Phil Wool, Rayliant — Active EM Investing & Factor Strategies

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Transcript

Going Live And Setting The Stage

SPEAKER_03 0:00

I'm gonna always be on the screen. Uh because otherwise I don't know, maybe I can change that. We'll see. Uh folks, give me a second. I want to make sure as always that we are streaming live. Uh hold on one second, one second. I just did a uh podcast with Mr. Luke Oliver. So Screen Share's Day uh here. I was nice. Uh I love Luke.

SPEAKER_00 0:21

Luke's a good dude. Luke Luke's a very good guy. And great, you know, ETF-centric career for them.

SPEAKER_03 0:29

Yes, yes. Well, just like you. I mean, you've been you've got a storied career yourself. Uh I'm trying to get out, you know. We all are. It's called retirement. It's like make as much money as you can as quickly as you can. Uh all right.

SPEAKER_00 0:43

Well, it's funny. I was just with someone who uh the firm, you know, sorry, and uh he's probably closer to your your age, Michael, versus mine, or how old do you think I am? Uh but but he was like, Oh my god, I'm not quite able to retire. I'm like, really? Like that was even on the first of all, we're in New York.

SPEAKER_03 1:06

Um we we ain't never retiring uh with these taxes.

SPEAKER_01 1:10

Uh yeah, yeah. Do you know Henry Timmins? He was at Richard Bernstein Advisors. Sounds familiar. So yeah, he was kind of the you know, a part of the you know, part of their investment committee and picking ETFs.

SPEAKER_00 1:23

Um but you know, they didn't they got bought by Janice Henderson. I saw that. Uh so Henry's out there.

SPEAKER_03 1:30

And he still can't retire? Is that what you're saying? I don't think he was quite happy.

SPEAKER_00 1:34

I think that was what Brendan was getting at. Yeah. But Henry's a great guy. He's out there looking, if you know. Uh as a husband and uh dad, I feel obligated when some of you know when some of these guys are out there, you're like, man, if you know, I've never been through that, but if you know I feel obligated to try to help Henry, he's a good guy.

SPEAKER_03 1:56

There you go, folks. We are live. Thanks everybody for watching. Starting to tune in on X, YouTube, LinkedIn. Uh, as always, uh, I can see your comments and posts. Whatever. If you want to engage, we can see your comments. Uh, hopefully you enjoyed this conversation. Uh, at a nice conversation with Mr. Luke Oliver. Now we're gonna go to Mr. Brent Brendan Ahern, who I've known, gosh, it's 2012, I want to say, pre-crane shares days, I think it is. And uh Mr. John McNamara from Hedgeye. And some of you may be wondering why in the world is Hedgeye uh here with Crane Shares. Uh and I wonder that myself because I just found out about an hour ago. So what we're gonna do, what we're gonna do here is first uh I want I want uh uh you,

Meet Craneshares And Hedgeye

SPEAKER_03 2:32

Brendan, to kind of introduce yourself uh to those that are watching and listening. Same thing for you, John, and then explain exactly how the two of you are are collaborating. So go ahead, Brenton.

SPEAKER_00 2:40

Yeah, so uh Brendan Hearn, I'm the chief investment officer here at Crane Shares Exchange Traded Funds. And you know, I had the pleasure of getting to know Michael during my long uh tenure here in the ETF industry. Uh but no, been in the ETF industry for uh call it 25 years now. So as uh part of uh Barclays Global Investors when they started iShares and then subsequently part of BlackRock, and uh yeah, just uh you know working with people like Michael, loved love the idea of doing something entrepreneurial. So, you know, 13 years ago as part of uh starting uh crane shares with John Crane.

SPEAKER_03 3:20

And uh Mr. John McNamara said, John, yeah, I don't know anything about you, please.

SPEAKER_02 3:24

Yeah, absolutely. Well, I will say this it is always fun going to ETF conferences with Brendan because you walk around and it's as though you're with a celebrity. I mean, I guess you know he is a celebrity in the ETF industry, so it is part of that is very fun.

SPEAKER_03 3:35

Part of that's because he looks a little bit like like a Superman type of guy. Like he's got kind of the hair and the the face.

SPEAKER_00 3:40

You might be onto something, but yeah, I think uh can we patch my wife in with dissenting opinion?

SPEAKER_03 3:46

I have a big reach. I don't know if I have that kind of reach, but no, that's okay.

SPEAKER_02 3:49

Well, I well anyway, so I um I joined uh Hedgeye um back in 2018. I had a you know very traditional uh Wall Street career, started off at a bank, then you know did the buy-side thing, and basically the the last um job prior to joining um Hedgeye itself actually um was a hedge fund where Hedgeye was our largest um research input. So, you know, at that time, you know, really felt like we had um you know really kind of flushed out how to utilize the research in an asset management capacity and you know approached Hedgeye about launching an asset management business fast forward, I mean, coming up on eight years now. Here we are. Uh, but you know, met Brendan, I think, back in um 2019 or so, uh, and you know, was was really keen to um you know try to help get us into the ETF industry, which obviously now we've um you know we've formally made a foray into both through craneshares but also you know in our own right, um, and you know basically have have flushed out a bunch of ideas with Brendan over the years. Um I think uh you know the the product that um we have with Cranechairs, which is case by KSPY, um, you know, it's kind of the one that that's stuck, and um, you know, we think we're kind of um you know playing into a lot of uh important themes that are going on in markets right now with it. Um and you know, excited to uh to be here today to talk about it.

SPEAKER_03 5:22

So all right, so uh I'm gonna share the uh the screed here. And um uh some of you on X might know that I was on a cruise not too long ago, and uh it was a Creed Summer 99 cruise. Uh and actually you will see uh could not not not purposely that it what I'm share. Actually, has oddly enough, uh one of the tabs here is Creed Higher. Uh just

Buffered ETFs Explained And Critiqued

SPEAKER_03 5:47

because literally Luke was saying, like, I don't remember, I don't know who Creed was. I ended the stream, I'm like, come on, you know, Creed is a British. It's like you must know the songs I play higher. Um but speaking about creeding and can you take me higher? Let's talk about the growth of buffer ETF A-U-M. I'm trying to make a transition, folks. It's not really working at all. Um I got it. Can you take me higher? I see it. I see the chart. I get it.

SPEAKER_02 6:06

I see what you're doing here.

SPEAKER_03 6:08

Are you putting up what I'm putting down, whatever the expression is? All right, so so first of all, um, yes, it's true. Buffer ETFs have been all the rage. I don't quite understand why. Uh that's uh there's a lot of things that disconsolate have problems with. I think it's a very good sales story. But first of all, I'm I'm showing this because uh I want to use this as an example of showing that there's a lot of demand for products that cut off some downside, right? That are are hedging. So uh let's first talk, maybe John, because you've been you know on the research side for a while. Let's talk about exactly what buffered ETFs are. Okay, and and what do you think is driving the demand? And maybe more importantly, why is that demand maybe misplaced?

SPEAKER_02 6:48

Yeah, I mean, I think first and foremost, um, you know, what what's driving demand is um is a a lot of assets are are in the hands of folks who are, you know, either at near or in retirement, um, and you know, want to kind of have that ability to participate at least to a degree in market returns, but also sleep at night. I mean, you know, just look at what's going on, you know, live on the screens here.

SPEAKER_03 7:14

I I I slept at 3 15 a.m. and it's not, but for detox are not gonna help me.

SPEAKER_02 7:19

Well, I think you maybe you have a different problem then, but it's many problems, yes. Um, but but you know, I I do think that you know, particularly given and and Brendan talks about this all the time, just you know, the the equity market, you know, has basically just been a one-way trade for you know the better part of the last 20 years. And you know, people are sitting on tremendous gains, and you know, they've kind of baked in um you know either that continued, you know, uh move higher, or you know, at least being at a level um, you know, from an asset perspective, you know, where they are today going forward. So, you know, I think that certainly has played into a lot of the growth in the category. Obviously, you know, when we look at it, we extend it out to both the the hedged equity as well as the buffer um um space, which you know, I think I, you know, there was a splashy headline from BlackRock out maybe this time last year that said that they thought that you know the space could get to 650 billion by 2030. Obviously, they're highly biased because they're heavily involved in the space, but you know, certainly, you know, having a voice like that, you know, out there mentioning you know that large of growth is eye-opening on the flip side. And you know, Brendan, we've we've discussed this at length before. I mean, you have um you know the folks at AQR out there basically saying, hey, these things aren't worth you know the paper they're written on. And you know, actually, funny enough, we we've had actually with uh a very uh long dialogue with one of the largest holders of Case Buy. And basically his argument was look, I can replicate the return stream of a traditional buffer strategy through an asset allocation of fixed income versus equity. You know, why would I pay somebody 70 basis points to do that? And you know, really what we're trying to bring to the table here with CaseBuy is um you know a much more dynamic um you know means for deploying what is a very well-defined uh and you know, blazed trail in terms of the strategy. And you know, really the way that we do that is through the utilization um, you know, of the intellectual property that's coming out of Hedgeye. So, you know, certainly a very you know well-known, well-defined, you know, well-blazed trail in terms of of um you know the strategy. But you know, I think we have a really unique and differentiated approach, which I'm sure we'll we'll dive into in this conversation.

The Research Engine Behind KSPY

SPEAKER_03 9:47

So so let's let's take a step back. Um there's qualitative research and there's quantitative research. And of course, there's a blend, right? When you talk about the research that you're doing, um, the research that underpins you know the foundations of case by which is it? Quantitative.

SPEAKER_02 10:04

So, you know, basically hedgeye, uh, I think they're probably best known for their um macroeconomic research, which is obviously headed up by the founder and CEO Keith McCullough, uh, which you know, Keith founded the firm back in 2008 after um you know a long and successful career as a hedge fund manager himself. Actually, the name Hedgeye uh, you know, was was named, you know, basically, if you could look into a hedge fund on a daily basis, what would you see? Hence the name hedge I. Um, you know, and and really what the the macroeconomic research is, you know, the two the two primary pillars of uh are you know their their quad framework, which is basically measuring and mapping uh rates of change of growth and inflation across uh a myriad of economies. That kind of gives you, you know, um your asset allocation liens from an overweight, uh, underweight, long versus short perspective, and also you know, where you want to be from an economic perspective globally. China's pretty bullish right now. I know Brendan likes that. Um so but then you know the the the second um was that like just intuition that Brendan likes that, or is it I mean you know, I think uh when I when I look at the the offering of of crane shares, you know, I think it uh it is uh it is firmly underpinned by uh you mean the AUM distribution of right, exactly. That's that's exactly what I'm getting at. So but anyway, so that's um the quad framework is really the you know the first and and primary pillar. And then you know, equally important is um you know what we refer to as the price signals, um, which you know we refer to as um you know a quantitative risk management framework to augment fundamental views. So, you know, basically if we're gonna have an asset allocation overweight or underweight or long versus short, it has to check, you know, first and foremost, the quad uh framework. But you know, uh secondly, and probably equally as important, uh the price signal framework. And basically, you know, what that price signal framework is based on is a proprietary algorithm that Keith McCullough developed throughout his career as a hedge fund manager and obviously has further um you know honed and perfected uh you know through the hedge eye risk management uh is you know basically a price volume and volatility um you know framework, like I said, for you know, uh having a quantitative augmentation for fundamental views. And the way that we basically utilize that uh in case buy uh is what we refer to as risk ranges, which uh are basically price entry and exit points for a myriad of assets, obviously for case buy it's for the SP 500, um, you know, that uh basically provide a you know a three-week duration window um, you know, you know, for those those buy and sell levels. And basically, you know, we utilize that in case buy to determine um you know what option strategies we're deploying and at what strikes. Um so you know, that's kind of uh the secret sauce um, you know, that that built the product uh is those risk ranges. Um and then you know how we how we deploy it uh and you know how kind of um the strategy works uh in practice, um, you know, obviously adds a as a further layer of differentiation, which we can get into, I'm sure.

SPEAKER_03 13:29

Yeah, and Brent, I'm gonna go to you in a second, but um uh when I think about products like this, I think about up capture, down capture, right? And up capture tends to be less than 100%, with something that obviously hedges because otherwise you'd have the perfect product. Yep. Right? Well, if down capture is less than the up capture, and of course, if you have enough you know down cycles, that cumulatively makes a lot of uh uh you know alpha outperforce potential. Um the problem, of course, as you know, is that if your strategy inherently thrives on down capture, you need to be in an environment where there's downside to capture. Yep. Right? Uh, which, you know, other than these momentary glimpses of the COVID crash, uh tariff, you know, tantrum, and then 2018, uh evolve again, uh, and the end of the year uh decline in 2018, you don't really have too many of those junctures. We haven't really had any any kind of real sustained decline where the down capture can can kind of accumulate, you can kind of bank the album. Yep. So so talk to me a little bit about um from a a product positioning perspective, three piece. Um how exactly do you get people to to think in those terms? Because let's say everyone's conditioned to think markets go up and to the right, and that's it.

SPEAKER_02 14:37

Well, I think that's uh I'm sorry, Brendan, I you're gonna jump in, but I think just the chart that we started off by showing in terms of the growth of the assets in the in the product category, you know, speaks for itself. And and listen, I didn't, you know, start off by conversations with Brendan on, hey, how can we you know build a better buffer or uh you know a better hedged equity strategy? It kind of just came came naturally. And you know, certainly the the growth in the in the assets um you know kind of you know moved our hand in that direction. Um and you know, just the knowledge that we had, you know, these risk ranges that are you know powerful tools uh on our end, uh, you know, that was kind of a a powerful sauce. But maybe I'll I'll let Brendan uh you know chime in.

SPEAKER_00 15:20

Yeah, I mean, I mean I think uh an element of of the industry is selling greed and fear, and that that's that's not what that's not what we're trying we're we're attempting to do. Um we're simply saying that um you know as people have benefited, even for a component of that, of that, that assets, your total wealth, shouldn't some of that be somewhat protected? And you know, I think a lot about you know, someone like my mother-in-law who's a widower, and you know, she's at a point where she can't, she, you know, she can't with you know, she doesn't maybe doesn't have the time horizon to make up from some of these, you know, oh, you know, if you get a drawdown, you can make a backup over time. Well, not not not everyone has that benefit. And then I think you know, an element of of our efforts, you know, we spent a lot of time outside of the United States. And you know, there are markets, you know, you know, you think about Japan from 89 to 2012. Um, you know, you know, MSCI Chile is up like not even 200% over the last 17 years. You know, you know, it's underperformed EM, it's underperformed Aquiex US, it's underperformed MSCI China. And this is the most economically stable, uh, politically stable country in South America, arguably. And I think something that we've noticed is you know, we talk a lot, you know, you might say, well, the SP was up 18% last year. Well, if I'm a Europe, if I'm a Euro denominated investor, I didn't make 18% last year. You know, if I'm denominated in Swiss francs, I didn't make 18%. And got, you know, you know, you know, you got a real problem if you were Norwegian or Swedish krona denominated, because then you actually took an 18% and turned it into a negative return. And so so this is more of just, you know, you don't want you don't you don't want to buy you know house insurance when your house is already on fire. Um and and you know, at the same time, we love conceptually the idea of buffered, you know, it makes sense, but but the problem there's all sorts of issues just because where that product launches, where it receives funds, you know, the VIX, the price of that protection could be really elevated. And that's where you have this dispersion of returns that are completely out of your control as a shareholder. And and I think that's where you know what John and and the Hedgehog asset management team are able to do is just say, you know, we've got this rational way to try to participate in the upside, uh, but also give ourselves some downside protection in something in a strategy that we've been doing for you know well, you know, well more than a decade. And and I think that that was kind of the fruition of case by just this trying to think a little bit smarter. And yeah, yeah, I think it's uh, you know, as a shareholder, it's uh you know, I you know, I've benefited from the US equity market's return. At the same time, you know, I've I've got you know, on days like today, you know, um I've got some nice downside protection.

SPEAKER_03 18:57

How how did this even um come about? I mean, CraneShare is is a fund issuer with their own funds. This is a collaboration with Hedgeye. I don't know if that many people are aware of subadvisor advisor dynamics and things like that, but but talk about how did this even come out come about? Was it like, you know, Keith, Brendan, you're like, hey, uh you got that's it, right? That's that was kind of the start.

SPEAKER_00 19:18

Well, a little bit.

SPEAKER_03 19:20

I mean, I think um I think one uh you were both on the set of Superman Returns, right, when you were auditioning, is that what it was?

SPEAKER_00 19:28

I I I can't hold a candle next to Keith. Uh but no, you know, you know, we we you know, we you know, we were not a white label third party. Uh you know, we originally you know got to know Nancy Davis of Quadratic uh Capital, and you know, she wanted to ETFize her hedge fund strategy, and we so believed in her strategy that we're like, yeah, you know, we we can we can we can work together. And that led to relationships with Mount Lucas, uh, which is a uh Managed Futures, a CTA firm. Uh we've worked with Mann Group. Um and then more, you know, then I you know, you know, we I I mean I know Keith, but but we became actually a research client. And and that led to conversations of like, wow, like you know, you know, a lot of what you're doing, you know, it's just hard as an advisor, as an investor, to do that every day, right? Uh to to you know, you don't want to marry your screen. And um, you know, the idea was, you know, is is there an area of of opportunity to work together and um you know, to work with John and leverage the that hedge eye engine to provide this solution. Um you know, just I think a lot of people that you buy into Keith's research methodology, it's just do I have that dedication to invest my time and effort into learning it, and then the time and dedication to every day, you know, the markets are open. I'm gonna have to. So that that's the area of you know, you're kind of outsourcing uh that belief in Keith and the team's work, and you know, you're putting John and the Hedgehog Asset Management team to work. So it's been it's been a it's been a great collaboration.

SPEAKER_03 21:25

All right, let's let's um uh I don't know how accurate this is, so let's see if AI is hallucinating. Uh let's do a little real time on this.

SPEAKER_02 21:31

Oh boy.

SPEAKER_03 21:32

Yeah, right. It's like uh and again, as a reminder, folks, I still have the creed higher tab open on uh even show that when I do that. Oh, you see like Scott's tap right there. Boom. Um how case fire works. All right, so you kind of alluded to this. Uh let's see, like I said, when you look at this uh chart, uh John, uh is this something you have to go through go through compliance to review? Like what uh how how accurate is this?

SPEAKER_02 21:54

I would leave that up to Brendan, but uh you know this does look fairly, you know, fairly close. I think we might have a we might have it a little bit cleaner

How KSPY Trades Options By Regime

SPEAKER_02 22:06

in some of the marketing materials, but this is enough to get, you know, good enough for government work, as they say, right?

SPEAKER_03 22:12

That's terrible.

SPEAKER_02 22:13

No. Yeah, so you know, basically the the like I said, the secret sauce here is the risk ranges. Um and you know, the the traditional hedged equity and or buffer strategy deploys uh you know constantly what's referred to as a put spread collar. So basically they write a call, uh an upside call to fund uh the purchase of a put spread. So, you know, we also um deploy that strategy. Uh however, um, you know, we basically only deploy it when the SP 500 is within the bounds of what we refer to as the risk ranges. And again, you know, the risk ranges are basically just a quantitative uh tool, you know, to help augment fundamental views where you know basically you're provide providing a you know an entry and an exit point in in the form of you know what we we refer to as the buy risk range uh and the sell risk range. So, you know, basically uh since Keith started publishing those risk range signals in 2015, the SP 500 has closed within its daily published risk range 83% of the time. So, you know, I refer to the you know, the the way the strategy works as being in regimes, uh where you know you have that within regime where we're deploying that put spread collar that you know the incumbent players are are also deploying. Obviously, the differentiation there is that we're utilizing those risk range levels to determine um the strike prices on the options, and also we're targeting uh you know the three weeks, uh three-week out options given uh the risk range duration of three weeks or less. But that's basically the regime that you would expect to see the strategy in the majority of the time, given that 83%. Now, you know, within that regime, you can actually see some fairly significant uh moves in portfolio exposure just based on you know the delta of the options and what's going on, you know, in the the options um, you know, mechanics. But that's you know, that's where you would expect to see the strategy the majority of the time. And like I said, that's you know, that's the same strategy that the the incumbent players are deploying, where you know we get really differentiated, and you know, was on the left and the right side of that chart uh on the options payouts, uh, is in the above and below risk range regime, uh, which you know are very high conviction environments where we're effectively expecting to see you know an immediate term uh counter trend move. So, you know, if you're above the top end of the risk range, you're expecting to see you know a move lower uh in the immediate term. On the flip side, if you're in the you know, you're below the buy risk range, you're expecting to see an immediate term uh you know move higher. So, you know, how do we take advantage of that? And you know, what really differentiates the strategy is basically the adjustment of the options positions based on you know those differentiated regimes. Um, and you know, to steal a line from the the sales team at Crane Shares, which they came up with, which I think is brilliant, basically all we're doing is we're trying to maximize the ability to participate in market returns when conditions are optimal and minimize them when they're adverse. And you know, the way that we do that is you know, if you're above the top end of the risk range, we're writing an at-the-money call and buying an at-the-money put. Uh, you know, so we're not selling that that uh downside put anymore. And you know, as you can imagine, that basically gets the exposure in the portfolio to around zero. And then on the flip side, uh, you know, when you're below the low end of the risk range, we don't sell that upside call uh and you know to steal a line from Keith, which I'm guilty of doing all the time. Uh, you know, markets tend to crash from oversold levels, so we do still want to have a level of hedging in the product, uh, despite expecting to see you know an immediate term move higher. So, you know, we still buy a put spread, but like I said, we don't sell that call. And that, you know, basically gets the exposure of the portfolio, you know, up towards um, you know, somewhere uh approaching 100%. So that's kind of how the strategy works. Like I said, we're targeting options that are three weeks out in expiration. We don't hold options in the week that they expire. That's based on work that I've done in my career. Strategy rotates anytime that risk range regime, as I like to refer to it, changes. So, you know, if we're going from within to above, within to below, below to above, above to below, we're gonna flip the options book. And then, like I said, we don't hold options in the week that they expire. So, you know, basically trading uh at least once every three weeks. Um, so that's kind of a you know, that's a quick overview. That's how it works. You know, it's it's designed to be significantly more dynamic than these incumbent players. And obviously, you know, there's a myriad of reasons why, you know, why that is the case, which you know, we kind of just ran through.

SPEAKER_03 27:01

So is there is there something about the um the regime methodology that is unique to the US or can it apply to international markets? I say that because you know it's like the old saying that US you know sneezes or coughs, right? And the rest of the world, right? So so you know now, granted, you know, you have a period like 2000 to 2002, 2003, SP sucked, fun like us would have probably done quite well, China did well, right? It's like that's the ideal scenario for crane shares, it's basically like a US level, yeah, both working, right? It's like let's face it. But but um but talking about sort of how how the implications of these regime shifts uh could could well they're generally very quick.

SPEAKER_02 27:45

Um, so you know, I mean it, you know, if you if you see you know multiple multiple day stretches um you know in the above or below you know regime, it's it's gonna be you know an environment of fairly extreme volatility. And you know, I try not to simplify the the um you know what the risk ranges are too much, uh, because I like my job, and and b because uh you know obviously that it doesn't do it justice. But you know, if you just think in very simplistic terms, you know, how the risk ranges fluctuate, in environments of high volatility, you're gonna expect to see a very wide risk range, and in environments of low volatility, you're gonna expect to see a very narrow risk range. So, you know, just thinking of you know from a regime framework, you know, and and you know, admittedly so, you know, just given the ability for this uh strategy to you know to move so rapidly, you know, we do tend to really excel in environments of high volatility, um, you know, particularly just given the ability to flip around that exposure so actively. Um, but you know, I think from the specifics of the the regime that the strategy is in, I would say there's less so of a of a you know uh a uh you know a glean for the rest of markets. And I would say more so of you know what's going on from a volatility perspective. Obviously, you know, the the price volume volatility, that's the backbone of of what makes up you know the secret sauce for the product. But you know, I think when you see volatility really spike, you know, like we've seen kind of to start this year, like you said, you know, the US US uh you know sneezes, everybody else gets sick. Um, you know, I I think there is there is a there is a read to be made there. And um, you know, obviously, you know, you brought up particular environments where you know we haven't seen the rest of the world get sick, but certainly, you know, being mindful of what's going on in in you know US volatility, I think, is very important for you know making allocation decisions around the world.

SPEAKER_03 29:44

So let's talk about let's get macro here for a bit. Um uh because uh let's face it, uh China has done well, emerging markets have done well in general. I I I when Trump got elected, I said um unpopular on X, I said on unpopular opinion uh China will outperform the US during the Trump uh presidency. And I was saying that purely because the starting valuations are so starkly different, right, between uh the US and China. Um first of all, where are we in terms of relative valuations of Brendan when it comes to the allocation decision of

Volatility, Global Markets, And China

SPEAKER_03 30:18

domestic versus international?

SPEAKER_00 30:20

Yeah, I mean uh Chinese equities, I mean, uh we've had a little bit of a of you know, we had a you know, January 2024 was really the bottom in Chinese equities, where you had this derivative-induced meltdown, and the market has been kind of grinding higher. Um, it lost a little steam uh at the end of Q3 of last year. Um, and I think I think just as money was reallocating, there was a little bit of this Eureka moment where people realized that the Mag 7 Cap X was gonna show up on the income statement of TSMC, S.K. Heinz, and Samsung. So I think you know that you had this China rally, and then some of that money pivoted into this, I call it the AI picks and shovels trade. And and I think we're back at a point where um the Chinese equities look look very, very inexpensive. You know, we're on the precipice of uh Q1 earnings. We actually had one of our first first names report today that you know you know, knock on wood beat. But uh we also have uh you know the implementation of the the 15th five-year plan, which is heavily focused on technology self-reliance and raising domestic consumption. And there's a lot of skeptical, particularly on the latter, but you know, we anticipate hopefully we'll see some some further policies implemented over the course of this year. And then I think the big thing, Michael, for us is you have uh President Trump's visit to China, the meet with President Xi, and uh we're a little bit non-consensus in that we're we're constructive on the outcome. I mean, this is uh kind of reading the tea leaves of you know, potentially some further uh corporate partnerships. Uh obviously you're gonna have the Boeing airplanes and soybean purchases, potentially Nvidia chip purchases. But you know, ultimately what President Trump really wants is people to manufacture here in the United States. And um it's hard, it's hard for a lot of countries globally to buy US stuff because you know we don't make a lot of stuff that people want. You know, we have lots of services, but this is a goods trade war. And ultimately, that's why I think you know what what President Trump really wants is for you know for foreign countries to lean on their companies to manufacture here in the US, either you know, solely or in partnership. And I think that explains why you see uh TSMC in Arizona, you know, Softbank uh from Japan. And I think you know, there's areas where uh you have some very, very good Chinese companies in electric vehicle hybrid technology, battery technology, you know, why not allow them to partner with US auto companies? So we see some real catalysts out there on the horizon.

SPEAKER_03 33:24

From um from the hedge eye perspective, um where are we in in regimes and and cycles and you know what what what's it gonna take, man? It's like yeah, I I guess I gotta tell you, I I um I I think Trump has purposely gotten the market numb. It's like yeah, I mean you can argue that's why he's constantly changing his mind. He's just basically you know whipping around all the sentence of just ignore what he has to say. That's that's really what I think he's he's kind of gotten the market to. Um AI is supposed to be disinflationary, I think. Um maybe even deflationary, probably not good when you have so much starting debt, right? I never personally bought the stagflation argument that much because I think it's very hard to have stagflation when your government debt's $40 trillion. It's like crazy, the system kind of doesn't work that way, folks. Um, so where are we?

SPEAKER_02 34:15

Yeah, well, I mean, I would say uh particularly starting from a China perspective, I mean, you know, we we do see a lot of um you know bullish things on on the horizon, uh, you know, particularly as you get out to the back half of this year. I'm just looking at at our expectations. And I mean, you know, we basically see you know real deep GDP accelerating, you know, throughout throughout this year, which is obviously a pretty bullish setup for equities. And then on the flip side, uh or you know, uh kind of complementary, uh, at least out to the back half of the year, you know, we see a deceleration of inflation in in China, which, you know, again is you know just adding kind of fuel to the fire, if you will, on the bull case for equities. So, you know, that's what we refer to as quad one, bringing it back home, you know, to the US, you know, certainly in the near term, you know, we we can see you know some constructive um constructive elements, but you know, I think as you start to get out towards um, you know, 2Q, uh I'm sorry, uh 3Q and 4Q, 2H, um you know, there are there are some concerns, particularly from our perspective on the inflation front, with, you know, what I mean, just look at what's happened in energy. Um, you know, we we are seeing some some real um you know, some real uh uh headwinds from the perspective of inflation. Um and you know, we'll see what happens with the Fed. I think it's kind of anybody's best guess at this point, but you know, I I feel like I've said this, you know, for the better part of my career. It feels like the Fed has kind of backed themselves into a corner again, um, you know, and we'll see what happens um, you know, from that perspective, particularly given, you know, our expectation at least of you know, some acceleration in inflation as we see the the back half of this year.

SPEAKER_03 35:56

So um when you're in interest rate cycles that are uncertain like this one, does history suggest that there tends to be more go forward volatility, which makes the case for case five even stronger?

SPEAKER_02 36:09

Uh yeah, I mean, I certainly think that that's you know, that is the case. That's um, you know, particularly given you know uncertainty around um you know the Fed, I think Fed uncertainty is definitely a a cause, if not a leading cause for equity market volatility. Um so you know, certainly the I think the case could be made that you know if if we are gonna you know see continued Fed volatil Fed uh you know uncertainty, uh, you know, there's a case to be made for you know equity market volatility. And obviously that's you know that's not a bad place to have you know case by as uh you know as a core holding.

SPEAKER_00 36:45

So it's interesting. I don't know if you saw it's yeah, the Philippines raised interest rates today. Uh that you know the Philippines is is highly dependent. Uh I mean, virtually all of their oil comes out of the Middle East, and um, you know, they they they've got they've got a real energy shortage problem. I mean, just from a supply, I mean the obviously dealing with very and and I I think I think those are narratives that um you know this US centric market has really kind of ignored. But you know, again, when you spend a lot of time outside of the U.S., you know, this situation, uh, you know, wealthy countries have oil reserves. You know, the U.S. is very blessed, you know, we're energy independent, but it doesn't mean we're immune to high oil prices. And then um, you know, there's a lot of countries that, you know, a lot of their electricity generation is oil and LNG. And and for those countries that don't have reserves, that they're just not wealthy enough, or the their government didn't prepare for an event like this, it's gonna be this could be a real problem in and and I think, you know, in a not very too distant future, and I'm not I'm not being overly negative, I'm just saying these are these are things that you really don't get any news here in the United States. Um I'm a little bit shocked a little bit. Um you know, there's a lot of kind of Donny, Danny Cannonman, you know, Donny Kahneman uh you know thinking fast and not a lot of thinking slow of doing analysis, but but these are you know, I think kind of concerns for the global economy, which you know affects China, vects the affects the United States, but um you know um it's just things that that we kind of see out there with our foreign focus a lot of time, you know, it's a world of system one to use Danny Conwin's uh mindset.

SPEAKER_03 38:42

Um okay, so so um for those who want to learn more about uh Hedgeye, Case Buy, and then Queen Shares, let's go over all three. Uh John, talk about make make a quick pitch for uh for Hedgeye here, and then obviously let's talk about fund and then we'll wrap up there.

SPEAKER_02 38:56

Yeah, I mean, I you know, I think look, uh you know, Hedgeye, obviously the the research speaks for itself. Um, you know, the the the macro framework, like I said, you know, I was a user of prior to working um you know in behind the curtain, if you will. Uh, and you know, certainly um, you know, the

Where To Learn More And Wrap

SPEAKER_02 39:16

value proposition is there. And then, you know, what we're basically trying to do at Hedgeye Asset Management is take that research and um, you know, generate asset management products, you know, based off of it. And obviously, you know, that's the the premise of the the partnership with Crane Shares, um, you know, just packaging um, you know, what is uh, you know, from our perspective, you know, really an institutional grade strategy, something that you would traditionally see in a in a private fund or an SMA uh in an ETF that's accessible to the masses. So um, you know, that that that's kind of the the click on us.

SPEAKER_03 39:51

So and uh Brendan, Cranchers has a bunch of funds. Which one's your favorite? No.

SPEAKER_00 40:02

Yeah, I mean, I think the the roots of the firm were uh based on giving investors exposure to growth elements of China's economy and capital markets that you know some of this narrative of you know China hasn't performed in 15 years is is nonsense. That you know, if you're if MSCI China's 50% financials and energy, it's probably not gonna grow very fast. And Chile and the Middle East, there's a whole whole host of countries that you know they're basically value betas, value factors, and the the roots of K of cranchers really are giving people that growth factor for China with K Web. But we've also taken what we've seen in China, trends we see not just China but broader Asia, things like humanoid robotics, global electric vehicles, these are things that we saw happening in China uh today that we think you know it's gonna have a real effect globally. Um and then we've worked with you know third-party managers like Hedgehai Asset Management to help bring their strategies uh to the marketplace. Uh I think, you know, again, the roots of the firm are all around our remain on research. You know, we want to endeavor to earn the trust of investors through our research. And I think uh that's very true. You know, if you go to craneshares.com backslash casepy, you know, there's a wealth of information, and no different on any of our funds, um, no, that's really where we spend the majority of our time is on the research side.

SPEAKER_03 41:36

That's a good place to wrap up. Appreciate those that watch this live this being edited podcast, probably by next week available. Uh learn more about K Spy, learn more about Crane Shares, and keep watching Lead Like Live. Uh thank you, buddy.

SPEAKER_00 41:48

Thank you, Michael.

SPEAKER_03 41:49

Thank you. Okay, well um