give you that ultimately you can manage that pressure when you're in drawdown within reason. And then from there, if you've performed, you can end up, one of the guys I worked with very closely ended up leaving there 10 years later and having managed over $1.5 billion, having started at $50.

[00:01:49] [SPEAKER_02] You'd be surprised any major date that occurs in the market. The market forgets it, but the dates don't, including March of 2020. No market went a point below it. November 1, 2023, when Janet Yellen changed the duration, every quarter, the Treasury in the United States announces how much money they need to borrow and where in the yield curve, what duration they want to borrow.

[00:02:13] [SPEAKER_02] If they borrow shorter, there's more liquidity. If they borrow longer, there's less liquidity. Again, I defy any of your listeners to look at November 1, 2023 and see if you can find any asset that went lower. It didn't. It ripped because they changed the duration. If you're not looking at that stuff, you're going to be missing the picture. I lived through obviously the NASDAQ and I was working at Tudor through the financial crisis. There was a major crisis in Europe in 2012 and clearly we all sort of seen 220.

[00:02:42] [SPEAKER_02] So I've seen four major events and I've seen people body bagged through all those events if they weren't managing their risk and they had too much leverage. What they don't understand is how hard it is. I mean, the guys are managing really big money. I'm in awe of, you know, I managed up to about $450 million. But I mean, that was a lot. But I know guys, you know, well into the billions.

[00:03:05] [SPEAKER_02] You know, if I look at Paul Jones, what's he really good at? I mean, he's exceptional at changing his mind. He can go from long to short like that. Now that's hard to do. Easy to say, hard to do. Because a lot of people get very emotional. Don't get emotional, but markets are very emotional.

[00:03:21] [SPEAKER_03] Markets, speculation and risk. This is the Chat with Traders podcast.

[00:03:29] [SPEAKER_04] Traders, welcome to an exciting episode of Chat With Traders. Today, we're going to learn from an experienced global macro portfolio manager how he turns policy, liquidity, market structure and price into actual trades and why time frame, adaptability and risk management matter more than being right all the time.

[00:03:47] [SPEAKER_04] So today, we are joined by Andrew Perry, the founder of Macro Pillars. Andrew, he spent more than 35 years at the intersection of institutional macro research, foreign exchange trading and active portfolio management. His career includes running foreign exchange risk and helping build internal investment funds at Commonwealth Bank of Australia, five years of portfolio manager at Tudor Investment Corporation under Paul Tudor Jones, and then later serving as a managing director and portfolio manager at Nomura.

[00:04:16] [SPEAKER_04] Those experiences eventually contributed to the development of Macro Pillars. This is a five-part framework that brings together government policy and geopolitics, traditional and non-traditional liquidity, technicals and price response, and finally, the big one, execution. The goal is not simply to form an economic opinion, but to understand how these forces move through the financial system and determine the best way to express and manage a position.

[00:04:40] [SPEAKER_04] So in this conversation, we're going to explore how entering the markets around the crash of 87 shaped Andrew's view of risk, what it was like managing capital inside of Tudor, and then why time frame is inseparable from any market opinion, and why the strongest traders must be willing to change their minds, even when the evidence changes.

[00:04:59] [SPEAKER_04] So we're going to break this down several areas of macro that can seem intimidating, honestly, a little intimidating from the outside, including the quantitative easing, money supply, treasury issuance, the move index, the collateral system, and really try to connect all the dots here into ultimately what matters to traders. And that is what to trade, when to act, and how much risk would prove the, and what would prove that idea ultimately wrong. So Andrew, thank you so much for joining Chat with Traders. Welcome.

[00:05:27] [SPEAKER_02] Thank you, Kevin. I think Macro Pillars should hire you in the sales team. So thank you for the introduction.

[00:05:32] [SPEAKER_04] Absolutely. You know, this past week, I've been just doing a lot of homework on you, Andrew, and I find this world so fascinating. I'm excited to learn a lot as well as the traders listening. So you entered this world at an interesting time. Is that right? The 87 crash. What was it like?

[00:05:46] [SPEAKER_02] That was my first year in the markets, financial markets. It's an interesting place to start with because I think where you start in markets does shape your bias. But I think one of the most misunderstood parts of investing and trading is your emotional sort of construct, the way you manage yourself, the way you manage your sort of nervous system, the way you manage how you're under pressure. And your biases come into that in terms of actually when you enter the market.

[00:06:11] [SPEAKER_02] So I think that's one of the areas I'd start with in terms of talking to your audience, that it's not discussed enough how your bias and your emotional construct actually subconsciously impacts the way you actually execute and trade. So for me, so in part, that's part of how you actually were brought up, how you actually and everyone's different in terms of how you're parented. And then obviously when you actually enter the market. So if you enter the market in 2011, you probably have a bias of being bullish.

[00:06:41] [SPEAKER_02] And if you entered the market in 1987, like I did, you definitely have a bias of being bearish. And in macro trading, you've got to face your bias all the time. So having walked into the market in 1987, it certainly shaped the way I thought about it. And certainly from a macro's perspective, as we all know, we love volatility. Interestingly enough, 1987, it's known as a crash. But few people know that actually the market actually closed higher on that year. It just happened to be a very bad day.

[00:07:11] [SPEAKER_04] Yeah, it was 500 billion, I think, was why. And then, yeah, it's just right back up. You said something interesting there, Andrew. You said we've all been parented a little differently and how some of our youth may have an impact on who we are as a trader. Do you think that maybe some instability in your background can create instability in your trading?

[00:07:34] [SPEAKER_02] Absolutely. It's one of the things that, I mean, I'm sort of drawing a long bow here, but it is. Your whole makeup, whatever you do, is going to be influenced by your upbringing. It doesn't mean an unstable upbringing. It doesn't mean you're a bad trader. It means you need to be aware of it and have to be on top of it and actually be very conscious in terms of how you go about it. And there's ways of actually managing that in terms of how you manage your life. One of the interesting things that Paul Jones always did at Tudor is that basically if any of his PMs were going through a separation or divorce,

[00:08:03] [SPEAKER_02] he'd take the capital off them for three months. So the uncertainty you go through in terms of your own emotional constructs does put pressure on decision-making, no question.

[00:08:13] [SPEAKER_04] That is so fascinating. You know, I've heard that so often. People's largest losses come when unfortunate life situations are just happening, be it cancer or loss of a loved one. Are those situations as well at Tudor? You're an alpha.

[00:08:30] [SPEAKER_02] Anything that's, you know, people get under pressure and under pressure, people can make poor decisions. So discipline is a very strong feature of life, in fact, but certainly in investing and trading because it's very much a black and white game. At the end of the day, you know whether you've won or lost. But if you haven't really gone through your processes, understanding, you know, you're running a journal every day and, you know, looking back on the decisions you made. And then if that week, you know, if you happen to don't mind going out at nighttime, have you drunk too much?

[00:09:00] [SPEAKER_02] It's going to impact the way you behave the next day. Things like that. They all come into it. They're the unknowns by the sort of less professional. Even some of the professional traders don't know it and don't manage that very well. So absolutely your emotional construct is that's the area if you get on top of, you're a long way ahead of most.

[00:09:20] [SPEAKER_04] Yeah, fascinating. So would that be a process then at Tudor where you would report maybe to a manager and they would ask you perhaps like what's going on in your life, you know, whether you need to size down, size up, risk off?

[00:09:36] [SPEAKER_02] Well, no, actually what Paul Jones did and what most people, you know, most of your viewers, I'm sure listeners probably love the program billions, right? It's obviously a dramatic version of what a hedge fund is like and certainly it's not like that. But one area that Paul Jones always said, we didn't have, you know, we obviously had a person we reported to, but that was a risk manager. But from a personal perspective, we'd have a coach. The coach didn't teach us how to trade.

[00:10:03] [SPEAKER_02] The coach would look at our emotional construct and how are you managing risk? Because one of the things we'll get into when you actually go into a hedge fund, really as you manage more risk, it gets harder and harder. It gets harder in terms of the liquidity in the market. It gets harder in terms of how you actually manage yourself. And so we had a professional coach who would be a psychologist. And so he'd work with you in terms of your behaviors and work with you in terms of how you can improve. So that's how you try and at that level, you're always trying to find that extra edge.

[00:10:33] [SPEAKER_04] Do you think traders don't put as much significance on the emotional aspect of trading as they should? Because even I just talked to the head of trader development at SMB Capital. And they bring in Brett Steenbarger on positive trading psychology quite often as a trading coach, right? So it's significant, isn't it?

[00:10:57] [SPEAKER_02] Absolutely. But be clear on that. He doesn't come in and teach you how to work out the construct of a portfolio. He comes in to work out what it is that's going on within yourself that's actually inhibiting you from actually managing more money. Or what is it? Maybe you're in a drawdown and you just can't work it out. What are you missing? And again, it's trying to put the pieces together in terms of who you are as an individual, what's going on in your life. Maybe circumstances at home aren't going so great. Maybe there's something else. Maybe all those things come into play.

[00:11:27] [SPEAKER_02] All the major firms do it. And even as a trader that is out there trading for himself, some of your listeners do, you can just work on basically ensuring that your days are structured, that you're getting enough sleep, that you're not over trading and that you're staying fit and you're eating well. And obviously, if you're not looking after yourself, you're not going to look after your portfolio. So you've just got to keep a really structured approach to it, a very disciplined approach to it.

[00:11:54] [SPEAKER_04] Yeah, and you know, Steenbarger would say to lean into your strengths because one of the common failures amongst traders is when they're wrong, they get hopeful. And when they're right, they get fearful and take those positions off early. In fact, Peter Brandt just told me that as well, that we need to, when we're in a winning positions, I think oftentimes the inclination is to, oh, I got money, lock it up. But we have to resist that temptation and let the winners ride oftentimes.

[00:12:21] [SPEAKER_04] What were some of those things you saw at Tudor perhaps where in a similar fashion to that were some traits from the top traders over there?

[00:12:31] [SPEAKER_02] Well, it's one of the things – you can go online and watch the valedictorian speech from Roger Federer, and it's something similar. And also go online and you can see a similar speech from Paul Jones called The Perfect Failure. He speaks – and it's a fantastic read. He speaks about the fact that, you know, at the age of 28, he was left at the altar by the girlfriend he loved in his life. It's well documented, so I'm not giving any secrets away.

[00:12:58] [SPEAKER_02] But he just talks about life is through the prism of, you know, everyone thinks trading, you've got to – you know, the ratio of success is like, you know, significant. It's not. It's small wins and edges. So the most successful traders probably only win about 57% to 56% of the time. So they lose a lot. I think Federer said he loses as many points as people and then he wins, but he just wins the rallies longer than the guy at the other end and makes less mistakes.

[00:13:29] [SPEAKER_02] So really you've got to ensure when you have losses, you've got to cut them. You cut them, you cut them quick. And when you have your wins, you run them. And you try and make your wins in terms of positions when you're winning larger than the ones when you're losing. And that's the edge. You're not looking for a ratio of winning 80% of the time, 90% of the time. It's nonsense. No one does that. And if anyone tells you that, they're telling you fibs. The ratios around that, the good ones run around 55% to 57%.

[00:13:56] [SPEAKER_02] And the people like the Druckermillers out there, what he says is he's a different trader to Paul Jones, but he will say, you know, when he's right, he'll have two positions. Where Jones has been more of a portfolio, he trades more where Stan Druckermillers is more of a bigger position guy. But to Peter's point, you've got to basically ensure when you're winning, you're in that groove. And you can feel it when you're on, right? You can feel it when you're on and then make sure, lift your risk. And when you're not seeing it or something, you've just got to de-risk yourself.

[00:14:25] [SPEAKER_02] But you always run your market with stop losses. Never, ever not have a stop loss.

[00:14:29] [SPEAKER_04] Always have a hard stop on you. Say that.

[00:14:31] [SPEAKER_02] Never, never stop. Yeah. Never have a stop. Never. And again, typically retail traders and traders are learning. That's where they make the biggest mistakes. They can't take their losses.

[00:14:43] [SPEAKER_04] Yeah, I've heard it put a stop is like a seatbelt. But traders oftentimes think they don't need to drive the car without a seatbelt on when ultimately is there to protect you, right?

[00:14:53] [SPEAKER_02] Well, those traders tend not to stay around too long. It's discipline. It's all that stuff. It's just the emotional construct. Obviously, we'll get into the process as we get into the discussion. But all those sort of non-quantifiable areas, the qualitative areas of how you are as an individual and how you manage your risk and understanding that the best out there, you know, you might – I find it fascinating.

[00:15:18] [SPEAKER_02] You turn on CNBC or Bloomberg and Paul Jones on TV and they'll say, look, I'm really bullish Bitcoin. And I know for a fact that in the afternoon he could be short. And everyone jumps on those social media. Sick coin. Jones loves Bitcoin. And I'm going – he doesn't say to pump it, to sell it. He just – that's the way he trades. He's a trader.

[00:15:41] [SPEAKER_04] Yeah.

[00:15:41] [SPEAKER_02] So he'll be in and out of a trade if the facts in front of him change.

[00:15:45] [SPEAKER_04] Was that expected of you at Tudor as well to be directionally agnostic to the point where you could flip like that in a day?

[00:15:54] [SPEAKER_02] No. No. There's different styles and different horses for courses here. Okay. He would have – it's different now. When I worked there back in 2004 to 2010 basically, he probably had 60 portfolio managers globally across equities and macro. He'd had some longer-term thinkers. He'd have some shorter-term thinkers. But again, timeframes are critical.

[00:16:16] [SPEAKER_02] But he would basically ensure that the person that he's ultimately hired and given into the portfolio and allocated capital, he could quantifiably and qualitatively define their edge. And obviously it comes through the numbers ultimately whether you're returning or not.

[00:16:33] [SPEAKER_04] Now, one thing fascinating, Andrew, that I heard you say is that Tudor would actually look at a large loss you had in, I think, determining if they're going to reduce like capital that they allocate to you. Something along those lines. Can you –

[00:16:50] [SPEAKER_02] You know, there's two factors there. When they go to hire you – and I can talk you through the process when I got hired there. But they'll often look at your numbers. You know, basically if you're getting to that level and to those types of firms, you've got to have a lot of data around your returns, right? And preferably daily data. And they can analyze that. But they often may go to, you know, your returns and look at your worst day. Then they'll see how you behave after that in terms of returns.

[00:17:19] [SPEAKER_02] And if you go into your shell, that's not what they want. They want someone within the framework they give you that ultimately you can manage that pressure when you're in drawdown within reason. So that's a very interesting sign that they look at when they go to hire you. In terms of when you're actually working there, well, it's the environment is basically, you know, when I started there back in 2004, it depends. We came in from Commonwealth Bank, which is the seventh largest bank in the world. And it's a retail bank. But we had a very unusual model there.

[00:17:48] [SPEAKER_02] The guy that hired me, I was on the foreign exchange desk managing that franchise stuff. So when, you know, companies buy and sell and traders buy and sell, we would manage that liquidity for clients and also other hedge funds. And he wanted to start an internal fund. And it was a very unique circumstance. So I was running that business as the sort of chief investment officer where we'd allocate capital. And then we'd also have an internal fund.

[00:18:14] [SPEAKER_02] So we would basically, we built a hedge fund internally and Tudor came across and basically hired the three of us. And in those days, they gave us like $50 million of capital at the start with a 10% drawdown. And then basically, they give you a two-year contract. And then from there, if you performed, you can end up one of the guys I worked with very closely ended up leaving there 10 years later, having managed over $1.5 billion, having started at $50. And ultimately, he earned the right to manage that level of capital.

[00:18:46] [SPEAKER_04] So when you were at Commonwealth Bank, I mean, what did Tudor see in you there that was like, hey, I got to get Andrew?

[00:18:54] [SPEAKER_02] Well, I guess that there were two factors really. In 2004, it was very unique for a bank. Well, they basically had offices all around the world. And they basically had one of their PMs moving back to Sydney. So they wanted an open office in Sydney. So they were starting from scratch in Sydney. They were looking for a team. So we had a team of five. And then basically, because we had basically built an internal hedge fund in our own right, they came along and said, well, we want to see your performance.

[00:19:23] [SPEAKER_02] And we handed over within one hour an Excel spreadsheet of basically six or seven years of our returns daily data. So our transparency of the data returns was very attractive to them. And then basically, obviously, having done it before, and then basically the three of us of the five went across there and started the Sydney office for them. Oh, incredible.

[00:19:47] [SPEAKER_04] So you had created your own essentially the hedge fund right there.

[00:19:51] [SPEAKER_02] Yeah. So I was very blessed. I was given the opportunity by my boss, Paul Reardon, at the time running markets to do two things, build out the team internally, so manage money internally for the bank. It was bank capital, and we also invested externally. So we had money with Bridgewater and in those days, companies like Caxton. We didn't have money with Tudor. We had money with all the big firms.

[00:20:16] [SPEAKER_02] So I'd travel the world with the head of risk, and we'd be allocating capital to them, and we'd also manage capital internally. So we kind of had the hedge fund framework already internally at the bank.

[00:20:28] [SPEAKER_04] Was it more challenging to manage the – I guess the – I heard you say the VARs, like the value at risk between the traders or the actual fund itself? What was more challenging?

[00:20:42] [SPEAKER_02] Well, I mean at the time it was interesting because I was wearing sort of two hats. One is the sort of – well, I was running the business, so I had to hire the people. I had to run the allocation of the capital, so I had to travel around the world and allocate the capital. But I reported into an investment committee, so there were six people I reported into who basically kept an eye on me, and I managed capital in my own right. They were both – they were very different. Managing people is different than managing capital in your own right.

[00:21:09] [SPEAKER_02] In the end, the Tudor opportunity came along, and I just took the path down managing capital, and I've done that since.

[00:21:15] [SPEAKER_04] Yeah. I mean you've always built portfolios. It's a look like your entire life. You've been managing, building portfolios, expert of it.

[00:21:24] [SPEAKER_02] Yeah. No, I did – I was there. Commonwealth Bank is an exceptional bank, and it's done a very – like you said, it's one of the seventh largest banks in the world. It's relatively conservative, but they did some very interesting things at the time for sure.

[00:21:38] [SPEAKER_04] I want to ask you because you've been a portfolio manager for so long. Like how do you go about position concentration amongst traders that may have a similar idea, I guess? Because like as a portfolio manager, I'm sure diversification is like a – that's the golden rule of it, right? And so what if everybody's got the same thesis, the same idea as far as a trade goes? How do you approach that?

[00:22:04] [SPEAKER_02] Yeah. Look, I think in terms of – look, I think in terms of portfolio, when you're building a portfolio of traders or portfolio of funds, you're obviously looking at returns. You're looking at correlations. You're looking at different sectors and different sort of styles. So I think that that's not too hard to do. We may put some money in some macro or some long-short equity or some convertible debt or some distressed debt or some – so that side is fine.

[00:22:30] [SPEAKER_02] In terms of when you build a team of macro traders, there's so many different ways to trade. You know, you had Peter Brandt yesterday, and I'm sure he's talked very much very cleanly around technical analysis. Now, Peter's a good technician, and he trades as a technician. Other people are price traders. They will look at, you know, how markets are responding in terms of yield curves or how they're responding in terms of how certain liquidity is deployed in markets. And other people are top-down traders where they're fundamentalists.

[00:22:59] [SPEAKER_02] Other people, as I said, with Peter, who's a pure technician. So there's very different ways of doing it. And there's also in trading, which is another factor you've got to be really careful about, people have different timeframes. Some people trade very short term. Some people have different timeframes, and you're making sure that those styles are staying in that timeframe, which is very critical.

[00:23:21] [SPEAKER_04] Yeah, timeframe. I want to discuss that as well. But, you know, you mentioned Peter. And what's kind of funny, Andrew, is – I mean, look, I spoke to Jack Schwager as well. And a common theme amongst the Wizards is there's no real singular approach to success. So Peter Brandt, like you said, is a technician. But then the guest I had before that hates technicals. And so everybody's got their own way.

[00:23:43] [SPEAKER_04] And then another fascinating thing is, you know, the first market wizard said you can't combine two of the best traders and get essentially a successful good trader out of combining two. Like you almost have to find a methodology that's congruent with your personality. Was that your experience as well?

[00:24:00] [SPEAKER_02] Well, there's no question that that comes into it. I think your personality does play a role in it. I do think there are some common themes that flow through it. I mean, if you've got poor discipline and poor risk management, you're going to – I don't care how good your style may be, you're going to come up against some poor returns. But certainly, you know, one of the best traders I worked with for 15 years, I mean, his timeframe was very short. But he would say that's because I'm just responding to price.

[00:24:28] [SPEAKER_02] But I've seen other people basically trade much more fundamentally. But providing the risk management, which is the sort of bottom-up, as I would call it, risk management in terms of making you stay in the game, because it's okay not to know as well, right? Trading is not something you meant to turn up every day and go, I think this goes up again. Sometimes you just don't know, and you just don't need to do anything.

[00:24:49] [SPEAKER_04] Yeah, I want to discuss timeframe with you since you brought it up. And everybody's on a different timeframe, on a shot clock, as Jeff Holden would say from SMB. So is that something you clearly – you and your traders would clearly define before ever entering the trade? And I'm wondering, though, because we'll get into the pillars. I know pillar number one involves policy. So what if the policy is changing every day?

[00:25:19] [SPEAKER_04] But you have this shot clock. You got this timeframe in mind. Of course, I'm sure you can adjust, right? You can kind of adjust mid-trade that shot clock. Can you walk us through that a little bit with the first pillar?

[00:25:32] [SPEAKER_02] There's two factors there in terms – I'll talk you through the pillars in a second. But in terms of timeframe, the market ultimately will determine your timeframe. But what I'm talking about, for example, is basically if you're a trader that's looking to trade it and you're looking at trading around a non-farm payroll or you're trading through an event, well, you've got to be responsive to that event and trade accordance with that event.

[00:25:57] [SPEAKER_02] And ensuring that whatever you're expecting to get a return at event opposed to the risk of putting on the table is consistent with the timeframe you're looking for. There's no point saying, okay, I want to buy the S&P at 7,000, looking for 10,000, and give yourself a 10-point stop. That's just nonsense. You're never going to make money doing that.

[00:26:18] [SPEAKER_02] You're either looking for – if you're looking for a bigger move for a reason that you can actually understand and it comes into your process, you've got to make sure that's consistent with the risk parameters you put around that timeframe. So that's important in terms of your trading. There's no point looking for longer-term moves with shorter-term thinking. You're going to look for longer-term moves. Make sure you're thinking your process is consistent with being long-term. And equally, if you're looking for shorter-term moves, make sure that's what you're expecting as well. Hmm.

[00:26:48] [SPEAKER_04] That's excellent. I mean for – as far as the 57% of traders that – I'd asked Brant this as well because he had told me – he asked at CBO, Chicago Board Trade, of course, their traders. The professional traders there, he had asked, would you take a trader with a 30% win rate or a 70% win rate? And they overwhelmingly said they would take the 30% consistent trader.

[00:27:17] [SPEAKER_04] And the reason for that is, like you had just discussed, Andrew, is like you know that they're good risk managers. That is the number one theme of all the market wizards. They are above all else risk managers and excellent at that. Ever watch a stock rip and think, I could have nailed that if I had real capital? The truth is, many capable traders never reach their potential. Not due to lack of skill, but lack of scale. Trade the Pool was built to solve exactly that.

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[00:29:35] [SPEAKER_02] They know when to step up. You know, it's like, you know, using an American analogy, you know, baseball bat, you know, you know when to step up. And you can see the ball. I mean, if you trade long enough, like anything in life, you know when you're on, you know when you're off. And if you're seeing it, and you're, as we call it, the pillars, we can walk through what they are. But if you're seeing it, there's no point. Say you've got five risk units, you know, one's your most conservative, five of your largest.

[00:30:04] [SPEAKER_02] And you're seeing it, and you put one unit on, and you're not seeing it, you put one unit on. You're seeing it, putting one unit on, not seeing it, one unit on. You're not going to make money. You're just not going to make any money. When you're seeing it, you've got to use three to five units. And when you're not seeing it, it's got to be in that one unit. And then you've got to risk manage around. You're feeling that, you're saying, geez, I can see it. It doesn't mean you sort of overtrade it. But I'm just saying when you see it, you get your risk to a level that is consistent by ensuring that you're getting good returns,

[00:30:33] [SPEAKER_02] which means while you're only winning 57%, when you're winning, you're winning a lot more than when you're losing, you're losing less.

[00:30:40] [SPEAKER_04] Hmm. Would Tudor allocate a lot of funds to you as well, for instance, based on long-term performance, short-term performance, or maybe you had a high conviction on a trade?

[00:30:51] [SPEAKER_02] Well, yes. And that's sometimes the worst thing you can never do because you get allocated more capital just after you've had a good run. And then you get, you know, and everyone goes through a difficult time. But that's the difficulty of a risk allocator. But, yes, definitely, as you do well, you get more capital and you've got to equally adjust in accordance.

[00:31:14] [SPEAKER_02] Because that's the big secret of trading in terms of when you get into the big seats, there's a big jump to get into Tudor or, you know, any of the large hedge funds globally. But then when you get in there, are you going to get into that sort of elite class where you're managing half? You know, I'd say if you're managing over half a billion up to a billion, that's when you're starting to not only are you an exceptional trader because you're working at an elite firm, you're equally able to manage scale.

[00:31:44] [SPEAKER_02] And in markets, it's difficult. And the more capital you have in markets, the harder it is because liquidity becomes more difficult.

[00:31:52] [SPEAKER_04] Oh, liquidity. Yeah, certainly does. Now, you've discussed that traders cannot remain one-dimensional. You've talked about, you know, needing more than essentially one string on the bow, right? But so talk us through a lot of these traders that are one-dimensional. Where do they go wrong? What is that one dimension like? As in, are they more just focused on fundamentals or just technicals? And should they kind of add – because you've added these pillars.

[00:32:21] [SPEAKER_04] They've certainly originated somewhere. Maybe we can discuss that. Yeah.

[00:32:25] [SPEAKER_02] I mean, there's two parts to that. Certainly – and I'll start with, you know, the one-dimensional because, look, if you're just a technician – and I know Peter's, you know, a seasoned technician, I think he's in his 70s, so he's been doing this for a long time. So, you know, I think he's a bit different. But if you're just a technician, I'd argue you're better off trying to build out a quantitative model and be a system trader because – and just have that sort of process very much quantitative.

[00:32:55] [SPEAKER_02] I've never seen a particularly successful trader if they're one-dimensional. When I mean one-dimensional, that means that they're just technicians. They don't look at yield curves. They don't look at liquidity. Eventually – because markets are multidimensional. You know, markets go through different styles. There'll be markets that are highly volatile. Do you think that you can – sorry to interrupt.

[00:33:18] [SPEAKER_04] I just – I'm curious. Do you think that that can create bias, though, to – as you try to formulate more reasons as to why your trade may work, you become kind of like an analyst in the process that creates more bias on the trade or not?

[00:33:33] [SPEAKER_02] No, I prefer to look at it in the manner that essentially – and don't forget, I'm trying to – I'm generating this information not from my bias. I'm generating this information from what I'm seeing on the market, right, in the market, on the board. So I'll sit here and say, look, our liquidity, which we'll go through shortly on the pillars, is not doing – it's quite tight. There's not a lot of liquidity. Let's just say that, for example. Then I'm seeing your curve that is consistent with what the liquidity is also saying. Then I see some technical patterns that are equally consistent with what it's saying.

[00:34:03] [SPEAKER_02] It just builds the confidence of the trade to look across the different dimensions in terms of how I'm trying to frame that trade and then take that risk. So I'm not basically – if you're just looking from a fundamental perspective and you're not looking at liquidity, for example, I give the example of – I call them acolytes. Anyone who just is an acolyte of crypto, well, guess what? Everyone who owns crypto at $100,000, you don't hear about people anymore. We don't hear about fart coin anymore.

[00:34:32] [SPEAKER_02] We don't hear about those sort of ridiculous coins that are around. They're just – they're slowly just disappearing.

[00:34:38] [SPEAKER_04] Those are dried up. Yeah, dried up.

[00:34:40] [SPEAKER_02] Because it was just – it was a function of the fact that there's a lot of liquidity deployed through 2020, 2021.

[00:34:48] [SPEAKER_04] You bought anything and you were good.

[00:34:50] [SPEAKER_02] You could have bought fart coin and made money. And that's – I mean, it's laughable that people were buying things like fart coin and had a market cap of $2 billion. But it did because the market got absolutely overloaded by trillions and trillions of dollars of liquidity. And that becomes, you know, one-dimensional. Some people are acolytes of gold. And I'm a big fan of gold because the monetary system is vulnerable because of all the way they've tinkered with it since 2008 and all the different policies they've deployed.

[00:35:17] [SPEAKER_02] And that's why I built the pillars because I had a very interesting year in 2020 that basically gave life to macro pillars because of all the unusual policies and – that they deployed through COVID and subsequent to that as well. So it is one of those parts that you've got to be very careful of.

[00:35:39] [SPEAKER_02] So in terms of the pillars, I mean, essentially, you know, my process is very strong technically from the bottom up, you know, in terms of technical analysis. And we've seen lots of charts in terms of how we analyze it. But then we top down and understand the fundamentals. So in 2020, I walked in – in 2019, people may forget there was a bit of a repo crisis. The market was having a bit of a sell-off into 2020. And then obviously January, February 20, there were these rumors about some flu in China.

[00:36:08] [SPEAKER_02] I happened to be short into that. So that was more – you know, the market was already being a little unusual. And then the market obviously had the COVID and the market fell.

[00:36:19] [SPEAKER_04] Why were you short at the time?

[00:36:21] [SPEAKER_02] Well, because of the repo crisis out of 2019, there was some – you know, just basically the setup just wasn't going well. Your curves weren't particularly good. The market got hit 40%, 45%. And I was having an exceptional start to the year. And come March the 20th, 2020, the market was getting absolutely smoked. And then suddenly it just turned on a dime. I mean, all your listeners can look at the chart.

[00:36:49] [SPEAKER_02] You bring up March the 20th, 2020. I'll never forget it. And the Fed bought corporate credit. And then they took rates to zero. And then the global central banks took their rates to zero. Now, I was still trading short and got completely run over. Now, thankfully, I risk managed and still had an okay year, but nowhere near the year I was having. And I sat there scratching my head and said, what on hell? What have I dismissed?

[00:37:16] [SPEAKER_02] So as a consequence of that, you know, if you said to anyone, Kevin, that basically we have COVID and everyone's told to stay home for two years, you'd think the market would go down, right? Or at least stay flat to down. Well, the market ripped. It turned into a casino because they deployed so much liquidity. They bought corporate credit. They took rates to zero. Fiscal deficits globally went to negative 15 to 20.

[00:37:40] [SPEAKER_02] And everyone sat home and bought crypto, memcoins, fartcoin, whatever they did, and became traders. So I just sat back and said, okay, we need to sort of understand what we always say is what they do, not what they say. And then we built out the pillars. You know, pillar one, what's the government of the day? What's going on? So pillar one at the moment to me is probably the main one is the Middle East. That's the main big factor and how you manage that. And pillar two is what I call non-traditional liquidity.

[00:38:10] [SPEAKER_02] And that's the quantitative refunding they do every quarter. That's duration. That is fiscal policy. That is all types of non-traditional policies that we plug into our models. So pillar three is just the normal traditional monetary policy. And pillar four and five is dates. You'd be surprised any major date that occurs in the market. The market doesn't. The market forgets it, but the dates don't, including the March of 2020.

[00:38:39] [SPEAKER_02] No market went a point below it. November 1, 23, when Janet Yellen changed the duration. Every quarter, the Treasury in the United States announces how much money they need to borrow and where in the yield curve, what duration they want to borrow. If they borrow shorter, there's more liquidity. If they borrow longer, there's less liquidity. Again, I defy any of your listeners to look at November 1, 2023 and see if you can find any asset that went lower. It didn't.

[00:39:07] [SPEAKER_02] It ripped because they changed the duration. If you're not looking at that stuff, you're going to be missing the picture. And then how you trade it is a matter to you in terms of how you want to go about it. And so we built those pillars out. We've modeled it. We have a dashboard for it. We give that to our clients. So we do the work for you. And it's there and you can access it. And we score it every day and send out notes, et cetera, to keep our clients updated.

[00:39:35] [SPEAKER_02] But that's one of the things that I think the market, if you can't stay on top of that now because there's so much going on in terms of Middle East and non-traditional policies, massive balance sheets, et cetera. And you've got to understand it through the – and we call it through the film.

[00:39:54] [SPEAKER_04] Yeah, that's great insight, Andrew. Thank you so much for sharing all that. I'm sure the traders are loving it. So these dates are very important to you, if you point it out. And how often do you go back – you told the traders, you know, listening, like you've got to know these dates. So did you – you were short before the March date, right? And then did you flip long thereafter?

[00:40:19] [SPEAKER_02] Macro pillars was formative at that point. I mean I got completely run over. I didn't give up a year. That's what got me into the thinking about, okay, I've got to build out these pillars. Because COVID and the fiscal – and the policies that were deployed were transformative in terms of the way the market behaves, without question. And if you didn't transform with it – now, for example, there's an adage I always use. If you don't know how you made the money, you're not going to keep it.

[00:40:50] [SPEAKER_02] And so a lot of people made a lot of money in crypto and they lost it all because they didn't understand why they made it. The only reason crypto went up isn't because it was a whole new payment system. I still haven't spent – been to restaurants and asked to pay in Bitcoin or Ethereum or Fartcoin. And everyone was telling that story back then. The reason it went up is because liquidity went through the roof and everything went up.

[00:41:17] [SPEAKER_02] And understanding why you make it is the reason why you actually can keep it. And so fundamentally, it's very important.

[00:41:24] [SPEAKER_04] Now, you talk about liquidity entering in and everything going up. Now, certainly I want to talk about one of the nontraditional liquidities and that is quantitative easing. Is that right?

[00:41:37] [SPEAKER_02] You're talking more of QRA or QE?

[00:41:41] [SPEAKER_04] QRA. QE, yep. Yep, yep. So for QE, what's the difference between like the Federal Reserve creating these reserves and with asset purchases but also entering in fiscal transfers and essentially every account out there and creating this – the inflation? Is there like a good and bad QE essentially?

[00:42:02] [SPEAKER_02] Well, there was a good QE. All this stuff occurred as a consequence of the global financial crisis and QE1 was imperative, critical. If QE didn't occur, we would have had – QE1 didn't occur. We would have been in a similar circumstance to the Great Depression of 1929. There's no question. QE1 was fundamental. The banking system had fallen over. They lost their way. The housing crisis of the United States blew the whole system up.

[00:42:28] [SPEAKER_02] They had to basically refinance it and they had to put liquidity back in the system. The problem occurred when they started falling in love, the central banks, with themselves and they created QE2, QE3, QE4, COVID, corporate credit, QRA, and I can go on and on and on.

[00:42:48] [SPEAKER_02] And that's why at the moment we're at a very interesting juncture because the new chairman, Kevin Warsh, was highly critical of QE2 and he subsequently resigned from the Federal Reserve in 2011. He has been on the board prior in protesting against the policies that were being deployed. And that's why at the moment the market's struggling with the new sort of sheriff in town because he wants to take us back to a price-finding market as opposed to the Fed holding everyone's hand.

[00:43:17] [SPEAKER_02] And so there is good QE and there's some bad QE. The policies deployed subsequent to that, I would argue, were bad. And social policies that have occurred subsequent, inequality and so forth, unless you have assets, you are poorer. Inflation is the great evil of life. It steals money off people and particularly people less fortunate. And certainly the fiscal policies of 2020 created the inflation.

[00:43:46] [SPEAKER_02] Fiscal meaning governments handing money out. QE is basically reserves where they put banking money, the money in the system. Fiscal, you get a check from the government. QE means they're basically putting banking reserves into the system, which allows banks to lend more money.

[00:44:02] [SPEAKER_04] I see. I see. Okay. All right. So these five then pillars, when they all kind of line up together, is that when you put risk on? Do you allocate more money?

[00:44:12] [SPEAKER_02] Yeah. So how it works for us and our clients is basically, and I know some of this, and I apologize if it gets too technical. I mean, we do the work for you. We have a dashboard. It's all there. It's already plugged in. You can access it. And any of your clients are interested to reach out. You can do a free trial and have a look at it. So basically, the dashboard basically will have the pillars and we will give a recommendation as to what we're doing in our own trading, both for long only and also for active.

[00:44:41] [SPEAKER_02] We active, I'm talking people who trade every day. Long only is people who look after 401ks and just looking after their retirement funds. And then basically, we will build some confidence through the pillars. So for example, last year, we had a very strong conviction in gold because of certain pillar factors. Liquidity was tight. They were going, and technically, it was good. Seasonally, it was. And we had a very strong run in gold.

[00:45:10] [SPEAKER_02] Not often do the pillars align. We actually recently had a very good trade in Asia being short Kospi and short Taiwan because of the pillars. We're very adamant that what was going on in the Middle East was a challenge for the Asian economies because they're very much food and energy dependent countries. And the world was over their skis on AI.

[00:45:38] [SPEAKER_02] And you had that 40% sell off from Kospi because we saw the pillars align. Equally, we were very long agriculture, corn, wheat and soy. Everyone was trying to buy oil because of the Middle East crisis. I didn't want to buy oil because oil was trading at 70%. I don't like trading assets that trade at 70%. Too volatile for me, even though I've done it for a long time. So we looked at corn, wheat and oil because a lot of the phosphate came out of the Middle East as well. So we were very long corn, wheat and soy as the crisis occurred.

[00:46:07] [SPEAKER_02] And we do a lot of ratio work. So we'll be long, a particular asset and short another asset to try and find the strongest and the weakest. But all that comes through the dashboard and our updates every week.

[00:46:18] [SPEAKER_04] Interesting. Okay. So, yeah, I was going to ask about that with the volatility. I know oil has been trading at 70. So you'll risk off. Now, what do you think about hedging, for example? Is that something even looking back at COVID? Should you just reduce risk? Should you hedge some of these positions? What do you think about?

[00:46:38] [SPEAKER_02] Well, it depends on, if you mean in terms of hedging from a long-only perspective, people that are just looking after their retirement funds for their family. Well, certainly what we say is if we think there's too much risk or we don't like the market, we just tell people to de-risk their markets and put more money into cash. As a trader, I mean, look, macro to my heart, I love volatility. But I don't want stupid volatility.

[00:47:06] [SPEAKER_02] I mean, Cosby was up 20% last Friday, but it was down 20% the day before. That's getting silly stuff, right? People getting run over. So I like volatility when it goes up. So I wouldn't use the word hedge. I start trading and I just trade it actively.

[00:47:22] [SPEAKER_04] I see. I see. Now, speaking of volatility, I wanted to ask you about the Move Index. This is one that you consider it being one of the most important, perhaps. Yeah. So tell us why.

[00:47:35] [SPEAKER_02] So the Move Index was, I think, Harry Baseman, I think, was the originator of it. Which, and just for your listeners, the Move Index is basically the volatility of the bond market. It's the sister or the brother of the VIX, which is the volatility of the equity market. Now, the reason why the bond market, everyone looks at the VIX. The VIX, to me, is irrelevant. The VIX follows the Move. The Move doesn't follow the VIX. The Move is the whole system is built by collateral.

[00:48:06] [SPEAKER_02] The whole system is in the banking system. And the volatility that you see, the trades you do, they're all a big fit, driven by the volatility of the bond market. All the policymakers globally, in particular the US, because they're the biggest central bank, the Treasury, their biggest focus is keeping the move calm. Because the collateral in the system is backed by bonds. And people, when they take risks, you have to pull collateral up.

[00:48:32] [SPEAKER_02] When you guys trade on your platforms, you've got to put cash there against your trades. That's called collateral. Banks have to do it. They use Treasury bonds. And if the bond market gets more volatile, if the Move goes up, you've got to put more collateral in, which means the risk you had needs to be taken down. So keeping the Move calm is the most important feature.

[00:48:55] [SPEAKER_04] It's elevated, but it's calmly elevated.

[00:48:59] [SPEAKER_02] Well, that's very well put. Because at the moment, I think it's around 77 or 80. I'm not even sure. I haven't looked at it this morning. I think it's trading around 78. Would you say the rate of change is more important? Absolutely. All our work is done on a rate of change. We compare a rate of change on a yearly basis. The reason I do a yearly basis, because every hedge fund and bank in the world uses what is called a VAR model, a value at risk model.

[00:49:26] [SPEAKER_02] And they look back 265 days, which is 265 trading days of the year. And so all the risk of last year, the comps are a rate of change of yearly. And we do everything on a rate of change. All our models through our quantitative work is on a basis of rate of change driven by that VAR. So you're right. The move index at the moment is trading 78. But this time last year, it was trading in a similar position, I think.

[00:49:50] [SPEAKER_02] So the comparatives are tough for the move at the moment, which means our liquidity at the moment, we think it's relatively tight. It used to be in terms of being better in the last few days, but still relatively tight.

[00:50:05] [SPEAKER_04] So tighter VAR based on that. Now, how should a trader listening, I guess, position size or maybe adjust portfolios when you have a move that's elevated? What's your approach for the portfolio? This is Kevin. We hope you're enjoying this episode so far. If you are, take a second to leave a comment. We read them all and truly care about what you think. And if you haven't yet subscribed to our email list, visit chatwithtraders.com and click subscribe so we can keep you posted on information that matters.

[00:50:35] [SPEAKER_04] Now, back to the chat with our guest.

[00:50:37] [SPEAKER_02] Yeah, look, ultimately, you've got to you've got to volatility adjust your risk. So if the volatility goes up, you're going to be taking less risk because there's going to be more impact as a consequence of the volatility being higher. So you've got to be disciplined around that. Now, in saying that, I mean, it depends. If you're starting out as a trader, then, you know, I just really encourage you just to keep your risk low. But if you're an experienced trader, then basically you volatility adjust all your risks.

[00:51:03] [SPEAKER_02] So if I'm trading, you know, the COSPI, then I trade a lot less than if I'm trading, say, the S&P, which is trading around, I don't know, 16% vol. COSPI, I imagine, last week was trading at 100. You know, for example, I'm looking at the move index now back in March of last year. March of this year, it was 120. When we went through that crazy stuff back in, you know, 23, it was up around 180. So, you know, we're down now at 78.

[00:51:32] [SPEAKER_02] So it's relatively calm at the moment. But to your set, it's calm at an elevated level. But if it's more volatile, you've got to be, as you'll see, all your emotions are going to get higher. You've got to get your book into a state that you can manage those emotions.

[00:51:47] [SPEAKER_04] Yeah, managing the emotions and even into blow-off moves, which you've said, you don't sell blow-off moves. How do you distinguish a move that still needs to be respected from that exhaustion move versus, you know, versus one that's close to failing?

[00:52:04] [SPEAKER_02] Yeah, like I think it's looking at all the factors. Because if markets are, you know, are quite – I mean, the markets at the moment, I mean, to be under no illusions, they're not particularly easy. You know, they are chopping around. I mean, for example, you know, there's so many different crosswinds because of, you know, one, you've got Trump who's the main crosswind. So you've got sort of taped Trump tantrums. You've got the Middle East.

[00:52:31] [SPEAKER_02] You've got the new chairman who's changing the dogma significantly. And you've got all sorts of different crosswinds going on through AI names and CapEx. And everyone's trying to work out it's a productivity miracle. They're spending too much money. So there's a lot of different factors that are at play. You know, I think at the end of the day, you've just got to play what's in front of you. We haven't called for any top at this point. We've seen some mini crashes. I would argue a 45% cellophane Asia is a bit of a crash.

[00:53:00] [SPEAKER_02] I would argue crypto going from 120 to 50 is a crash. I'd argue that silver going from, you know, 100 to 50 is a crash. What we don't do is live through those types of drawdowns. We, you know, there are in parts of the market areas that have already crashed and people will never come back from that.

[00:53:22] [SPEAKER_02] There's that famously in South Korea, you know, the margin debt to ratio was the reason why it crashed because all these young kids were trading all the AI names thinking that they can never go down. Well, famously, you saw that 25-year-old kid blow up last week. And so at the moment, you are seeing crashes within the crash. But at the same time, you also see the S&P 500 at new highs.

[00:53:49] [SPEAKER_04] Yeah, I mean, it's just being over-leveraged, right, to a lot. And especially with the debasement trades where, you know, where traders are trying to get away from the fiat currency and then they go into just over-leveraging. Interesting. Where we saw, you know, at the start of our conversation, we were discussing the day, right, that ultimately on that year, right, in 87, we climbed back up to highs. But if you were over-leveraged that year, you would have gotten crushed, right?

[00:54:18] [SPEAKER_04] So how important is it to not be so leveraged on any particular one idea?

[00:54:23] [SPEAKER_02] You know, if you're ill-disciplined and, you know, if you think your, you know, shit doesn't stink, excuse the French, the market is going to get you eventually. You know, there's the amount of times, you know, I get a phone call from someone who's a mate of mine who's a dentist or a doctor and say, geez, I'm making so much money in crypto. This is ridiculous. And I said, well, just take it. So, no, it's going up higher. I'm going, oh, this is going to end badly. And it did.

[00:54:51] [SPEAKER_02] Because these people get drawn into the new thing, the next brave thing. Now, AI at the moment, no one knows how that's going to play out. But I've lived through, I lived through, well, I was too young for the 87 to understand, really. I was just out of college and so forth. But I lived through, obviously, the NASDAQ. And I lived through, I was working at Tudor through the financial crisis. There was a major crisis in Europe in 2012. And clearly, we all sort of seen 220. So, I've seen four major events.

[00:55:17] [SPEAKER_02] And I've seen people body bagged through all those events if they weren't managing their risk and they had too much leverage.

[00:55:24] [SPEAKER_04] Do you think it's bad news for a trader to start their career trajectory with a big win like that, such as crypto? Because ultimately, well, I mean, maybe you hear the stories about traders. They make it all, but they lose it because it sets kind of the precedent, right? The expectation in which you become more results-oriented, right, versus process-oriented, focusing on the process of the trades.

[00:55:49] [SPEAKER_02] 100% correct. And, look, you know, as a trader, look, it's a difficult game. It's romanticized. But, you know, if you really want to be good at this, you've got to be able to be across three major time zones, Asia, Europe, US. I'd argue if you really want to be professional at it, you've got to be looking at how that market opens at every juncture for five days a week. So I call it for 15, there's three sessions in Asia.

[00:56:17] [SPEAKER_02] There's an Asian session on Monday, there's a European session on Monday, and there's a US session on Monday. Times that by four, there's 15 sessions. If you don't cross each session and the transfer of each session, I would argue you're not going to make a lot of money. Now, you might be a short-term trader just focusing on the US. That's okay. But if you really want to get into the big game and see the big moves across all the geographies and all the asset classes, you've got to understand all those regions.

[00:56:44] [SPEAKER_02] It's romanticised, but at the same time, you've got to really understand that you've got to be across it. Yes, if you have a big win at the start, it's probably going to mean you're going to get spanked at some point and learn a lesson. That doesn't mean you give up. It just means, okay, what's the lesson? Make sure as well as traders, make sure you keep a journal every day. You don't have to write every trade down, but make sure you reflect on how you went yesterday and then take those lessons into tomorrow.

[00:57:13] [SPEAKER_02] Because a journal is very important to reflect on. Because the weekend is when you actually can do a lot of analysis on yourself and how you perform during the week. Because the markets are closed, your emotions are a little less heightened, and as a consequence, you can learn from that. But make sure you keep a journal and then make sure you reflect on that journal every morning and every weekend.

[00:57:36] [SPEAKER_04] Don't romanticise the traders. No. They'll spank you. Some of them might like it.

[00:57:40] [SPEAKER_02] You will get spanked. You may like getting spanked, but spanking is not good. It's not good in the trading sense, my friends. I'll tell you that.

[00:57:47] [SPEAKER_04] Yeah. So, and not romanticising it. You know, let's apply some of these pillars to the independent trader out there. I guess let's narrow it in. What advice, what are some of the important takeaways that they can apply today? Like, for instance, some of the non-traditional liquidity, the QRAs, TGAs. You know, for the traders out there, what do you think, what's one of the more important days? You put a lot of significance on days we need to study. Put those down like you were mentioning in your journal.

[00:58:17] [SPEAKER_04] Go back, review. Because you don't want to miss the next day. You know, because it will, history, they say, doesn't repeat, but likely rhymes, right? And we want to... Yeah.

[00:58:28] [SPEAKER_02] It's interesting you ask the question because there's a couple of very important dates that have actually just occurred in the last few weeks. You know, obviously, the intervention date of the Bank of Japan last week by the Fed in Japan, very important date. And the reason I say you've got to remember these dates, because eventually the market goes back to those dates and it gives you location to reflect on whether you want to get back in the market at those prices or not. Sometimes the scout, sometimes the position. Obviously, with Kevin Walsh, why is he most important? Well, he runs the biggest balance sheet in the world.

[00:58:58] [SPEAKER_02] So you better listen to him and watch him and watch what he does. So his first meeting was on the 17th of June. And obviously, he had a very significant meeting last week on 29th of July. They're two massive dates. If markets are above those dates, it gives me more confidence to be bullish. If they're below those dates, I start questioning whether the market's strong enough to stay higher. So there's sort of, you know, I always look at annual closes. Is the market stronger than last year's close? It's the most important close of the year.

[00:59:28] [SPEAKER_02] Annual closes. Then there's other sub-dates. But I'd argue at the moment there's three dates to focus on. It's the 17th of June, excuse me, the 29th of July. And also last Wednesday, which I think was the 5th of August. And that was the quantitative refunding announcement date when the Treasury Besant announces the duration throughout the year. And that date, and that's a very important date because he kept duration short. And when he keeps duration short, there's more liquidity.

[00:59:57] [SPEAKER_02] So at the moment, keep an eye on those dates. Look what happened on the 29th of July. The market got smoked, never closed under it, never closed under it. I want the market to close under or above it. And then the next date, we got a lighter QE, sorry, a trimmed mean and PCE, and the market ripped. And once it got above the 29th of July, it took off.

[01:00:17] [SPEAKER_04] So let's take that, for example, November 1st, 2023. You brought that up. That was the 10-year Treasury yield had approached 5% amid the concern about inflation. But people were terrified, right, because the government was spending so much. They were assuming a massive flood of Treasury bonds. So what did you take away from that? And did you actually make any trades thereafter based on it?

[01:00:42] [SPEAKER_02] Absolutely. So before November – Janine Yalom was the Treasury Secretary at the time under the Biden administration. The market was getting hosed. Yields are going higher. Any asset, your stock markets were going down into November 1. And bond yields were going higher. It was not good. So up until then, the quantitative refunding quarterly announcement, it wasn't market moving because they kept their composition.

[01:01:09] [SPEAKER_02] They would borrow about 80% in coupons, long end, and they would borrow about 20% in bills, short end. And then on November 1st, they announced we're going to do less borrowing in the long end and do more borrowing in the short end, which means they're putting more money in the system. November 1, 23, the market bottomed. And off we went. Yields went down and stock markets ripped, like ripped, as you can see from your charts.

[01:01:36] [SPEAKER_02] And that's because there was a fundamental reason for it. And that's our pillar too because that's the non-traditional liquidity. And so we capture all that. And so it's November 23, markets weren't used to it, so we've got a bigger effect from it. But if you go and look at any quarterly funding date, it is a very pivotal date to keep an eye on, both to be bullish or potentially bearish, depending if the market can sustain the price and sustain the date.

[01:02:02] [SPEAKER_04] And ultimately, it becomes a good stop area for you to enhance where you go with.

[01:02:07] [SPEAKER_02] It gives you location. It gives you an area. It gives you your technical analysis pillar, pillar five and pillar four, whether you're right or wrong. So at the moment, everyone's still trying to work out Chairman Walsh at the moment. Now, at the moment for me, while markets stay above the 29th of July, now 29th of July is not that close anymore, but if you acted upon being above the 29th of July, I think platinum went above the 29th of July, went up 7%.

[01:02:34] [SPEAKER_02] Why am I worried about Bitcoin and Ethereum? Bitcoin can't even get above the 17th of June. Forget about the 29th of July. That thing's just a dog because price is not confirming it. So it's one of those things that Paul Jones used to always say, that dog don't hunt, which means stop trying to find an asset. To catch up. If it's not behaving, there's a reason behind it why it's not behaving. So dates are very important.

[01:03:01] [SPEAKER_02] It's just one component of the pillars, but it gives you location and gives you more confidence. Yeah.

[01:03:07] [SPEAKER_04] Yeah. Number four, the price response. And then, of course, executing on that. So as you're coming into these QRA dates, what do you typically do to the portfolio as you're approaching that date?

[01:03:20] [SPEAKER_02] It's a good question because actually we've found leading into QRAs, the market tends to be weak. And we don't guess that. We just look at the evidence from the price, the data. And interestingly, we did get quite a big flush the last two weeks. And obviously we had a rally from the FOMC last week into QRA. But prior to that, Asian stock markets were down 20%, 30%, 40% in Kospi's case. So there were big events in this last week.

[01:03:49] [SPEAKER_02] And don't be under any illusion that it wasn't planned. Treasury Secretary Besant and Chairman Walsh both worked together for Stanley Druckenmiller. And obviously what's going on in Japan. So we saw evidence the market would sell off. And then we would wait to see what the QRA does. He kept the coupons and the issuance the same. And at the moment, well, we're actually not too sure because the market's getting back under it. So there's no great confirmation.

[01:04:18] [SPEAKER_02] And obviously tonight's going to be a huge event because Chairman Walsh said, I'm now data dependent. So non-farm's out tonight, which also keep an eye on wages because if wages are hot, that's inflationary. And next Wednesday, you've got CPI. And if those things can confirm due to the data and the dates, then I'll trade accordingly to that. Incredible. Incredible.

[01:04:41] [SPEAKER_04] So, you know, Andrew, you've had an incredible career and journey with the hedge fund you've created and then your time at Tudor.

[01:04:50] [SPEAKER_04] Do you have, I'm curious, any memorable stories or instances looking back that kind of stand apart to you where you maybe learned something important or maybe a hard lesson you had to apply some risk parameters to a trader or fire somebody or lay down the law? I mean, anything?

[01:05:12] [SPEAKER_02] Well, definitely not all of the above. I think my observation is that, I mean, I think, you know, this is, I'm sure Peter made this yesterday. I don't know Peter, by the way, but I do respect his work a lot. And he's a bit older than I am. But, you know, I'm 58, so I've been around a bit. I would argue, look, it's a game of patience. There's always another train at the station. Don't think you're going to miss it. You've got to stay. It's a long game.

[01:05:40] [SPEAKER_02] Sometimes, for example, I was fortunate that I was living in Singapore in 2012, 2013. I was working for Nomura. And just by chance, they had a gutful. They being the Bank of Japan and the government. So they came in with a new administration under Abe and they decided to basically really monetize these circumstances. So Dolly went from 80 to 115 in, like, six weeks. Nikkei doubled. And that was a trade.

[01:06:08] [SPEAKER_02] Look, my young nephew, whose five, could have made money in that period, right? So sometimes markets are really... But to be in that seat, you've got to go through the difficult times as well. Sometimes markets are just tough. I'd argue at the moment it's a bit tough. You've just got to stay in it and churn it out and wait it out and just keep evolving. It teaches a lot about yourself. I come back to that emotional construct as we started the conversation.

[01:06:34] [SPEAKER_02] If you get to know yourself, you'll be a better trader because over time... And that's why journals are important, you know, being insightful about, you know, being honest with yourself and reviewing.

[01:06:45] [SPEAKER_04] What did you learn in your discovery? What did you learn about Andrew, you know, from your past and childhood growing up that you had to work on some emotional...

[01:06:56] [SPEAKER_02] Ooh. You need another two weeks of podcasts for this. Oh, no. I think you've just got to really get in terms of understanding how your nervous system operates. You've got to really understand how you get triggered by certain things. You've got to understand if you're not in a good space, just don't be trading work and just work out to what's going on in your life to ensure you're right. Don't think every day is the same because it's just not. Work within yourself in terms of understanding yourself.

[01:07:24] [SPEAKER_02] For me, I think, you know, I mean, I was a good... I wasn't an elite trader at Tudor. I was probably in the top 50%. So I realised, you know, and I had to go away and work on different areas of my trading to get better. I'm a much stronger trader today than I was when I was working for Tudor. If I had my skills today at Tudor, you know, it'd be different. But that's not life. Learning about yourself is really the part that's really the exciting thing. If we all just turned up more the same, well, life would be pretty boring, wouldn't it?

[01:07:52] [SPEAKER_02] I mean, ultimately, it's learning through that path and recognising you can continue to learn. And if you're having a difficult year, just step back, work out why, and then get back in it. Trading's not for everyone as well, right? I mean, it's not for everybody. As I said, don't romanticise it. Be honest with yourself.

[01:08:09] [SPEAKER_04] Yeah. Yeah. I mean, what part of it do you think has become easier and what part never gets easier for you?

[01:08:17] [SPEAKER_02] Well, I think, again, sometimes I think continue to work on, you know, I'm a very strong technician. You know, I can look at a chart. I was trained by an exceptional technician. He was a terrible human being, but he was an exceptional technician. And I tolerated him. Not many people would, but I learned a lot from him. So I worked very hard on looking at yield curves, which didn't come more. I wasn't trained in that. So I work at that side of it, technical side.

[01:08:47] [SPEAKER_02] So every day I'm looking at yield curves, learning more about it, speaking to people that know more about it than I do, be humble about that, and just continue to learn. There's always areas to be better at. I mean, Paul Jones and Stan Druckenmiller are great friends, but they are polar opposites in terms of how they trade. And Jones is in awe of Stan Lee Druckenmiller's ability to strap on risk, where Paul's much more nimble.

[01:09:15] [SPEAKER_02] So it's just different and making sure you know yourself and you choose a style that's compatible with your emotional construct. I think the critical difference is that sometimes you think, you know, you think you'll never lose money ever again. And then that's when you're about to go into drawdown. And sometimes when you're not making money, you think you'll never make money again. And that's because the market goes through different styles and shifts. That's why the market, sometimes they go into trends. Sometimes they chop. Sometimes there's better opportunities than others.

[01:09:45] [SPEAKER_02] Some years it's good to break even. And some years you have stellar years. I think the fact is you've just got to be really conscious and aware of that. This is not an annuity game. This is not, you know, this is a game where basically it's essentially a game of zeros. You're competing against computers, algorithms, and other traders globally. I know you're looking at a screen behind those screens of people making decisions. And so ultimately you're competing in a very, very competitive landscape.

[01:10:14] [SPEAKER_04] Yeah, you know, what should remain constant in a trader's process regardless of how the market's changed? Is it adaptability? Because like you just mentioned, I mean, the market is constantly changing, but traders don't want to change.

[01:10:29] [SPEAKER_02] Well, I mean, if you're trading like you were, if you traded for price signals subsequent to 2008, 2009, you had a very difficult time because they changed liquidity profiles.

[01:10:43] [SPEAKER_02] The example I gave you regarding March 2020, if you had remained while the world's ending because of COVID, you got killed because you didn't understand, you didn't adapt to the different non-traditional policies they deployed. Hence why we built the pillars to keep ourselves honest in terms of just looking at the raw data that's coming through. And that's what we capture in our dashboard. So you've got to be adaptable.

[01:11:10] [SPEAKER_02] What you can never not accept is poor risk management. If you have poor risk management, you will not be at the table for too long.

[01:11:19] [SPEAKER_04] I've heard this from the best, Andrew, risk management. And here you are from Tudor saying the same thing.

[01:11:26] [SPEAKER_02] I mean, people who were acolytes of Bitcoin or crypto and that sort of stuff, good on them. And, you know, they captured maybe some amazing moves from 20,000 to 120. Most of those people lost it all and they don't even talk about it anymore. It is a profession. I mean, as an investor, again, I keep coming back to that emotional construct, understanding yourself. But certainly what is not forgivable and that what certainly Paul Jones wouldn't forgive. I mean, we had strict drawdowns at Tudor.

[01:11:55] [SPEAKER_02] I mean, you get you lose your job if you go through that.

[01:11:58] [SPEAKER_04] What was the conversation like? You're fired or how would they go?

[01:12:02] [SPEAKER_02] Well, it's just an accepted part of when you join. If you hit that number, you're gone. And certainly that's how you manage it. And those numbers were set in your contract and there's no tolerance. I mean, certainly the other factor at those places is if you weren't using your capital, you could lose your job. So you can't just sit there and look at the screen and not deploy the capital. You've got to be able to deploy it.

[01:12:28] [SPEAKER_02] And some people aren't made to take risks because, again, their nervous system won't tolerate it.

[01:12:33] [SPEAKER_04] What do you think is something that people misunderstand about managing a large amount of capital at a place like Tudor?

[01:12:41] [SPEAKER_02] I mean, what they don't understand is how hard it is. I mean, the guys are managing really big money. I'm in awe of. I managed up to about $450 million. That was a lot. But I know guys well into the billions with a team of two. Again, it comes back to romanticizing. It sounds amazing. It looks amazing on TV. You know, you're up, you know, you're sleep deprived.

[01:13:10] [SPEAKER_02] You know, you put pressure back on your life because, you know, it's a 24-7, five-day job. I'd argue longer than that because we spend at least half a day on the weekend preparing for the next week. But in saying that, you know, you've got to make sure, you know, you rest.

[01:13:33] [SPEAKER_02] I mean, I have very strict times where I sit in front of the, you know, unless the market's really needing me to be there every day, every second. But, you know, I implore anyone that was working with us, you know, get out. I mean, I do sessions in front of the computer. I get up and watch the open, so I watch the close in New York, which is obviously around 6 a.m. in Sydney. And then I've worked probably for three or four hours and I go to the gym and I go to the sauna and then I come back and watch the Asian open.

[01:14:03] [SPEAKER_02] And then I'd step away for another two or three hours, walk the dog and watch the European open. Then I'd step away. So you can't sit in front of the screen and sweat over it all day. You'll go crazy. You've got to make sure you're looking after your mental health through that as well.

[01:14:17] [SPEAKER_04] Sweat in the sauna instead of in front of the screen. I mean, look, you know what's funny? It's kind of ironic, Andrew, is that traders get into this business wanting freedom, but it almost comes with its own ball and chain, doesn't it?

[01:14:34] [SPEAKER_02] Look, it happens through all the cycles. I saw it in 1999 through the tech boom. People giving up their professions to trade. They blow up and they go back and they go back being a lawyer. I saw it in 2007. The people were going, oh, my God, you know, I'm going to trade and they blow up and they go away. I saw it through the COVID crisis. I saw it through crypto. No, you don't.

[01:15:00] [SPEAKER_02] I mean, you've got to be passionate about it like anything you love, but you've got to be smart about it too because you don't want this to consume your life. You don't want to go home and kick the cat and be bad to your wife or your girlfriend. That's no way to live. You've got to find that balance. And, again, if it's not working for you, then it's okay. There's other things to do.

[01:15:22] [SPEAKER_04] Yeah. I find it fascinating. You know, you've developed over your career. You've developed these pillars now. You've become more than one-dimensional, and that's one thing you emphasize is just traders. Don't be one-dimensional. What's a practical step for the trader listening right now that they can take to get out of that dimension of one?

[01:15:42] [SPEAKER_02] Yeah, I think, I mean, you know, it's not unusual for, you know, if I look at Paul Jones, what's he really good at? I mean, he's exceptional at changing his mind. He can go from wrong to short like that. Now, that's hard to do, easy to say, hard to do because a lot of people get very emotional and don't get emotional, but markets are very emotional. So I think it's just, you know, really understanding where your real strengths are and then working on your weaknesses.

[01:16:09] [SPEAKER_02] If you're really strong at price, you know, understanding how the board works, but you're not so good at technicals, you've got to go and work on your technicals. I, you know, I'm very strong technically, and I understand, you know, we've built a dashboard to understand liquidity. I think it's, you know, one of the best out there. But, you know, my yield curve analysis isn't, it's good, but it's not elite, so I work very hard on that. I mean, really, it's about understanding price. It's about risk management through your technical.

[01:16:36] [SPEAKER_02] It's about understanding why the markets are moving, and markets move on liquidity. Go and find a good source of understanding what liquidity is. Understand your time frame. You know, make sure you don't get long-term caught up with short-term, and just keep evolving. Make sure you're working with a journal. Your journal must be your gospel, and that's how you learn.

[01:16:57] [SPEAKER_04] Incredible. Well, Andrew, this has been a great episode. I mean, last word over to you, just a piece of advice for maybe the trader that's just starting out their journey. What do you have for them?

[01:17:08] [SPEAKER_02] Well, I'd be excited about it, but just take your time. I mean, there's always another train at the station. Build out a process. It takes time. I mean, you know, I've done this for a long time, and, you know, I'm a much stronger trader today at 58 than I was at Tudor. And that, you know, I've had drawdown years. I've had years where I've gone, I don't understand what's going on. And maybe that's because things aren't going so well in my life at the time, or a mixture of all the above.

[01:17:35] [SPEAKER_02] And then just step through it, just build out your process. But please, if you're starting, risk management is the most fundamental path to staying in this game. Excellent.

[01:17:46] [SPEAKER_04] Now, Andrew, where can the traders find you if they want to keep up with you?

[01:17:50] [SPEAKER_02] Yeah, Macro Pillars is us. It's info at macropillars.com. You can reach out. You can get a free trial to the dashboard. I'm sure you can leave it on the notes. We'll send the stuff through to you as well. We have a free trial. We send out a long-form note on a weekend. And then we do a 30-minute call on a Monday. And then we do updates throughout the week. And then we have the dashboard that you can access at any time, looking at liquidity, looking at the dates. It's all there for you as part of the product.

[01:18:20] [SPEAKER_04] Incredible. Hey, I've learned a lot. Traders, if you did, let us know your thoughts in the comments below. Incredible journey. And maybe it's just beginning, Andrew. You got another 58 years ahead of you.

[01:18:33] [SPEAKER_02] Well, I mean, that's part of it, right? Because I still think this market is going to go through some incredible event. God knows when it happens. So I want to be around for that. And hopefully that's the last time I need to. But that's been really a pleasure being invited, Kevin. I appreciate the opportunity and wish you the best.

[01:18:48] [SPEAKER_04] Yeah, love connecting. Yeah, we'll keep in touch. And traders, thank you for watching. Hit the like, subscribe button. And we will see you guys next time.

[01:18:56] [SPEAKER_03] You've reached the end of this episode of Chat with Traders. But rest assured, there are more episodes loaded with real market insight and zero hype on the way soon. So to stay updated with each great new release, subscribe to the podcast. And we'd love it if you'd leave a rating and review. We'll catch you next time on Chat with Traders.

[01:20:20] [SPEAKER_01] We'll see you next time. We'll see you next time.