Quant Phenom See Challenging Period For U.S. Equities | Aahan Menon

I am joined today by Aan Menon of Prometheus Macro. He is a quant quant

Prometheus Macro. He is a quant quant and trusted by some of the biggest and most sophisticated hedge funds around the world. Previous times I have

the world. Previous times I have interviewed Ahan on monetary matters. He

struck a bullish tone much more bullish on risk and on stocks over bonds. I am

getting a sense that maybe now his positioning and his models might be a little bit different. So I'm really I want to know why. What's going on?

Alahan, welcome to welcome to monetary matters. What is your current

matters. What is your current positioning across your various model portfolios for for both your institutional hedge fund clients as well as for clients of who subscribe to your

research on Substack?

What is your positioning broadly and what is indicated by it? Why this tone and risk off?

>> Well, great to be back be back on Jack coming out the gate hot there. There's

there's a lot to cover. Maybe maybe

let's start with kind of the the big picture backdrop coming from our fastest moving programs which is our Prometheus multist strategy program. For those who don't follow every move of Prometheus,

Prometheus multi strategy is basically our primary offering to institutional investors that tries to capture the fastest moving alphas we can find. It

trades 49 different global markets uh trading equities, bonds and commodities across the globe. What we're seeing in those programs is basically a meaningful

shift down in risk. Until very recently, the programs were essentially long what was popularly called the debasement trade, right? So basically long all

trade, right? So basically long all assets, close your eyes, everything go up. Much more recently, probably over

up. Much more recently, probably over the last 3 weeks or so, uh we've started to become a lot more neutral on equity risk and we're also starting to become a lot more neutral and potentially

negative on commodity risk. What's

really driving that is basically increasing kind of concern around the pricing that's in US equity markets and the potential frothiness uh relative to

the likely path of the economy. So

basically we've gone from a position of max bullish all assets to something where we're looking for playing for alpha differentials between different assets. So you can think of much more

assets. So you can think of much more market neutral exposures. So we're

playing for cyclicals versus defensives things like that. we're playing for um you know relative value opportunities in bond markets and so that that's basically the broad synthesis of the

changes that have happened. So across

your portfolios you're getting less bullish on stocks, less bullish on commodities and that's for your your multi strategy hedge fund clients. Also

for Substack and by the way monetary matters listeners can get a 20% discount to Prometheus macro on Substack until early December. So folks should click

early December. So folks should click the link to learn more about that. Aan,

you mentioned the economy. What are the indicators that are being picked up about the economy that are going riskoff?

>> We're at a really interesting and slightly concerning place with the economy. Now I think there are two

economy. Now I think there are two levels. So there's the first the the

levels. So there's the first the the underlying economic dynamic and then there's the pricing of equities relative to that dynamic. So I'm going to try and break those into two sections and talk about each. If I lose my thread, help me

about each. If I lose my thread, help me Jack. But basically what we're seeing

Jack. But basically what we're seeing today is a really really big divergence between what's happening with GDP and spending versus what's happening with the underlying labor market. So I think

we touched on this a little bit during our last interview. But we think that there is a pretty meaningful drag on the labor market coming from immigration

policy today. that drag on the labor

policy today. that drag on the labor market is resulting in meaningfully slower rates of employment growth which we're starting to see both in the NFP

and the the broader employment numbers.

While that's happening, we also have a really, really strong surge in AI capex spending, which we talked about in our last interview, which is flowing through extremely strongly to GDP,

alongside a pretty uneven distribution of income, which basically results in the top, let's say, 25% of income

households spending contributing to almost, you know, 70% of total consumption spending. between that that

consumption spending. between that that concentrated that concentrated consumption spending and the AI capex, you basically have uh GDP numbers that are pretty, you know, pretty strong and

actually accelerating relative to an employment dynamic which is actually by some measures even turning negative.

That type of situation is pretty inconsistent with almost anything we've seen in history. And so the I think when we take a step back and kind of try to

assess whether that divergence can continue, it's pretty unlikely because at the end of the day, labor markets are the center of the universe when it comes to macro. And so things tend to mean

to macro. And so things tend to mean revert to to the trend of the labor market. And so I think that a lot of

market. And so I think that a lot of what's happening in in terms of GDP growth today is actually going to mean revert downwards towards the underlying employment trend. as a result, you

employment trend. as a result, you probably have lower GDP growth, right?

And so that's that's the underlying divergence. And there's there's a lot of

divergence. And there's there's a lot of nuance about like the the what's actually driving that labor market weakness, and we can talk about that later, but that's basically the the

economic divergence on why do you think it can't continue? So the economy XAI formerly known as the economy is not very strong at all. But this money being

pumped into AI and particular data center capital expenditure on semiconductors, data centers, everything is so big that the GDP number is looking very strong. Third quarter real GDP from

very strong. Third quarter real GDP from Atlanta Fed over 4%. I mean these are just crazy numbers. Why can't that continue? What's going to prevent us

continue? What's going to prevent us from in 2026 I'm talking to you and it's saying oh my god re spending from the middle class is down year-over-year and yet Nvidia people just spent $300

billion on Nvidia and G you know nominal GDP is still looking super strong like what's preventing that why why can't this go on not forever but at least for you know the near future >> I think it boils down to the the

circularity so you know does the economy is a circular flow right like economics 101 you learned that the economic that the economy is a circular flow and what that basically just means is that for all of this AI capex, you eventually

have to have some amount of consumer spending down the line. And so if you actually start to have a meaningfully a meaningfully slow or perhaps even contractionary consumer spending

outlook, what you basically have is you have an economic tanker ship starting to sink. And so what what that what that

sink. And so what what that what that does is when you know consumer spending broadly begins to come down a lot, consumer incomes also begin to come down a lot and as a result it ends up being

reflexive. So most recessionary

reflexive. So most recessionary circumstances or you know down grow you know downwards growth trajectories tend to be self-reinforcing because labor is the center of everything and so all

transactions both on the income side and the spending side happen through labor and I think the the simple intuition maybe to put this in a more straightforward way the capex at some point has to turn into consumption but

if people aren't employed and they don't have wages coming in you're not going to be able to transition from investment into consumption and that's that's the concern when you know the the more

medium-term kind of concern when it comes to capex where the only way right now we can continue on this really really strong pace of economic growth is

if AI capex just continues at the current pace right it just continues and potentially accelerates now I'm not an AI capex expert in that way so maybe we could have an extension of it by a

quarter or maybe two quarters or something like that but the idea that AI capex can become the whole economy and continue to fuel the whole economy doesn't make sense because that AI capex

needs to be financed by something right so initially AI capex has been basically funded by excess cash on balance sheets but now it's begun to transition into debt and so as we start to move forward

they're going to be very real constraints on whether AI capex can continue at its current pace and so if it doesn't actually transition into consumer spending so recomposing from investment into consumption you're just

going to have a tough time sustaining this kind of growth And is that aan the human analyst going by that that reasoning or is is your

model picking up on a certain lack of sustainability in in the growth of this very concentrated AI sector.

>> So a little bit of both, right? What the

way we try to look at things is we try to come up with estimates for what the real economy can provide in terms of earnings and then compare those

estimates to what current earnings expectations growth is showing right and today what we see at the S&P 500 level is not like a huge like mispricing of

earnings expectations but we have begun to see that you know earnings expectations are probably a little bit rich to what you know the economy can actually deliver. And so it's coming

actually deliver. And so it's coming from our models, but the long form content is my translation of the models.

You have this divergence between spending and labor. That's, you know, that's something that's probably unsustainable over a long period of time. And on the flip side, you

time. And on the flip side, you basically also have equity markets which are really now starting to price really, really lopsided but strong earnings

expectations growth. And so that's

expectations growth. And so that's resulting in a little bit of mispricing.

And we think that that's something to be much more cautious about for and and you can see that kind of in in the fact that almost all of earnings growth today is concentrated in tech and tech adjacent

companies, right? And if you look at

companies, right? And if you look at things that are more classically oriented towards what you called what used to be the economy, things like industrials, real estate, even

financials to a certain extent, their earnings growth is much more tepid, right? And so when we look at those kind

right? And so when we look at those kind of th those divergences, we think that hey like you're getting to a point where the pricing is a little bit extreme and favors only this sector and it's all

being driven by this AI capex number.

So, it's a time to probably be a lot more cautious on equities.

>> And to what degree is your analysis of all the data capturing a slowdown? And

to what degree does that support bond markets, which I should note, you've been bearish on bond markets since I, you know, we first did our first interview probably in 2023 and now it seems you're a little more constructive on them.

>> Yeah, I mean bond markets. So, I think I think I've been on a few times to tell you how bonds are the worst. Bonds are

the worst is a catchphrase I have now retired.

the they're not the worst, but at the same time, the challenge in bond markets continues to be the fact that like bond markets at every single interval seem to price in expectations of interest rate

cuts and really really significant ones.

And for you to generate a lot of bond alpha on the long side, you have to exceed those interest rate cut expectations in the realized path. So if

you're currently pricing three interest rate cuts or four interest rate cuts for you to make bond alpha, you have to move from three interest rate cuts being priced at like eight. That's a lot of

bond alpha. We don't see today as an

bond alpha. We don't see today as an environment where you know we're going to get that type of outcome. That type

of outcome is going to happen if we go into a recessionary circumstance. So I

think bonds are not something that you necessarily want to short now, but they're also not necessarily something you want to get levered long. They're

much more likely to be much more rangebound. And so what that what it

rangebound. And so what that what it really boils down to is not that there's a different outlook for bonds than there is for stocks. They're just priced differently, right? So bonds have a much

differently, right? So bonds have a much more moderate kind of growth outcome priced into them. But equities because of the way that the index composition is

made have a much more exuberant kind of growth expectation built into them. And

so as a result, like I wouldn't go out and short bonds, but at the same time, you know, you might want to start to consider having small allocation. That

that's a little bit more of a toss-up.

>> You you note in your research that the business cycle is still expanding. Tell

us about that and how that accords with so far the analysis you shared so far.

>> Look, at the end of the day, the business cycle is really about aggregate corporate profitability, right? And when

we look at the aggregate corporate profitability regard you know we when we're looking at aggregates we have to disc we have to discard all these kind of distributional issues of oh it's only in tech oh it's only in these few

sectors or whatever a business cycle is really really defined by what's happening with corporate profits.

Corporate profits is one of the best indicators to kind of understand what's happening in the business cycle. And

then you based on what's happening with corporate profits, you tend to have spillovers in other directions, right?

And so the business cycle is expanding because at the end of the day, the majority of companies that make up a very large part of the economy today are still expanding. They have a lot of

still expanding. They have a lot of investment. We still have consumption

investment. We still have consumption going. So, we are in an expansion, but

going. So, we are in an expansion, but it's increasingly becoming a lopsided.

It's becoming a lopsided expansion to the extent where it's starting to become a little too extreme in its lopsided nature. Now, how does that lopsided

nature. Now, how does that lopsided nature figure itself out? Does it figure itself out by, you know, AI capex slowing down a little bit and consumption maybe moderating a little

bit and then, okay, we're back to a more normal kind of economic dynamic. That's

possible. Does it happen from consumption, you know, falling off a cliff and then AI capex being dragged down? That's also a possibility. But the

down? That's also a possibility. But the

I think the main thing that we're trying to capture is that yes, we are in a business cycle expansion. But what's

increasingly one that's lopsided and that creates risks to its continuity. So

far, Ahan, and you know, on this on financial programs and on other of my interviews, kind of what's implied, there's often an assumption that if you can predict the business cycle, you're

going to make money in markets that oh, if you know there's an econom there's going to be a recession, you should go underweight stocks, maybe short stocks and be overweight bonds, buy bonds, buy

calls on you, longdated Treasury bonds.

you've done work showing that this actually isn't true and very surprising to me. But what what did you find and

to me. But what what did you find and why is it the case that if you can if I if I know that there's going to be econ recession in 2026 I think I could make

money right now why why couldn't I >> there's a lot to that um I think I I think that it's intuitively we like the idea that oh we if we have a long-term

economic view we can translate that economic view into positions and those positions you know if our economic views are right should pay off but what we

find empirically is that long-term economic views tend to have negligible if not negative alpha and the reason is

because you have to manage the path dependency of the asset right like you you might get to your long-term forecast so let's say that you know the S&P 500

you have a forecast of you know 8,000 right over the next year you might get to that forecast but for you to make it to that forecast you have to weather everything the S&P 500 gives you from

now until then. And so you could potentially go through an 80% draw down and then you know have a 200% rise or you could have a situation where you

know the S&P moves up in a slow stable kind of fashion. There's a whole range of expected outcomes and the the value of professional money management is

really in being able to manage the path to getting to your forecast. your

forecast itself is not a very high edge thing. And so, you know, I I think we've

thing. And so, you know, I I think we've shared some slides with you guys kind of breaking down how even if you knew the price of the asset you're trading, one

year forward, you wouldn't be able to generate much better riskadjusted returns than just holding the asset. So

there's a reason that professional money managers come to work every single day rather than just making forecasts once a year and then holding those forecasts for the rest of the year. It's because

to taking an asset for given expected return and reducing its risk is something that requires a lot of skill and requires a lot of adjustment on a

very regular basis. Just forecasting

stuff doesn't yield much alpha. So this

is a chart you have showing that even with a perfect long-term directional view on the S&P 500, you would not beat the benchmark. So just explain how is

the benchmark. So just explain how is this possible that if I know that the S&P is going to be a certain price a year from now, how is it possible that it wouldn't outperform?

Because the thing is most investors whether you're rebalancing say let's say whether you're trading every single day every single week or every single month you have to make it through the next day

next week and next month to get to your forecast. So you might be right that you

forecast. So you might be right that you know from from over the next year that the price is higher but the thing is that you still the thing that you're

most directly trading is what's right in front of you. And if you don't get that right, you're going to lose money. So, I

could be right that, you know, the S&P 500 is going to be high over the next year, but if I don't get what's going to happen over the next month right, I'm still going to lose money over the next

month. And so, the it's it's about

month. And so, the it's it's about managing the path to getting to your forecast. It's not about just having a

forecast. It's not about just having a forecast, right? I think that it it's a

forecast, right? I think that it it's a very kind of non-intuitive kind of thing to think about that, oh, if I knew the price a year forward, I think the

easiest way to capture it is just that there is no way for you to just trade one-year chunks of the S&P 500.

And so, as a result, yeah, you might get that right, but that's not how markets work. That's not how your your your P&L

work. That's not how your your your P&L performance is going to work. So unless

you say that every year in Jan 1 I make a forecast of where we're going to be by next year and then I close my eyes and I don't do anything, you're unlikely to basically have any good results doing

that type of approach. And that's

because the price action happens in the short term and this year is an example that you know if you started off this

year with a bullish outlook which you you now know is correct because the S&P is higher you know as as of you know Q4 that that would have had you be one way

but the the positioning on liberation day could have screwed you especially if you were running leverage positions because you had down 5% down four or 5% days there. That's what you're saying.

days there. That's what you're saying.

>> Exactly. So that that's that's a perfect example. Right. The end result at the

example. Right. The end result at the end of this year is stocks up bigly.

Right now let's say that I'm a long-term forecaster and I forecasted that stocks are going to be up a lot. And I said, you know, I have such high confidence I'm going to 2x level my position.

By liberation day, you could have been down depending on how you express the trade close to 40%.

Now the question is at that point what what is what is the most likely decision that you make? You'll actually

end up cutting your you'll end you'll end up cutting because most people don't actually want to go through a 40% draw down. And so I think the what what's

down. And so I think the what what's super important to recognize is what a professional money manager would have done is he would have done the forecasting thing. Okay, put pretty low

forecasting thing. Okay, put pretty low weight on his one-year forecast anyway.

Like I have the good fortune to work with some really sophisticated investors. They all have long-term

investors. They all have long-term outlooks and stuff, but they put such little weight on that long-term outlook.

You would you would be astonished, but what a professional money manager would have done is he would have had that forecast and said, "Hey, V is picking up locally, I don't think that I'm on the

right side of this trade." So, what you would have done is you would have reduced your position as you went into this event. And what you would have done

this event. And what you would have done is you would have realized a much lower draw down if if at all relative to the S&P 500. And that's where alpha lives.

S&P 500. And that's where alpha lives.

Alpha lives in being able to adjust your positions relative to your expected path. It doesn't live in just making a

path. It doesn't live in just making a call and then putting it on and then closing your eyes and waiting for it all to work out. And I guess that's because buy and hold works, but it's because of

the hold. If you're trading, the outcome

the hold. If you're trading, the outcome of your trading is going to be predicted by the the interval in between the time that you close that position.

>> Yeah.

>> Which is going to be a short-term view if you're trading.

>> Absolutely. So, there's a there's a really important nuance and how those those visuals are are calculated too.

What we do is we exclude the most the one day forward forecast. So, what we say is, hey, like

forecast. So, what we say is, hey, like I I can't give you this edge. I can't I can't let you say that you can perfectly predict tomorrow. But what I'm going to

predict tomorrow. But what I'm going to do is I'm going to say, hey, like you can predict from tomorrow until next year perfectly. Like you are the perfect

year perfectly. Like you are the perfect predictor. You can predict that 100% on

predictor. You can predict that 100% on point.

And it's astonishing to see that if you just shift that window back by one day, the P&L curves improve dramatically. And

what is that? All that's telling you is that the most important thing that you need to be able to predict is the one day forward return.

If you can find somebody that does that, please let me know.

But but that's what most most professional shops are trying to do.

You're trying to figure out a one week, one day, you know, in very very in cases of very very large money, one month, you know, because they have such large transaction costs and it's really hard to move the ship. They're trying to

predict one month at a maximum. No

professional, very serious professional investor that at least macro investors and you know, let's say investors that are aiming for one shop ratio and up, right? No investor that's aiming for one

right? No investor that's aiming for one shop ratio and up is trying to predict things over the next 6 months or 12 months or a year. Not in any definable investable way.

>> Okay. And then why does prediction of GDP not lead to that? You note that buy and hold the S&P h you know has a sharp

ratio of 0.54 going back to the 1980s.

If you can perfectly predict real GDP it has a slightly higher sharp 67 but almost all of that was in 2008. So other

than 2008 you're saying predicting the economy one year hence does not improve your returns. Why does that why is that

your returns. Why does that why is that the case?

>> I think it it boils down to the fact that the the pricing right it what what you really need to predict is not what happens to the economy. what you need to predict is the changes in pricing of the

asset right like the so all assets have a certain amount of growth expectation priced into them that doesn't necessarily respond to the level of

realized GDP right the 2008 was a unique circumstance in that you know there was very little expectations of just such a precipitous fall in economic activity at

least priced into asset markets and so as a result you basically had a situation where realized GDP fell.

Nobody was expecting it. Boom. You know,

if you were calling that, you just absolutely crushed it. When it comes to, you know, any other any other period, you basically

economic growth is generally up, which means that you're generally long assets.

Recessions are few and far between. And

the thing is that like we were talking about predicting the one-year forward return, right? or you know having a view

return, right? or you know having a view for one year forward it doesn't account for the path to get there. So let's say that I have a recession view and that recession view is that one year from now

we're going to have a recession.

Shorting equities from now until that recession period is not necessarily a good idea. It's probably not going to be

good idea. It's probably not going to be good for your health. The the time when that that that bet is going to pay off is when markets begin to realize that there's a recession and begin to price

that very quickly. And so being able to time those views is really what matters a lot. So just looking at the direction

a lot. So just looking at the direction of GDP and trying to say I'm going to go long assets or short assets based on the direction of GDP. It's maybe something

that you know you would think makes sense and is you know I would say that that's like kind of like an entry level idea almost but when you actually get into markets and start trying to actually apply those concept you'll find

it just doesn't work very well. And a

perfect example of that was 20208.

Obviously, you we did have a huge collapse in asset prices as there was a huge growth shock. But the the S&P rallied from January 2007 until the fall of 2007, even though we now know that

the recession started in in the fall of that year, I think actually December of of 2007. So, Aan, you you say that

of 2007. So, Aan, you you say that predicting a lot of long-term predictions are not that valuable and that, you know, GDP now cast is kind of

entry level. talk about some things that

entry level. talk about some things that maybe some people would think that they're predictive of long-term returns, but they're but they're but they're actually not as you've been saying and in particular why a lot of the stuff

that is interesting but does not add a lot of value in terms of you know increasing sharp ratio you've actually made free on the Prometheus subject. So

for the model portfolios that actually outperform on a risk adjusted basis that you know yeah you charge for of course but that you've actually made free what a lot of people consider is very

valuable. So this is something I

valuable. So this is something I actually really believe in to you know to such an extent that we've basically started a campaign at Prometheus. The

the the slogan of that campaign is pay for portfolios not for content. The

content is in air quotes right and the idea there is basically that most not all most long-term strategy and

forecasting is entirely useless for making portfolio decisions. Right? It's

not net positive for the end investor using those things, unless that end investor has a significant amount of skill. So, if somebody's just giving you

skill. So, if somebody's just giving you long-term indications of what their big macro view is, we don't think that that has tangible economic value for a portfolio. And so, we just don't think

portfolio. And so, we just don't think that's something you should pay for. I

don't think if you're an investor, 90% of people that are buying economic research aren't doing it because it's just super interesting and they want to stay on top of every economic trend.

It's because they're trying to add some value to their portfolio. And so I think as an investor, you shouldn't pay for something that doesn't have tangible economic value, right? And so what we're

doing at Prometheus is we're basically making all of those big picture kind of thematic macro research pieces entirely free. All our fundamental economic

free. All our fundamental economic research on what's happening to growth, what's happening to inflation, is liquidity, okay, all of that stuff, which you know I'm sure you anyone

that's seen our stuff will know it's competitive with anything across the global buy side or sell side is entirely 100% free now. And aan so people may be say oh well of course forecasting whether there's going to be a recession

doesn't add alpha and sharp ratio it's about the rate of change and I hear this all the time macro is all about the rate of change you actually show that the buy and hold S&P has a sharp ratio of 0.54

again but that if you have a perfect prediction of the rate of change of GD of real GDP that has a sharp ratio of 0.05% 05% and your long-term returns

going back to 1980 are like 5% or 8% extremely low compared to the the S&P.

Why is that the case?

>> I honestly don't know why people think this rate of change thing is so important, right? Or is it excel? It's

important, right? Or is it excel? It's

it's kind of like become a religion. I

personally think it's kind of what is the the Dunning Kruger effect. Is that

is that it where initially when you start in a field you think that you know you really know a lot and then you know as you go further you realize you don't really know that much. I think there's a lot of that when it comes to this rate

of change stuff like the the rate of change of GDP is useful to know but how that translates into asset prices and

its correlation asset prices is like super suspect and I I I I struggle to actually find a very meaningful reason as to why the you know I think the last

few years are super illustrative right what has the S&P 500 done over the last three years it's gone in a straight line. What has happened to the rate of

line. What has happened to the rate of change of GDP over the last 3 years?

>> It's gone down. The economyy's still been growing quite at a rapid clip, but the rate of growth has gone down.

>> Exactly. Exactly. And so when you look at that, a strategy that basically tries to say, I'm going to imagine if you perfectly predicted the rate of change of GDP and just said, "Oh yeah, we're going to hell in a hand basket." Right?

That would not have worked out well because what matters is how growth expectations are actually priced into the S&P. what are the starting

the S&P. what are the starting expectations? what and then what is the

expectations? what and then what is the realized data relative to those expectations and growth expectations have only gone higher or the growth expectations have only been beat and

that's what drives the S&P 500 not just some random rate of change metric of GDP growth and so I I I I'm not really sure what started this whole thing of

everything is about the rate of change but when we look across the evidence you can do this in you know you can do this for inflation data you can do it for growth data you can do it for corporate profit data you can do it for virtually

anything. The rate of change might be

anything. The rate of change might be useful for you know a couple of things here and there but there's no there's no established evidence that the rate of

change is like the most important thing for any asset and any all the professional investors that I speak to they they know that the rate of change is important like in terms of

contextualizing what the economic data is doing but in terms of saying that oh yeah like my S&P 500 view is just whether the rate of change of growth is going to accelerate to decelerate.

Nobody does that. I

>> think maybe what's implied is that if expectations for growth are what growth is, so if growth is growing at 4% and everyone expects it to be 4%, then growing growth slowing down to 2% is

bearish because that is being priced in.

But if if the market prices and the market expects growth to go down to 1% and then growth goes down from 4% to 3% instead of going from 4% to 1%, that's bullish.

>> Yeah. And and that's the thing, right?

what's priced into markets and beating what's priced into markets is what matters. It's it's what what's what's

matters. It's it's what what's what's the realized economic data trend and beating that realized economic data trend does not matter. And that's so true. You know, I've lived this like

true. You know, I've lived this like you've lived this and so many people have have lived this of everyone in 2020 22 being so bearish because the rate of change was going down. It's like oh

spending isn't at 12% anymore. It's

spending spending growth is only at 9%.

You're telling me the American consumer is their spending growth is only growing by 6% a year. That's a lot. And it

doesn't matter if it's slowing down from 6% from 12%. And again, the base effects were totally screwed with 2021. You

know, I I I'll just make a case. I know

you're saying that predicting the fundamentals doesn't lead to results, but I'll just make a case like, you know, Nvidia's revenue growth in in 2024 was like 260%. Now that revenue growth

is only 50 or 60%. If if someone were to tell me that, you know, next year the the revenue growth is only going to be 50% and then in 2027 it's only going to be 45%. Like that's still extremely

be 45%. Like that's still extremely high. And uh if if someone could

high. And uh if if someone could forecast that and say I'm going to sell my Nvidia, I I'd say you're on I'll I buy the Nvidia from you.

>> Still pretty good. 40% revenue still pretty good.

>> Yeah. And I I think what what matters is what where is analyst consensus at, right? So I think that's the most

right? So I think that's the most important thing like can you can you get some edge on beating analyst consensus.

Sometimes there's there reasons why analyst consensus may lag or not but I think the the the important takeaway is just these simple reductionistic ideas of oh I'm going to predict a recession one year out and I'm going to decide how

to do my asset allocation based off that. Oh, I just focus on the base

that. Oh, I just focus on the base effects and the rate of change of growth and I'm going to do my asset allocation based off that. those kind of simple ideas. Uh, one, you can test them really

ideas. Uh, one, you can test them really easily because they're so simple. And

two, like after testing them, you'll find that they just aren't that helpful.

Like there there's a reason that you know big macro hedge fund managers take up take down millions of dollars a year in terms of base compensation because

their skill is t in taking that really basic stuff and turning it into actual tradable investable insights which they can deploy in their portfolios for their

clients. I just think that there's so

clients. I just think that there's so much out there where we have all these basic kind of

basic kind of economic concepts that are being pared as some sort of like truth for markets and it's it's often done in a setting where it's taking advantage of

investors that aren't necessarily the most sophisticated because they actually have other jobs and other stuff to do, right? It's not like the content itself

right? It's not like the content itself is super sophisticated. basic rates of change and like growth and like doing some back tests like you can get a college grad to be able to do such

things but most people have other things to do. They come to, you know, prof they

to do. They come to, you know, prof they come to professionals and research providers and stuff expecting these big edges and a lot of it just isn't isn't

what it's touted to be. And so if GDP now casting doesn't work that well, forecasting recessions doesn't work that well, even knowing long-term returns, if you could know them with a crystal ball,

even that doesn't work that well from a trading perspective. If that doesn't

trading perspective. If that doesn't work, what does work well?

So interesting nuance, right? GDP now

costing there's a there's a very big difference between GDP now costing and GDP forecasting, right? And the difference

forecasting, right? And the difference between GDP now costing and GDP forecasting is that GDP now costing is basically what's happening today and maybe just maybe where would we be

tomorrow? So what what you'll tend to

tomorrow? So what what you'll tend to find is that as you basically increase the frequency at which you're trying to make predictions or trying to make

signals, you'll start to have an increase in accuracy. Now that that that increase in accuracy is like in percentage points, right? So, if you're doing a one-year forecast and somehow

you find something that has like a 50/50 hit rate, going from that 50/50 hit rate and saying that, hey, can I predict like the next print of CPI using State

Street's price stats series and hopefully that isn't priced into consensus, you'll find your edge starts to go up a little bit. And so, what works a lot better than long-term forecasting is basically getting a

really granular understanding of what's happening right now. Now the important nuance right is that if you can basically say okay I want to have a really good understanding of what's

happening right now and find periods where because of positioning because of some sort of dislocation because of some kind of market volatility event that is

what's happening right now in the economy is not properly reflected in markets. Those are your opportunities.

markets. Those are your opportunities.

That's where most of the alpha tends to live. So, you know, a good example, I'm

live. So, you know, a good example, I'm going to get a lot of hate for this particular example, but Liberation Day, right? I I I think, you know, you and I

right? I I I think, you know, you and I talked a lot before Liberation Day, after Liberation Day, and I think I can say that like we had a decently good read of what happened there.

>> Yeah. You were bullish. You were not con you had some concerns, but you were not dooming at all. And you said literally, we called it economic data still strong.

>> Yeah. Yeah. Yeah. That I mean, that's what we said. And we also said if there's a recession, it's not going to happen tomorrow. We even showed you

happen tomorrow. We even showed you strategies, right, that if we're in an econom if we're in if we're in an expansion, which we believed that we were an expansion, you could very

profitably bet on mean reversion strategies. And so that was a really

strategies. And so that was a really good case, right? Where we had a view based on all the data that we tracked that even if you know tariffs hit their

absolute worst, a recession would take a lot of time to kind of come to fruition, but markets had gone ahead and basically priced a recession in like two days. And

so we saw that as an opportunity and we, you know, we we met unfortunately we happened to already be long into the opportunity. So it's not like we were we

opportunity. So it's not like we were we were net flat and then we managed to get levered long. So we did we we took a

levered long. So we did we we took a draw down but we stayed long through that and that ended up being a good opportunity if you were you know on you you were an alpha investor. And so I I think that it's things like that where

for whatever reason be it because of the way people are positioned be it because of some data shock you know something regulatory whatever it may be where markets get shaken up relative to what's

happening and what's likely to happen in the very near term. That's really what alpha opportunities are.

>> And so, Ahan, so subsec providers, they get the three portfolios, the S&P portfolio, the ETF portfolio, and the the crisis protection portfolio, but you

also give routine uh um updates on the multistrategy portfolio, whether it's I don't know uh twice a month or or every other week, but people do get a snapshot

of that. And you know, so Aan, you did

of that. And you know, so Aan, you did write a riskoff note you to your institutional clients and Substack people did get a a a look at that of uh on November 8th how your model had

significantly derisked and was you know shorting uh home builders and um and de-risking in stocks as as well. what

prompted that sell-off um or that bearishness on uh you know in the m middle of November that kind of started this this uh second leg down in the market that that began on November 12th.

>> Yeah. So a lot of what we saw is basically like at the index level we basically saw the fundamental dynamics that we described previously in this conversation where you know just the earnings are starting to go too far

relative to our fair value estimates for earnings. So that's at the index level.

earnings. So that's at the index level.

And then when we looked across the individual, you know, the individual sectors and the global equity indexes, we basically started to see, you know, one, their earnings are beginning to slow and two, like price trends are

beginning to slow as well. And you

started to see like a meaningful amount of dispersion between uh equity indexes. So most of this year we've actually had some of the

largest signals and exposures to global stocks that our programs have ever had.

As you know, we back test everything across decades. We never had this much

across decades. We never had this much concentration in long equity exposure ever. Even in our back tests

ever. Even in our back tests >> for the models or for uh holdings like for for proposition >> for the models which turns into holdings in our multi strategy program. And so as

a result like our programs were just max long global equities for a really long time for most of this year. But

basically what started to happen is you started to see like a lot more dispersion between equity indexes. So

they aren't moving all together upwards in the same direction which basically started to get our strategies a little bit more concerned. You add on top of that our fair value estimates for

earnings being a little bit too rich plus some proprietary mean reversion signals which started to trigger basically around early November. The

combination of those things basically got us from being you know 100% of our max net long exposure to 40% then flat and then short. You know we had the good

fortune of actually just getting short right before the meat of the sell-off actually hit. Um, and so it it's really

actually hit. Um, and so it it's really like that multi that multifaceted process of having coverage across this entire universe being able to generate independent signals for each one of the

assets and aggregate it into one comprehensive view. And so timing

comprehensive view. And so timing markets is very very difficult but you are someone who has models who attempt to do that and you are very very good at it. Your your clients are as I said some

it. Your your clients are as I said some of the biggest institutions in the world. Ahan, there also is a particular

world. Ahan, there also is a particular asset class that you have been trading, your models have been trading very very well that I I mentioned, but you told me I'm not allowed to mention it because

that was licensed by an institutional portfolio. Uh um so we're you have very

portfolio. Uh um so we're you have very very legit clients and they they wouldn't be paying you um if if you didn't provide the value. Just aan just

help us understand what are the different models and how they can be useful to investors. So we have so the Prometheus multi strategy which is basically the best of the best of

everything that we know about the world trades 49 different assets uh across stocks, bonds and commodities. It

basically covers the US equity market and its sectors. It covers global equity indexes. It covers global bond indexes.

indexes. It covers global bond indexes.

It has a range of views on from industrial commodities to precious metals. It even has you know some long

metals. It even has you know some long volatility exposures that is that that strate. not one single strategy. It's 10

strate. not one single strategy. It's 10

independent strategies um which are available to institutions and hedge funds that basically come for particular substrate. But if we take those

substrate. But if we take those strategies and we combine all 10 of them into one aggregated portfolio, you get something that's pretty sick. Um

and that's what the Prometheus multi strategy program is. It's it's an aggregation of 10 independent strategies across asset classes which leads to a

huge amount of diversification relative to what you know most research providers have like most research providers in the macro space are basically like oh yeah I

have a growth inflation view and that drives everything. What we do is we go

drives everything. What we do is we go asset by asset understand what drives that asset. Like the things that I

that asset. Like the things that I described in this podcast today are specific understanding of each asset that we trade. There are unique things that

trade. There are unique things that drive the term structure of the energy market. There are unique things that

market. There are unique things that drive the mean reversion characteristics of equity markets. There are very unique things that drive the differentials between barn markets. What we do is we systematize those things to create small

edges in each one of those markets. And

when we aggregate that, we get a comprehensive view of what's happening to the macroeconomy that changes every single day and allows you to build something that has a lot more signal for

a given amount of noise. And so that that's really what the Prometheus multi strategy is. is adding up unique

strategy is. is adding up unique independent signals in a way that when put together creates a comprehensive view that tends to be a lot more high

information value, right? So even even our even our our institutional clients that are only focused on a particular set of signals they they want to know

what's happening with all other signals because it helps the helps inform them about the broader macro environment with a high degree of overall aggregate signal. A good example is, you know, we

signal. A good example is, you know, we have people that work in equity long short space, right? They have nothing to do with commodities. They have nothing to do with bonds in terms of their

ability to trade. But what they like to know is what our treasury signals are doing or what our global bond relative value signals are doing or what our energy signals are doing because all of

those are inputs into the overall view of what's driving markets. And so if we can take these independent views and aggregate them up into one comprehensive picture for what's happening in markets,

that's probably one of the most high edge things that you can provide someone. And it's strategy one, strategy

someone. And it's strategy one, strategy two, strategy three. You have many different strategies, many different return streams. And the goal is to combine them all and get something that

as you say uh is sick sick and very good. That is a strategy. I mean all the

good. That is a strategy. I mean all the uh so-called pod shops very large multi strategy hedge funds are are doing taking advantage of diversification. So

that that's in the institutional space but you know uh obviously institutional hedge fund managers listen to this show but just in terms of numbers I say you know vastly outnumbered by in investors

who are not uh you know hedge fund managers or portfolio managers and the like how so that's how you differentiate yourself within the institutional hedge fund macro space but how do you would

you say you differentiate your research and your research process and how it can be used and maybe audited and maybe is actionable versus I'll say your

competitor s uh who are also uh uh sharing their strategies and signals with uh retail investors, sophisticated retail investors, but individual investors nevertheless.

>> Yeah. I mean, I I think what what we offer is totally different from what's typically offered in the space. Like I

mean I you Jack, you know me well. I'm

not the type of person to really like, you know, speak ill of anyone or anything like that. But I think that when you actually look at what's available in the macro research space in

the semi, you know, kind of quantal semi-sistatic kind of area, what they basically have is a bunch of moving averages dressed up with like a bunch, you know, fancy terms and marketing

that, you know, one, you should not pay for that. Like we we, you know, we could

for that. Like we we, you know, we could make that completely free if we wanted to. like if if we wanted to design a

to. like if if we wanted to design a couple of trend models and trade major asset classes, we could do that entirely for free. What we're trying to do that

for free. What we're trying to do that is that provides value to retail investors or individual investors, I proposed to say, uh is we're trying to take there's a reason we have an

institutional business because there there's a lot of people in the industry right now that say, "Oh, yeah, we're democratizing access to, you know, institutional tools and institutional research." But you don't work with the

research." But you don't work with the institutions. You don't you don't

institutions. You don't you don't actually know what the best people in the world are doing. What we're trying to do is we're trying to say, hey, like can we learn from our clients, provide value to them, some of whom are the biggest hedge funds that you've you know

you've heard of. Like as you know, Jack, we work with some of the biggest hedge funds in the world. There are uh legal and compliance reasons. You're not

allowed to actually mention what those funds are, but most people have heard of those funds. And what we do is we try to

those funds. And what we do is we try to provide some value to them. We try to learn from them as well and we try to come up with the highest alpha systems that we can possibly come up with and

then what we have to try and do is we have to take that and say how much of this can be replicated in a retail setting. Most high edge alpha is really

setting. Most high edge alpha is really high turnover, really complex and it's it's just requires a lot of trading and a lot of management to to to really

really harness all the alpha. What we

try to do is we try to say hey like what are the things that an individual could replicate that institutions do and so that's why you have to have an institutional business though you have to have an institutional business to

understand what the best people are doing and then take that and say hey like they are doing market timing across every single you know single equity factor and you know equity index in the

world okay that that's probably not something that every individual can do.

Can we take some components of beta timing like if we aggregate all their positions and we say hey like how how do we think that you can really time beta

can we apply that in a spy context? Can

we say hey like what are the characteristics that drive treasuries and drive you know big macro hedge fund P&L in treasuries. Oh, like if we isolate, you know, the five or six

factors, we find that okay, you might not be able to generate a one sharp ratio trading treasuries as an individual, but you know what? You might

be able to generate a 06 sharp ratio in equities. You might be able to generate

equities. You might be able to generate a 0.5 ratio in bonds. They might be uncorrelated. We might be do some smart

uncorrelated. We might be do some smart things around portfolio construction which can actually cap the amount of draw downs. And that's really what we're

draw downs. And that's really what we're trying to do. We're trying to say we're going to constantly try to find the best tools and collaborate with the people that are the best in the business. And

then we're going to try and say what is the what are the best tools that we can take and if and effectively and efficiently democratize and make them available to individual investors.

That's that's what we're trying to do as a business. Um, I'm not trying to just

a business. Um, I'm not trying to just come up with some macro views and then, you know, say, you know, we have our macro views, but we rely on price for

execution or something like that. We're

doing something totally different. I

think that that's really the value that we offer.

>> Yeah. And I'm not saying that everyone watching this needs to focus on riskadjusted returns and, you know, maximize their sharp ratio and spend a lot of time on it uh at the expense of

other things that they have going on in their life. personal commitments,

their life. personal commitments, professional commitments of course, but if people are focused on that, what I'm saying is that, you know, Aan from Prometheus Macro is the guy. And um, you know, I wouldn't say that if I if I

didn't think it and I uh, you know, I I I know this space pretty well.

>> What we're what we're really trying to provide people is like we we are trying to trying to translate what the best people do

in an appropriate way for individuals.

Like we're not we're we're not like I think there are lots of people out there that say that hey like you could invest like the best hedge funds in the world.

I don't think that's possible. I don't

think that's reasonable. And if you try to do that you'll probably end up much worse off. What we're trying to do is

worse off. What we're trying to do is we're trying to say hey like we can get you to a a better place. At least we think so. And you know we're going to

think so. And you know we're going to try our best to do that for you.

>> And Aan so GDP now casting it's not that it doesn't have a little bit of alpha. I

I think you know several years ago over over dinner you said to me Jack GDP now casting you know it has a sharp ratio of 6 it's fine but the real alpha comes at

finding other things that have a sharp ratio of 6 or 7 and then combining them together and then levering up those bets and taking advantage of the the the differentials and the correlations

between those different bets.

>> Yeah, absolutely. you know, so GDP forecasting or GDP now costing like you're saying is it's like fine, you know, it's basically what what what you would call macro trend following, right?

So what you're basically doing is you're saying that e economies tend to trend. I

want to follow the trend in the economy.

And so as a result like I'm basically going to be in sync with the economic cycle as it unfolds. So the good advantage is as a recession begins to unfold, I'll probably reduce my exposure

a little bit, as you know, I begin to get into a recovery, I'll start to increase my exposure a little bit. That

type of thing is good, but it's not like world class. The the the thing that most

world class. The the the thing that most people are are looking for is some sort of perfect GDP prediction and turning that perfect GDP prediction into perfect asset prices, asset price predictions. I

can tell you like I've I spent all my time trying to do that. that thing

doesn't exist. But what does make sense is to say that okay, I have a GDP prediction or I have a GDP now cost. I

try and follow a GDP now cost. I want to have an inflation program. I want to have a liquidity program. I want to have something that actually trades the differentials between growth in in different countries, you know, and you

keep layering on more and more of those different types of signals that you can find. Maybe you have a one-day signal

find. Maybe you have a one-day signal for a particular economic release like I can tell you a really good example of this that has kind of died where people

didn't realize this like a few years ago and the the CPI moved from being based on the Manheim index to the JD Power

index for transportation. So everyone

across the cell side was still looking at an index that wasn't relative relevant to CPI anymore. if you could go get them the the the JD power index which they sell, you could actually have a better forecast than what was b baked

into analyst consensus. So you could run that for a little while but you know things like that disappear quite quickly. Um and it did. So there are

quickly. Um and it did. So there are small things like this that you can look for and you can keep you keep looking across you know the global economy, global asset markets for these types of things that are not necessarily in the

price and you add them up and the aggregate portfolio is something that looks quite attractive. we're just

trying to do the growth cycle thing, it's not enough.

>> And so on looking at your multistrategy program, you show the results from 2000 to to now are quite extraordinary in

terms of sharp ratio, certino ratio, calm ratio, max draw down of only 3%, excess returns of 7.3%. It just looks like very close to a straight line up. I

will point out Aan that you and I were not adults in the year 2000. So at what what point of this multi strategy is it live and you know not just you know

taking taking things and and you know finding something that that works but when did it start being live and talk about the the results why it's outperformed the S&P on on a

riskadjusted basis and why you think it it might continue to. So when it comes to a multi multi strategy program, we basically went live not for the whole

program. We started piecing layering the

program. We started piecing layering the program in basically live this year. Our

results so far this year have been about like 1.6 shop ratio. The main the main takeaways from from the Prometheus multi strategy have basically just been that so far this year we've been pretty

pretty riskon. We've had a lot of equity

pretty riskon. We've had a lot of equity beta. So we've had decently high

beta. So we've had decently high correlations actually to equity indexes.

The big shift that we've actually started to have is we've started to reduce those those exposures. And so as a result now we're actually running like negative or minimally you know minimal

equity beta. And so a lot of our

equity beta. And so a lot of our performance this year in on in Prometheus multi strategy has come just from our equity sleeve which has basically just been like riding the wave

of you know the debasement trade reflected in equities and global equity markets. But when we look across you

markets. But when we look across you know the global equity markets and the US equity market where we have a lot more insight we started to see basically those trends start to break down a little bit. So Aan the multist strategy

little bit. So Aan the multist strategy is for your institutional clients for substack you've got your S&P portfolio you got your ETF portfolio and and then you've got your crisis protection

portfolio. So those these three model

portfolio. So those these three model portfolios tell us about what each of them do which are available to your Substack subscribers on Prometheus macro and and how they differentiate from each

other.

>> So we have so like we've talked about if you just want to know big what's happening to liquidity, what's happening to growth, is the labor market weak, don't pay me a scent. You don't have to

pay anyone else a scent. So we have all of that for free. You can come get that.

In terms of paid content, like I said at the top, I believe when you pay for portfolios, you don't pay for content, right? And so what we have is we have

right? And so what we have is we have three major portfolios. The first is the Prometheus ETF program, which is I like to I like to joke that it is our full

macro program where we basically, you know, what we're really trying to do over there is we're trying to generate an absolute return. that portfolio is probably going to do well during periods

of serious macro volatility, right? So,

you can think about it's kind of like a it's going to get really active around recessions, big inflations, hiking cycles, that type of thing. Candidly,

that portfolio this year, it's a systematic portfolio, has sucked, right?

Like I think we're put we've put up about a 6% return this year or something like that or maybe less. It's just

candidly not been a good environment for that. Now, that's your full macro

that. Now, that's your full macro portfolio. The second portfolio that we

portfolio. The second portfolio that we have is our S&P 500 program. And what

that's really designed to do is basically it's meant to outperform an the S&P 500 over full investment cycle.

I think we had a really long form discussion a few months ago about everything that goes into that program.

I'm very happy to say that program has done basically, you know, everything that it intended to. We went through liberation day. I think, you know,

liberation day. I think, you know, depending on the implementation style, we had a draw down between 6 to 8%. As

of now, I'm going to jinx this, but you know, we're on track for the completion of a full year, something north of a 10% annualized return. What if that sounds

annualized return. What if that sounds boring to you, it's because it's meant to sound boring. What we're trying to do is we're trying to generate something that's steady, consistent, doesn't have very large draw downs at a very reasonable amount of volatility.

>> And what obviously you're not running a hedge hedge fund, but what roughly is the sharp ratio in that?

>> Something north of 08. Okay. Okay. And

so that's basically what what's happening over there. So the S&P 500, if you care about the S&P 500 a lot, you want but you're a conservative investor, want to do a little bit of timing,

that's probably a good fit for you. Then

the the last program, which we've, you know, launched pretty recently, is I think like one of the most value additive things that we've made, which is basically meant to it's called the crisis protection program. And it's a

bit of a dramatic name, but basically the idea is we wanted to create something that is meant to be negatively correlated to the S&P 500. And so what

we did was we went and scoured all the assets right that you know across the globe and we said hey what are the assets that are most mechanically non-correlated to the S&P 500 and what

we found is basically that it's a combination of tips, gold and VIX, right? And we add a certain amount of

right? And we add a certain amount of timing when it comes to these these assets. But the objective is basically

assets. But the objective is basically to give you something that is non-correlated to your S&P 500 own holdings and you could actually implement as an overlay on top of your

S&P 500 portfolio. So, if you're someone that's just, listen, I want to own the S&P 500 and I wouldn't mind a little bit of outperformance, that strategy is probably something that's interesting

for you because you'd be able to stack an additional amount of return and a bit of risk reduction. And so, there are multiple different ways to implement that. We have three different

that. We have three different implementations of that portfolio. One

which does a, you know, less the S&P 500 to give you 100% exposure to the S&P plus that portfolio. another which does a bit of a dynamic allocation and then

we also have gone a step further and integrated our S&P 500 program with this crisis protection program. So those are the paid portfolios that are available

on Substack. Additionally, every now and

on Substack. Additionally, every now and again we send out research that comes from our Prometheus multi strategy program. So you know the objective of

program. So you know the objective of that is not to get any individual investor to try to replicate that program. There are very very serious

program. There are very very serious constraints on individual investors being able to replicate that program.

You basically need a whole trading team to be able to run some of those strategies, especially if you're trying to do the whole thing. But the idea of sharing stuff from Promethei multi strategy is basically to to show and

share what our fastest thinking and best edges are telling us about current market conditions. So I think you know a

market conditions. So I think you know a very illustrative thing is that our strategies actually did you know start to get short before this period of of market volatility and we were able to

understand what are the pressures in place and we were able to flag via written research and also be able to give further context on why our other strategies were actually pulling back on

their equity risk. So we provide the multi strategy program every now and again as kind of added context on top of these three portfolios that we provide.

>> And what value do these three portfolios provide to investors who don't have a whole team at their macro hedge fund of of trading? How how can people implement

of trading? How how can people implement this?

>> It's always super clear. You know, every single report is quite literally just dollar allocations or in percentage terms to each one of the assets. So, you

know, if you're if you're a discretionary investor with a certain amount of skill, you know, and you're doing your own market timing, you can kind of think of it as like a, hey, let me check in what Prometheus thinks

about, you know, this mix of assets. If

you're somebody who just, you know, wants to do a little bit of asset allocation, doesn't have a lot of time.

Once a week we, you know, each one of these programs basically depending on your preference and, you know, depending on whether you want to be benchmarked to the S&P, whether you want to do an S&P overlay, whether you want to be a full

macro investor, you can come check out those programs and you can say, "Hey, I'm just going to allocate in line with these programs." So, it's really a pick and choose like that. And yeah, I mean, I think it it is a helpful check. I

mean, I really do not like technical analysis. I know that there's, you know,

analysis. I know that there's, you know, a lot of it that that is legit, but like some people say, "Oh my god, I love this one stock. I want to buy it, but I'm

one stock. I want to buy it, but I'm going to wait for the right setup." You

know, I don't want to buy it as at setups um you know, below a moving average or certain demark type stuff and that that's what they do. And they

people have su success with that, you know, even though technical analysis isn't really is isn't really my thing.

Okay. So, and then >> something interesting. I believe I might be I might be wrong about this, but I think uh one of the biggest early subscribers to Democ was Stevie Cohen.

>> Yeah. No, exactly. There there are legit people who who don't see that.

>> It says enough.

>> And on does Prometheus subscribers tell us the research that they get other than the portfolios or they literally just paying for the portfolios because all the other research is free.

>> You are just paying for the portfolios.

If I, you know, if we find something super interesting mechanically, you know, so we're always kind of doing strategy development, right? Like we're

always trying to create new strategies, new signals, all that type of stuff.

Every now and again, we might find something mechanically super interesting that we think is tradable. And so, you know, we might share that. So, a recent good example was we, you know, what

we've been noticing since 2023 is a very, very strong persistence of barn mean reversion. And so what we did was

mean reversion. And so what we did was we basically went through the mechanics of what's driving bond mean reversion and why we thought that that's going to continue that type of thing is you know

has a very tangible monetary value if you know what you're looking at and so we would you know that type of thing would typically be paid but everything other than the portfolios by and large

if it's simple fundamental macroeconomic research will be free the more complex tangible you can trade this stuff will be behind a pay wall. Yeah, definitely

if if you're not interested in ETF postups, definitely sign up for Prometheus macro research. That's that's

free. Yeah, I mean that's a that's a big bold call that people shouldn't pay for forecast or or you know research, they should just pay for for portfolios, but hey uh more more power to you. And

definitely if people are interested in those three model portfolios, they uh can get a 20% discount using the link in the description and that will end in

early December. All right, Ahan, let me

early December. All right, Ahan, let me just throw a few asset classes at you right now. You said you're relative to

right now. You said you're relative to your positioning this year, you've pulled back on stocks and commodities a little bit. Tell just give us a little

little bit. Tell just give us a little bit more color on that. I mean you said okay that this uh even though GDP forecasts are still very strong or GDP now are still very strong you have

concerns and your models have concerns about the sustainability of AI capex but what spec what specifically is are your models picking up that is giving it the hesitation and and pulling back on the

risk allocation.

>> So I think there are a few things um so there's the index level view. So

we've already talked about the index level view, right? But we have the we have we have the good fortune of in the multi strategy program basically be going asset by asset and that extends to

both sectors and global equity indexes, right? And so what we're seeing there is

right? And so what we're seeing there is that aside from tech earnings momentum in most sectors is not very good. You

see that and when you look at when you kind of expand that horizon and look across kind of global equity indexes you see a similar picture kind of emerging.

What's also begun to happen at the global level is a lot of local local FX equities have begun to underperform in their trends. And so basically you know

their trends. And so basically you know we we've talked about the divergence and the mispricing and all that stuff but what we're also getting is we're getting corroboration across a broad array of different assets. So if you look at you

different assets. So if you look at you know US equity sectors today things like energy industrials you know sectors that are more cyclically oriented things like home builders all of these places are

not one seeing good macro fundamentals two they don't have good earnings expectations growth three like relative to you know other assets their trends have begun to deteriorate quite meaningfully and so as trend breath kind

of begins to deteriorate across the complex you basically want to start pulling back on your exposure a little bit now That doesn't mean that there's nothing to be done, right? There's

always something to be done. I think

>> there's always a bull market somewhere, Jim Kramer.

>> There's always a bull market somewhere.

Absolutely. Right.

>> Um, you know, and so I think the in the US the interesting exposures that we've been looking at are to basically be short things that are more cyclical. So,

you know, be short things that that are like energy and to be long things that are more kind of stable. You know,

perhaps you something like utilities or healthcare. Those relative value plays

healthcare. Those relative value plays have been really interesting globally. I

think one of the one of the really interesting expressions that we've had is actually to be long the UK while being short European countries because

in the UK you have basically still managed to get the uptick in global beta but at the same time the UK indexes are not as tech dominated and so as a result

you have much much deeper value over there and you also tend to have higher earnings yields. So you get a

earnings yields. So you get a combination of like better value, a little bit better growth relative to the rest of the the rest of Europe. And so

those expressions have generally been quite interesting. So I I I think the

quite interesting. So I I I think the the takeaway from our equity strategies is really that you want to be running, you know, if you have the capability to do do such things, of course, like you

want to be running closer to long short exposure than you want to be taking big swings on beta right now. We just don't think that beta even if it goes up, right? beta even if it goes up is not a

right? beta even if it goes up is not a very very good risk adjusted return from here. We think that there's more value

here. We think that there's more value to be done in in kind of dispersion trades than there is to be in outright beta bets.

>> And you said Ahan that you've got some serious concerns about cyclical parts of the economy, housing, manufacturing. Why

is that making you less constructive, less bullish now? Because that's been true for three years. Housing weak,

manufacturing weak. What's different

now? I think it's just the the the extent to which the divergence has started to occur and so I mean part of it is like we have a lot of dependence on what asset prices are telling us

right so like we do take a lot of signals from what's happening to local trends in all of these assets but I think the the major thing that makes me as an individual you know much more

concerned is also the fact that essentially when you start to look at these the the dispersion in earnings now you know by our measures earning expectations are growing at you know

somewhere between 10 and 12%.

Almost all of that is coming just from tech and so those divergences are starting to become really large and now you're getting that alongside.

So earlier it was a situation of okay the rest of the economy is sluggish and tech is very good. Now it's a situation of tech is very good and the rest of the economy might be going into contraction

and that's not always usually a very sustainable dynamic particularly because the employment is not distributed the same way as the profits and as we talked about like at the top of the conversation what you really need is you

need the employment to be somewhat stable at least for economic growth to continue and so yeah I think that's what really makes me more concerned and you see that mirrored not just in the US you

know you see that dynamic not just in the US you see it across the globe Like tech is basically eating everything across the planet. And so if you look at earnings expectations for you know the

US relative to we do a 10 country equal weighted average of you know earnings for the rest of the world. Rest of world earnings are terrible earnings growth are terrible compared to the US and so

you know is that a sustainable dynamic where the US particularly this tech slice dominates earnings and you know earnings growth indefinitely like we

just don't think so. So something to be a little bit more concerned about particularly with the fact that we started to see all of these trends in cyclical parts of the US economy in in terms of equities and then also looking

globally at global equity prices. We

started to see meaningful deterioration in those price trends as well. You want

to get a little bit more cautious.

>> So overall the rest of the world earnings growing so much smaller than US earnings that you said that can't continue indefinitely. Of course, I

continue indefinitely. Of course, I agree with you that that can't continue indefinitely. But what isn't that but

indefinitely. But what isn't that but but what about for another year? Ahan,

you know, to to throw it back at you, isn't that kind of a long-term forecast?

And isn't the value of long-term forecast not that high, you know, for you to make short-term changes to your model portfolios? I think it would have

model portfolios? I think it would have to be higher than that. So, is it really what's driving the bearishness or the lack of bullishness? Ahan, is it really the the negative trend and the negative breadth of the trend? Is that is that

what's driving it? I think the way you frame that is you were saying that okay we're looking at the breadth and then short S&P long S&P and what I'm saying to you is

we're we're trading each and every one of those individual assets and so if the trend in any one of those assets is down and the earnings in that asset is down we're going to be less like we're going to be getting closer to neutral or

possibly even short those assets and so what we end up is like we're you know we're trading the French equities we're trading the European equities we're trading the you know the the UK equities And so and so when we're looking across

all of those individual equities, the aggregate size is coming down because the S&P 500 is one line item amongst all of them. And so yeah, do we think the

of them. And so yeah, do we think the the the earnings are, you know, strong and probably stay strong? Yes. But when

you start looking at the fact that the S&P 500 is so grossly overvalued relative to everything else in the world and also the fact that you've basically started to have a broad-based decline in

momentum, you just your your aggregate exposure across the entire basket starts to get smaller and and I think that that matters much more than saying that oh take the view across the 10 assets and

then apply that to the S&P 500. No, I

wouldn't do that. What I would do is I would say have the individual view for each asset and then see what that nets out to. And when we take those

out to. And when we take those individual views across sectors and across the global equity market that basically tells us that hey like we want to be playing for long short differentials and kind of minimizing our

beta exposure >> it does for the multi strategy but in the S&P model portfolio and the ETF portfolio is it similar or yeah just

constrained to those assets what is it?

So in the in the in our S&P and our ETF portfolios, we've been long equities but much more conservative. So like unlike you know the multi strategy program

which can change its mind every single day, what we've basically had is a slow reduction. So, I think our S&P 500

reduction. So, I think our S&P 500 program as of yesterday has like a 30% allocation to to the S&P 500, but we've increased our fixed income allocations and we've increased our gold allocation.

We've increased our TIPS allocation. And

so, as a result, like what you've had in those programs is you have a slow kind of downtrend in exposure as opposed to, you know, the the multi strategy program which can go long and short many

different things. And those two programs

different things. And those two programs are supposed to be different in the way they approach markets because, you know, for an individual investor to basically like whip saw every single day, you just get completely crushed by transaction

costs, frictions, and all of that. And

we just don't want that. So the the S&P and the ETF programs, they still have long exposure, but they're going to be more and more conservative. And we're

starting to dial up fixed income exposure. As you know, Prometheus hasn't

exposure. As you know, Prometheus hasn't been long fixed income since liberation day. And so that's another sign of hey

day. And so that's another sign of hey like growth is a little bit more concerning. We're starting to get a

concerning. We're starting to get a little bit more along there. So yeah

that that's kind of the the difference between those programs. What about commodities and in particular gold and also oil and energy?

>> Go I mean I think gold is like an interesting strategic allocation to have when it comes to you know recently like you just had this crazy kind of blowoff

top in gold or whatever. And like we were lucky enough that all of our strategies are basically like denominated and expected return divided by risk, right? And gold wall just exploded to the moon. like it just went

absolutely crazy and this was on the way up by the way this wasn't like on the way down only this was on the way up and so as gold wall just exploded our strategy said that hey like this this

might not be the best thing to own we also have you know I think last time we shared with you you know how gold is basically driven by the you know particularly today is driven by the amount of tonnage that goes into the

ETFs like the marginal flow into gold is basically ETF flow now and the but what about nonwestern investors like Indian and Chinese investors.

>> Yeah, I mean there is definitely that but the the main thing I think that has moved a lot that explains a lot of the price change in gold recently is actually the ETF flow and a lot of that

ETF flow like it comes from other countries or whatever. So it's the tonnage that that that basically results from the ETF flow. And so you know what we had seen is basically like the prices had just dramatically kind of overshot

that that that that those tonnage metrics. And so you know it opens up a

metrics. And so you know it opens up a kind of window of vulnerability right between the explosion involve the explosion in price relative to the the underlying tonnage. And so we just you

underlying tonnage. And so we just you know our strategy is basically like reduced exposure a lot. Now you know V has chilled out a little bit. You've had

a bit of a selloff. We start to add. So

our S&P 500 program I think has like a 5% allocation to gold. It's like a starter position. Our multi strategy has

starter position. Our multi strategy has a little bit bigger of a position because it's a little bit more unconstrained in terms of its ability to turn over. So I think gold looks decent

turn over. So I think gold looks decent but you know I I I think that it's going to be a rocky time with this amount of like gold is interestingly a lot more like an equity when it comes to its

volatility characteristics than it is another commodity. So most

another commodity. So most >> so most commodities right like they crash up right so what that means is like the V explodes and they start going up gold is not like that gold has a very

nice property of you know V is a very good indicator of whether gold is going to have positive expected return or not and so you know we begun to you know we have a position we think gold is good it's still like a little bit ahead of

those tonnage and macrofair value estimates that we have so you you know you don't want to add too much when it comes to industrials Honestly, we could go either way because the the

the industrial, you know, I've been describing like the industrial complex is not like a very good place, but all of the weird tariff geopolitical stuff is just like causing industrial commodities whips all over the place.

So, the second you have some sort of tariff thing related to industrial commodities, the trend just explodes.

And so, you know, I think fundamentally when you actually look at the the economic dynamic, you're basically in a neutral to negative period for for for

the industrial economy and that results in okay like flat fundamental demand for for for industrial metals. So, you know, that could kind of go either way for us.

No big convictions there. When it comes to energy, I think we're pretty bearish on crude mostly because, you know, when you look at energy, energy is

energy is almost entirely an inventory game, right? Like what the marginal

game, right? Like what the marginal price of energy is basically set based off the the the the inventory cycle. And

so what you're trying to do is you're basically trying to say, hey, can I predict inventories better or can I position in line with the in inventory cycle better for a given amount of demand? Now what you're seeing is you

demand? Now what you're seeing is you know and how does that you know how do those inventory cycles evolve? It's

basically based off whether global producers are actually drilling a lot of oil or not drilling a lot of oil. They

basic and so how that works is you know they you know go global global oil producers need to be profitable and how they become profitable is basically if

nominal GDP accelerates relative to a given relative to a gi given trend. So like the rate of change

given trend. So like the rate of change of GDP actually does matter when it comes to oil. And so what you have today is you have a slowdown in the in the pace of nominal GDP which has been a

meaningful weight on global oil producers. And so their profits kind of

producers. And so their profits kind of are terrible and they aren't engaging in much drilling activity. So there's not actually much happening on the inventory side over there. Inventories are

basically neutral over the last year for crude. Now the thing about the thing

crude. Now the thing about the thing that's particularly relevant in today today's context is because of tensions in Russia and in the Middle East you

have a huge amount of shipping delays from production to inventories. So you

have just like a tremendous amount of supply from supply of oil that just hasn't hit inventories yet like to the extent that it's like higher than COVID >> floating. Wow.

>> floating. Wow.

>> Yeah. Yeah. It's really it's crazy. And

so and so all of that eventually makes its way to inventories which is which you know which will show up in these in the department of energy prints at some

point and that'll be a big negative for crude. And so you know we'll have we'll

crude. And so you know we'll have we'll we'll try to press that when it starts to show up in the price data and when it starts to show up in the inventory data but I think that that's the big overall

picture. But right now we're a bit neg

picture. But right now we're a bit neg we're negative on crude. We have some spread trades in in gas, oil and such, but those aren't like big thematic calls or anything like that. I think the big thing is that you know you will have

energy down. So that's the that's the

energy down. So that's the that's the commodity complex. Overall the commodity

commodity complex. Overall the commodity complex is like that is not a super inflationary backdrop, right? Like you

you know you think about all of this happening there and then and and so yeah like the overall is like neutral to in some cases pretty negative for commodities.

>> Okay. any other asset classes that your models have a interesting view on >> bonds. Yeah, not not US bonds. I don't

>> bonds. Yeah, not not US bonds. I don't

know how many people are going to want to listen to this particular segment but you know the the thing where we actually been had the had the maximum risk is

actually trading uh French or European bonds uh relative to JGBs because >> yeah and and the reason is basically you

know when you're buying a bond as we've talked about many times I'm sure at this point you're trying to get the maximum amount of carry for the least amount of macroeconomic volatility.

now or another way of saying it is like you want to get the maximum amount of carry for the least amount of growth, right? that that's the way you buy buy a

right? that that's the way you buy buy a bond in we're getting a pretty significant amount of dispersion in terms of growth conditions between Japan

and the EU because Japan is basically you know going through a situation of the hardest macroeconomic conditions it's had in like five decades or whatever whereas the EU is going through

this structural difficulty partic and you know when we look at those bonds the French bonds stand out to us as particular >> because you're quite four decades four

decades Sure. Four decades.

decades Sure. Four decades.

I appreciate the check, man. But and so, you know, when we when we look at those differentials, you basically start to see, you know, a very very a very nice opportunity to get long

French bonds relative to JGBs where, you know, the JGB the JGB market has been under immense amounts of pressure whereas the French bonds have, you know, relative to the JGB has shown a

significant amount of outperformance. So

like when I look at our global bond composits like the much you know my directional view on treasuries which is reflected in our programs which is kind

of like not super interesting. it's more

rangebound. the the opportunities in in global fixed income are really in this particular segment and we've been running like quite a significant amount of the our aggregate risk in this particular trade over the last month and

it's shown quite a bit of momentum and yeah like it essentially boils down to a bet on EU growth not very good Japan growth kind of okay you actually see that also in the equity differentials so

if you look at the NIK versus the CAC or the Nikk versus the DAX but the thing is that the pricing isn't as f favorable on the on the equity slice Basically, Japanese equities are valued

pretty highly, much like the US counterparts. So, we really like to

counterparts. So, we really like to express this kind of in the in the barn segment.

>> That makes sense. A other thing we haven't covered is housing. You write

about how housing is very weak. Is

anything new here? Because hasn't

housing been weak for three years or is there something new that that is an additional layer of concern?

>> I don't think there's anything new. I

think it's just getting worse, you know?

>> That's new. That's new.

I mean it's it's a it's a it's a trend down you know and you started to have even construction the residential the res residential employment has begun to

kind of fall off and I I think that it's it's just you know there's only so long that we can continue to have permit starts completions continue to kind of

fall off. It's resulting in pretty bad

fall off. It's resulting in pretty bad kind of a pretty bad dynamic for the home builder equities. So that's another place where we're actually fundamentally pretty negative. And so yeah, I think

pretty negative. And so yeah, I think it's just like a continuation of a bad trend. And at some point that starts to

trend. And at some point that starts to become like meaningfully impactful for the rest of the economy because if you continue to have really bad housing dynamics, it's going to result in it is

resulting in lower demand for houses.

It's resulting in a tougher time for the builders. They're going to have to

builders. They're going to have to reduce their prices. That's going to flow through to to inflation calculations. And so, you know, when you

calculations. And so, you know, when you have those inflation calculations starting to come down, it's going to have meaningful impacts of whether the Fed can actually ease or not. And so, I

think one of the things that yes, the continuation of the trend in housing is not super new, but it's worsening, which, you know, I think is a

is a modest is a is a more negative environment. And then on top of that,

environment. And then on top of that, that's going to flow through to CPI, which basically means that we're going to be it's going to be easier for us to get to target now with these housing

dynamics than it was previously.

>> And that could be bullish, which, you know, enables the Federal Reserve to cut although they may cut. They may have cut anyway but >> Yeah. Exactly. Exactly. But but but

>> Yeah. Exactly. Exactly. But but but that's the thing, right? Like I think the the tough thing for So what is the best performing bond strategy of the year, right? The best performing bond

year, right? The best performing bond strategy of the year is fade the cuts both ways. Fade fade the cuts or fade.

both ways. Fade fade the cuts or fade.

So like if if uh if markets begin to price a lot of cuts, fade that. If

markets begin to price less cuts, fade that. Basically

that. Basically >> not being reversed is the best trade that has and the reason is because the Fed has been stuck between a rock and a hard place. Like you have all this

hard place. Like you have all this employment data >> starting to look not very good, right?

And that's an important part of their mandate. But at the same time you have

mandate. But at the same time you have inflation what it's been 60 how 60 months I don't know somebody keeps a count of the number of months that they haven't hit target but it's been like

you know five years of not a target now you you know you start when you start to get to a situation where okay housing's really bad that's going to weigh on CPI okay like maybe bond mean reversion won't do as well anymore and

you can actually start writing bond trends which are consistent with an easing cycle so these are the things that you know we're sort of thinking about I think that as we progress, you

know, we're starting to get to a more interesting place for barns >> and I I think a key point of this conversation, Ahan, that is really relevant is what matters to markets and

asset prices and what doesn't. So

obviously in 2007 and 8 and n housing was extremely relevant to the economy.

Now it's way less weaker than it was in 2007 and eight and for way less worrisome reasons like way way less and and mostly that the real issue I see from a societal point is that houses are

too expensive not that they're too cheap and that there's a bubble imploding but in terms of being able to track the S&P or just the broader economy it really isn't that impactful and I I also think

that you know you know Aan there's there's such this macroeconomic commentary that I've been a part of of just how the economy for so many people in the United states is has not been

good in terms of the labor market is not been strong. that the labor market has

been strong. that the labor market has been weakening and prices even though inflation has gone down prices are still high and a lot of prices are going up higher than people's wages even though

in aggregate they might be going up you people's the aggregate wage might be going up slightly higher than the aggregate CPI like that doesn't really matter to real people and that's totally true and that's very valid commentary

that's very important to society and human beings but it hasn't mattered to the markets it it just really hasn't and I'd say it it might that type of commentary if you implement might even

have a negative sharp ratio. And so

you're in the business of positive sharp ratios and you know having good risk adjusted returns if not the actually getting them then always pursuing them in an intellectually honest and and rigorous and quantitative way. And so I

think that there a lot of people watching monetary matters have very different goals. So, you know, if if

different goals. So, you know, if if they're there for the commentary and the analysis and just finding stuff interesting, you know, stuff to say at a cocktail party or stuff to say to clients, whether they're financial

clients or or otherwise, you know, I think a fair percentage of people like listen to to the show, some percentage of people listen to this show so they can have, you know, sort of things to say to their clients, like and I'm sure

that's true of my competitors as well, then then that's that's totally fine.

But like if if you're trying to increase your risk adjusted returns and you're looking for someone who's intellectually honest and rigorous to do that, Aan is your guy. And you know that is why we're

your guy. And you know that is why we're we're partnering with him and we've partnered with him in the past. So

there's a 20% discount on an annual subscription. So I just did the math. So

subscription. So I just did the math. So

the full price that you would pay for that 20% discount from your regular annual pricing would be something like a you know a 36% from if you were just paying monthly but obviously if you want

to check it out you can just try monthly and also even if you know people don't want to pay a scent on this they can't afford it or something like that to get sign up for Alhan's free research so you

can get all of the data and the analysis not the portfolios but if you want the portfolios obviously people pay for that and they can get a 20% discount that and that discount ends in early December.

So, if you're watching this on like December 4th, you know, if you don't want to buy it, don't buy it. But if you want the discount, like you you probably should act pretty quickly.

>> Yeah, I think you covered it all.

>> There we go. Nothing to add. The Charlie

Monger line, thanks so much for joining.

And please, everyone, leave a rating and review. Thanks for watching.

review. Thanks for watching.

>> Take care, Jack.