• 00:01:00 What is Convexity and how does it express itself?
• 00:02:59 Why startup founders usually enjoy positive convexity. Why bonds often come with negative convexity?
• 00:08:33 Why taking a flat fee is a good idea for money management?
• 00:14:03 Did Softbank create a ‘Gamma Melt-up’ buying an extraordinary amount of call options in 2020?
• 00:21:45 How to profit from increased interest rates? How to open up the upside without taking all the downside?
• 00:32:14 How the time horizon of investments has shrunk so much?
• 00:34:10 What is the state of productive carry-trades on right now? Should people look at Turkey, Mexico or Brazil?
• 00:37:43 What is ISDA and why it offers amazing way for financial contracts unavailable to retail investors.
• 00:42:59 How can retail investor get exposure to CDS (Credit Default Swaps) options through Simplify?
• 00:47:45 How big is a structural risk for a ‘risk drawdown event’?
• 00:58:51 Will the Fed be able to inflate out of the current deflationary scenario?
• 01:00:17 Will the rapid rise of technology allow us to grow out of the high debt level (just after WWII)?
• 01:03:12 How much are growth rates influenced by social and political attitudes?

You may watch this episode on Youtube – #91 Harley Bassman (How to become a Convexity Maven?).

Harley Bassman looks back at a checkered career of 35+ years at Wall Street and also runs Convexity Maven. Harley currently works with Simplify.

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Torsten Jacobi: Hey, so you had and you still are having a quite illustrious career on Wall Street and you’ve been doing this for 35 years and you also blog at your own website Convexity in Maven which you’ve been maintaining despite different employers that you’ve been involved with. Why don’t we talk about Convexity a little bit? It’s something that very few people really understand including me but it’s becoming and Nassim Taleb has been really promoting this in his last two books. It’s becoming a new measure of risk. Maybe you can help us understand what does Convexity mean and what does it mean to you also?

Harley Bassman: Well, thank you for having me. Good morning, good afternoon, whatever time it is. Let’s take a step back. There’s really three risk metrics when you think about bonds, fixed income securities. There’s duration, there’s credit, there’s Convexity. Duration is when you get your money back. Credits if you get it back and Convexity is how you get it back. Those three things have always been there and they’ve never changed. It’s just the people that have not focused on Convexity. If you want to go and explain Convexity to your mother, what you would say is if I place a bet and I could make a dollar or lose a dollar, that’s zero Convexity. It’s a linear return. If I could make two lose one, that’s positive. If I could lose three make two, that’s negative. What Convexity is really talking about is the return profile symmetric or asymmetric. Positive Convexity is good, clearly, because you can make money you could lose, but you have to pay for that and negative Convexity is bad and usually you receive the money for that. If you think about an option, what you’re really doing is you’re buying or selling that Convexity, that payoff profile per se. I would continue that what you’ve seen over the last decades and I’ve heard about this in past commentary is that whenever you see a big blow up, you always see Convexity, negative Convexity lurking behind the scenes. Almost all of our big explosions have been basically there’s some kind of negative Convexity embedded in the market or embedded with portfolios that people are unfamiliar with or are comfortable with and it can become explosive. That’s the big deal.

Torsten Jacobi: Yeah, I read through a couple of your newsletters and I’m surprised how much I understood that you write really well. You also go into the math, but you also make it understandable. I remember that one example and I think that was positive Convexity, correct me if that’s wrong. So basically it’s a startup founder, it’s an entrepreneur. It’s someone who holds a lot of equity and potentially you can describe this as a call option, someone who has unlimited upside, but can only lose what this stock is worth. That might not be that much in terms of starters when we start out there, not worth much. That’s positive Convexity, correct?

Harley Bassman: Well, the way I’ve defined it, of course it is. When you buy a stock, you can lose what’s paid for it and it can go up a lot more. I suppose Amazon or Tesla are examples of incredible Convexity and if you look at the people who are richest people now, most of them have gotten it through a company where they own stock and they own equity in the company. One can define, I’m a UChicago MBA, I’m a monetarist and what you saw when you go to like Capital Markets 101 is that a company is basically the value of the company, is its stocks and bonds, right? And you could think of the bonds as being the strike price because they get paid first. If a company liquidates, a bundle of liquid speed first, that’s a strike and the equity holder gets everything above the value of the bonds. That’s a way you can model a company.

Torsten Jacobi: As an example for negative Convexity, I was thinking, I don’t know, again, correct me if that’s wrong, are people who bought into the prefinancial crisis structure products. The idea was that they were ranked as AAA and you would only get a maximum return, whatever it was, 4%, 5% per year, that was the interest rate, but you could lose your principal and I think that’s what happened to a lot of people. So the maximum they could earn was five, where they could lose everything and it happened to quite a bunch of them.

Harley Bassman: Why are you bothering to limit yourself to subprime bonds? Every bond has that characteristic where the most you can make is your principal plus the coupon and you could lose, I won’t say infinite, but you could lose a lot. If you want to structure a bond, you could say, I’m long a treasury of some maturity and I’m short a credit default swap against it, a credit default option. That basically is the extra income you get for taking credit risk over treasury and that’s exactly how we price all these credit derivatives is by looking at the LIBOR or the Treasury curve and then taking the difference.

Torsten Jacobi: And you said that earlier, a lot of what we’ve seen in these big blowups and I think you also mentioned LTCM, which I still remember, we saw the great financial crisis and we’ve just been through another one. You say that’s negative convexity and how is it that these experience investors don’t see that? It sounds like a bad deal to pretty much anyone who has a little street smart, it sounds like a bad deal, but it seems like billions and trillions of investors of investment money, they still go in negative convexity. Why is that?

Harley Bassman: Well, are you talking about the investor or the hedge fund manager? People who buy bonds, right? It sounds like a terrible deal. We have very low interest rates that are given to most bonds. We have high expectations of inflation and why on earth would you do it now or even five years ago? First off, no bad bonds, just bad prices. I learned this early days on Wall Street when I was a market maker and someone, a salesman would say, well, put a price on X security and I’d say, I don’t want to buy it. He says, fine, then put a low price on it. I mean, there is a price for everything, almost everything out there. My career was basically in convexity, in mortgage bonds, callable securities, contingent claims analysis. If you think back, there’s a reason why we hired physics PhDs in the 90s. That’s because we needed someone to go and figure out what is the option, the risk worth. And once you figure a fair value out, we could say, okay, do I believe that concept, that structure, and then do I want to buy or sell around it? I mean, Mike Milken may have gotten a bad rep for doing a few unsavory things, but he did create the junk bond market with his late 70s, UPenn thesis of a portfolio of less than investment grade, so below triple B bonds. That portfolio will yield more than, you know, another portfolio if it’s diversified enough, which basically meant that the default risk embedded in these bonds was too high that you were, that maybe the market was pricing in a 8% default and realized defaults were six. And so you want to own an diversified portfolio of what was called junk bonds, now it’s called high yield bonds, although frankly, these bonds yield about 3.95, I would not call that high yield.

Torsten Jacobi: Exactly. But was there a secondary market where you could buy them at a discount, you just said that just the price needs to be right, or they were sold at full value, like 100% you put all the money in?

Harley Bassman: I mean, all bonds trade at a price in the market once they’re issued, and usually they’re priced at a slight discount to fair value to entice people to buy a new security. I mean, there’s a reason why IPOs tend to go up, you know, 2, 3, 5% after the break, after they’re launched, because you want to entice people in to buy to take the risk, which is fair. I mean, when you see a stock double on its IPO, one could argue that the underwriter mispriced the security, but there’s other reasons why they try to do these things sometimes to create some joy and excitement and headlines. But theoretically, you should be pricing things that far below fair value, market value. But so if we’re going back to your question about hedge funds, there’s a problem with the structure of a hedge fund in the sense that if you pay someone two and 20 or one and a half and 10 or whatever it might be, you’re giving that hedge fund guy a percent of the up, but he’s not taking any losses on the way down. So in that sense, you’ve basically misstructured the whole investment process where he’s paid, I won’t say he doesn’t care if you lose, but his incentive is to take more risk. 

Torsten Jacobi: that seems like you trade with other people’s money, banks money, so to speak. And you put a lot of leverage on and there’s really no downside. Worst case you go to another bank and say, well, they screwed me on that bank.

Harley Bassman: But that is called the trader’s option. And that does occur. But how banks dealt with that is they go and they give you deferred comp, they do clawbacks, or they pay you a lot of your compensation in the firm’s stock. And if they give you enough stock after a while, you actually do care about the firm. So these things do work. Sometimes they don’t, but they do tend to work. So that’s kind of fine. And you’ll see TV ads from money managers who say we’re aligned with the client. They’re not aligned. If they take a portion, a small fee of your total portfolio, as opposed to a larger fee of the gains, like, that’s a different incentive than saying, I’m going to take 25 or 50 basis points of your entire portfolio, because now you actually care about the whole, the performance and the level. So I would say those are the kinds of things. And also, you’ve gone away from paying a commission on trades, so you don’t have the incentive to turn the portfolio over and over again. So paying a fee on your entire portfolio will sometimes bother some. If the fee is fair, then you’ve really aligned all the interests. And that, of course, is the best way. I mean, think about it, good management really is about putting the carrot in the right place. And a lot of what happened in the great financial crisis was that the carrot was in the wrong place. Actually, the carrot got shoved somewhere, it shouldn’t have gotten shoved, but the carrot was in the wrong place.

Torsten Jacobi: Yeah, it seems like we go with the crowds, and it’s so much easier psychologically. And I think that’s true. There is this fee of missing out. And on the other hand, it’s so much easier to go along with what you see all day. And 90% of the people around you do, even if you have that sinking feeling that something is wrong, this thing has extended to farm. You see this with Bitcoin now, right? It doesn’t matter where it’s going. We all think it’s a bubble. And I think everyone out there thinks it’s a bubble, but we all know it could go much further. And maybe we just want to be along for the ride. So I feel like the investment decisions at that point are not really rational. Some people, like you, professionals, they’re rational, but this probably the small minority. And even if they do, they’re measured against the market every three months, six months, if you’re behind the market for two years, I don’t know if you still have your job.

Harley Bassman: I think you’ve really hit on a number of interesting topics here. One of them is, what’s your horizon? And does your horizon match your money manager’s horizon? You know, hedge funds that have monthly or quarterly, you know, horizons, that’s kind of the wrong place to be if you’re looking more distant. I mean, I assume at some point we’ll get to the products I’m dealing in. And most of them are five, seven, 10 year investments, long horizon, where I’m going to size it properly and run with it. Because I don’t know what’s happening tomorrow. And most of the things that, I don’t want to say expired, but transactions, investments that are one month, two months, six months, those are extraordinarily efficient. There’s so much money flying in them because people have to have liquidity. And they have to go and have quarterly performance. I do quarterly performances is very bothersome. Because I don’t know what’s happening in the next few months. But I can look further out and have a good idea of what might happen.

Torsten Jacobi: Yeah, one thing I really wanted to have you on that I think is not well understood is what happened in the markets in the last 12 months, a lot of people call it the gamma war tax or gamma meltup. It’s what happened with Softbank. And Softbank seemed to have a strategy to kind of front run the market on large call options. That’s how it was described. Maybe you can help us a little bit to understand what actually happened. And if Softbank was just just got lucky, or if they actually moved the market given their size.

Harley Bassman: In one of the last two or three commentaries I wrote, and you could find all my stuff online at convexdimaven.com. I have my full archive there. If you want to get onto my distribution list, it’s all free. My email address is there. I’ll add you on. And I do describe how gamma optionality convexity seemingly was a major contributor to the GameStop run up and run down. And you’re kind of saying, did that same thing apply to Softbank? That’s unclear. It’s unclear because what Softbank tends to own is very distant cash flows. They’re investing in, I won’t say startups, but fast high growth companies that are probably actually losing money right now. They have PEs of 100 or a zillion because they’re not making any money. I mean, the PE of Amazon, but you know, I mean, when Amazon came out in the late 90s, I remember not buying it, much to my regret now, because the story was they could sell every book in the world and they could not create a PE that was even close to a market number. I didn’t realize that they were going to sell everything in the world, not just books. And clearly someone else figured this out. But their income, their cash flow is still distant from now. But what happens, what we saw is interest rates came down radically. And so if you’re going to earn a billion dollars in 30 years, you discount that billion back at 5%, you get a number, right? 1.05 to the 30th, right? And then divide that by your billion, that’s what your stock is worth kind of. You go do 1.01 to the 30th, it’s a very different number. And so I do buy into the concept that this massive reduction of interest rates by global central banks, US, so the Fed, ECB, BOJ, Bank of England, China, they’ve maneuvered rates down and this naturally pumps up discounted cash flows. And these growth stocks, they’re like 70 year duration bonds. So it’s unclear that SoftBank was gamutrating per se. They may well have just been long 70 year treasuries.

I think the accusation is, and again, I’m not sure if that’s true, but it seems, maybe an accusation, maybe it’s a grand chess master strategy. So because all their portfolio was down in early 2020 with the COVID crisis, because none of them really makes money. So they’re core equity investments and they all shut down, many of them shut down, 50, 60, 70, 80% of their revenues. And the idea that SoftBank had, and I think it’s kind of smart, is they said, well, we have a good amount of money left, where they make big investments and they have 100 billion fund. Why don’t we take just 2 billion out of this, instead of going into more investments and creating headlines that way, which worked before, but nobody cared about this in May 2020. They said, why don’t we, the stocks implied in the equity markets? And they realized, well, the nest is big, but if you put 2 billion into high gamma options, then you kind of can pull along the market, because as you know, there’s a lot of hedging going on by these, by just a lot of leveraging options. So they only needed 2, 3, 4, 5 billion in order to move the nest back higher. Obviously, there needs to be a little bit of sentiment that that happened. And then they suddenly moved the whole market for six months to levels we’ve never seen before. And that was either genius or it was just plain lucky. I’m unwilling to buy into that. I’m not saying you’re wrong. You might be right, but I don’t think it’s obvious that’s what happened. It may be a more correlation as opposed to causation kind of thing. I mean, if you think about it, who’s selling those options? If you had weak hand speculators who are Robinhood traders, you’re shorting options, then yeah, sure. If you have Citadel, Susquehanna, Jane Street selling the options, you know, these guys ain’t dummies. I can assure you they weren’t losing money on these trades. And they’re also hedging very quickly. And to the extent that they’re selling a volatility that’s above, if they sell a 40 vol on, you know, Amazon, and Amazon realizes a 30 vol, so they’re basically buying stock every night as the stock goes up and the delta goes up, they’re doing just fine. And so it’s unclear that that, you know, drove it. To get the kind of stuff you’re talking about, you almost need much very short data options that are very close to strike. And that’s what GameStop was. It was very short data options that cross strike. And, you know, it’s a low float security. It’s not like Amazon where you have a trillion bucks out there. So I like the GameStop story more than an Amazon or Tesla story. Yeah, if you want to have a gamma meltup, just say the two of us want to produce a gamma meltup, are we looking at options that are expiring relatively soon or relatively far out, maybe in six or a month or one year from now? What should we focus on in order to move the market? What we want to do is we want everyone else to do that. The hedging, the people we buy the options from, once the volatility goes up, they buy more, so the stock price goes up. That’s kind of our goal. How could we accomplish this if, say, we want to fold this up? I mean, the gamma is almost directly related. Well, it’s related to things. One is applied ball, but the other is time to maturity. And so the longer an option is, the less gamma it has. And then if you go out far enough, there’s almost no convexity option. There’s theoretical convexity, but the delta just don’t move, which, of course, is kind of why the new ETF strategy we have over here, why it’s interesting, because it’s stability. It’s an option, but it’s very stable. If you want to go and create a gamma meltup, then you’re going to buy slightly out of the money call for like a week. That’s how you get it. But that’s going to be a very expensive option for long decay, and you need some help from outside forces. Yeah. The option you just described, and I’m curious how this fits into the environment that we have, the extreme low interest rates, but seemingly higher inflation. What does it accomplish? This is a bit like a bond, and how do you buy those? Because it seems like multiyear options, they don’t seem to be in the public markets. Okay. So I’m going to be very careful what I say over here. So I will call this a strategy, and I will not mention tickers or any other three letter word. As a base case to start with, I propose, I believe in inflation and higher rates, but I don’t want to talk about that for now. Let’s just leave that out for a moment. What I think is that if rates go higher, and by higher, I mean somewhere around three and a half to four and a half percent, unlike the tenure, what will happen is the correlation of stocks to bonds will flip. For the last 20 years, what you’ve seen is stocks up, bonds down, and back and forth, and back and forth. This has been really the key underpinning of the 6040 portfolio. 60% stocks, 40% bonds, stocks up, bonds down, back and forth. So you can have volatility in both sides of this, but at the end of the day, you look at the total value of your portfolio, it hasn’t moved that much, or it’s gone up slightly. You then take this and put some nitroglycerin onto it, and what do you get? You get what’s called risk parity. So you take your $100, this is what bridge water, I won’t say invented, but perfected, is you take your $100, you buy $130 of bonds and 70 bucks of stocks. That relationship will adjust depending upon the realized correlation of these two assets. But no matter how you slice it, as I’ve described it, you’re long $200 of assets, but you only have 100 bucks of money in your pocket. So as long as they go back and forth, you’re fine. But what would happen if that correlation was to flip around, and all of a sudden the stocks and bonds went up and down in unison? Well, this would be a real problem, wouldn’t it, on a down market because you lose on both sides, and you’d lose twice as fast because you are levered, right? You’re levered two to one. If you go look at the last two big drawdowns we’ve had, so a year ago marked and then before that end of 18, you saw stocks and bonds go down together. And when that happens, all of a sudden everyone has to reduce their risk, everyone’s margin called, and you get what we call power windows down a situation. This is when the feds jumped in to go save the day. But in March last year, you saw stocks, bonds, gold, everything went down. This could have really been a real problem if that had jumped in. They stopped that problem. What I propose to you, and I have charts in my last commentary, that I won’t say shows. Well, it does show, in other words, proof, but when you have inflation blow two, two and a half, interest rates below four ish, the correlation is inverse, stocks and bonds go different directions. And because above that, the correlation flips around and they go up and down together. And so if that was to happen in a very highly levered, by leverage, I mean, we have many more bonds out there than we used to versus GDP versus income, margin debt is at record levels, short interest is at lower levels. I mean, people are basically geared up to go and ride the market. If we got above that 4% level, this would be a problem on the way down. And so what I’m saying is, here’s the strategy where if we get rates past four, you’ve got some protection over here. Actually, you have protection all the way up because it’s an option. But I mean, that’s why I struck it at four and a quarter, was that that’s the location where I think the correlation turns around. And I want to have that big problem. Is that something, correct me again if that’s wrong, but you’re betting that volatility over time goes up, right? And then the price of those options goes up because it’s as implied volatility. Is that part of the strategy? It’s an interesting benefit. It’s not part of the strategy. I mean, as you look through my latest commentary, helicopter defense, implied volatility now is not quite record lows, but target close to it. And this is the case in all assets, US stocks, European stocks, currencies, bonds. Why is that? What’s your theory on why is that? That’s perplexing to me. I talked to Mike Green a while ago. And he has a similar thesis that he says, well, the volatility can only go up, but it happens every couple of years. It jumps to 50 in big terms. But then in between, it always looks for years. There’s only one direction and it seems to happen. The same cycle seems to happen all the time during the last 20 years. There is a cycle to it. I would say that clearly the primary driver is the Fed in words and deeds. They’re buying 120 billion of bonds every month. That’s a lot of bonds, man, whether we’re issuing new stuff or not. It’s a lot to buy. I can’t keep up with these numbers anymore because sometimes it’s a trillion. I mean, I don’t even know if 100 billion is a lot. It seems like, well, it’s tiny. It’s maybe something that Goldman would buy. I have no idea. It’s still a lot of money, baby. And then they said, we’re not taking rates up for two years from now. So words and deeds, they’ve kind of said, we’re going to support the market. And then there’s the perception, reasonable, that there’s a Fed put. If stocks go down by enough, they’ll step in and cut rates or buy bonds or do something. All these things are basically told people to go, there’s no reason to buy insurance, i.e. buy options. What’s an option? An option is the price of insurance. They call the VIX the fear index, which is good marketing. But it is true that it is the price of insurance and the price of insurance is reflective of conditions. Unfortunately, people tend to not buy fire insurance when it’s raining out and it’s cheap. They buy it when the fire is already taken the house down. But I’ll give you the similar idea. The mortgage crisis, the great financial crisis, I mean, I was right there in the middle of it. I actually managed a mortgage trading in the few years before this happened. So I’m very familiar with this whole business of how it operates. And there’s not one villain. There’s lots of villains out there. And depending on which movie or book you want to write, you could point to whoever it might be. I would point, I won’t say the number one villain, but certainly your top 10 villain is going to be Alec Green’s band in the Fed. What did he do in 0304 or 506? He said, I’m going to take rates up at a measured pace. And what did that mean? It means I’m taking rates up by 25 basis points every six weeks. And he started, and that’s what he did. Well, if you know the Fed’s taking rates up by 25 cents every six weeks, and you can kind of bank on that, why would you ever buy an option that rates could be up by more or less the basis points? You wouldn’t. As a matter of fact, if you could sell that option for anything, you’re going to do it because he’s already told me he’s going to go and do. Well, you take this idea of measured pace, everyone sold every option, or they didn’t buy any insurance. What’s the price of insurance? Plied ball. That’s why you saw implied balls collapse in 0607 before the crisis. And at some point, imagine this. You are, you’re running a bakery or a pizza oven in a, in a, in a wood building. It’s not a good idea, probably not, but you don’t care because you bought lots of fire insurance so you feel pretty safe. And it rains and rains and rains and everything goes by and the woods always jammed and like, you stop buying fire insurance after a while because it’s always raining out, the house is not going to burn down even though you’re running a pizza oven. And time goes by and finally you say, you know, there’s, there’s still a price for pizza oven insurance, I’m going to go sell it. So not only do you live in a wooden house with pizza oven, with no insurance, you know, start selling fire insurance. That’s kind of what happened is people that only stopped buying insurance, they started selling and they sell insurance. How? By selling embedded options. They weren’t sorting straddles on this, such and such. They would go and buy mortgage securities or corporate bonds that had embedded optionality. So they were effectively short options. And when you go and look at the subprime bonds, the bottom bonds actually, they were fine. They were priced to blow up and they did. It was the doubles and triple A’s that were priced to perfection. I mean, if you’re buying a double A bond at, you know, 50, 60, 30, 40, 50 over live war, what’s your upside? Have a point? What’s your downside? A lot. It was the triple A bonds that took down Wall Street. It wasn’t the double B’s. No, of course, of course. And I still don’t understand why anyone would invest in those. I mean, unless you have those, these really contracting time frames, I think this is maybe it’s sign of times or maybe it’s been like this forever, but we live in a time where we feel emotionally that time has shortened, has contracted, right? Five days on Twitter. It’s like, I don’t understand. I don’t have any memory which was five days ago when I read on Twitter. So my universe of time has, is maybe a year out. I can barely remember who’s two or three years old. And I think this is now we’re seeing this reflected investment where nobody really wants to think back 20 years because they feel, oh, this doesn’t apply anymore. Because I know what’s going on. And I’ve seen it during the last two years that that’s enough to know, right? And a bit like this, this was with the back test that we’ve seen for the structured product in mortgages. They’ve been tested 20, 30, 40 years and we’ve never seen major declines in rents and house prices. So it cannot happen, right? So that was the end of the story. And then the story was sold. And it was very effectively sold and everyone bought into it. Well, I mean, look, I’m going to make a bet that if you’re making any money on this TV show you’re doing right now that your personal portfolio probably has a lot of options you’ve sold, you even thought about very, very clearly. And number two, I mean, let’s open your eyes, man. Where are junk bonds trading at? 3.9%. Really? Really? I mean, why did you have to go look at subprime housing bonds? Just look at junk bonds right now in front of us. You have no wiggle room whatsoever. And why is that? Well, because the Fed has rates of 25 cents, because Europe has rates negative. Japan has 10 year rates at 0.1. Swissy rates are negative, whatever. I mean, the Fed and central banks have put a gun to our head to go and find yield. And people are buying various securities at clearly the wrong price. But it almost doesn’t matter. Because if they, I mean, if you don’t buy your junk bonds at 4%, then you’re going to buy, you know, through your treasury at 0.4. I mean, pension funds, insurance companies, they have to go and they have liabilities they got to meet. So, I mean, the Fed is forcing people into bad scenarios. Yeah, well, one thing I think you that I saw in one of your commentaries is the kind of the return, or maybe it’s never went away of the carry trade. I mean, you used to know the carry trade was typically was very low yielding currency. This is where you got the money from. You put it somewhere else and then you play with it and your hope interest rates are kind of stable. So you get your money or something similar to that with your invested back. Where do you see carry trades right now? Are these still such a big factor? Is there trillions parked in some carry trades that we don’t even know about? I’m sure there are carry trades out there. They’re just, you know, challenging. I mean, an easy one probably is Mexico, right? I mean, that yields probably about five, six. And you could fund that in Japan, you could fund that in Euro. Is that a good trade or bad trade? I don’t know, but I mean, it’s like they’ve gone away. And Mexico is probably a lot more rational than Brazil or Argentina or something like that. I mean, I mean, to some extent, Mexico is the 51st state who’s kind of linked to the US economy. So I mean, my money would be on Turkey, right? So very high interest rates, but very high inflation also. Is there a way to hedge the interest rate differential so that you don’t see very different interest rate couple of years down the line when you want to pull your money back up? Oh, it’s very easy to hedge these things. But the thing is, once you hedge out all the risk, you’re back to your base security. The markets are efficient. So maybe that is something that people don’t know where you can get really cheap hedges for this. Well, I actually wrote about Turkey two or three years ago. I actually put on a trade in the Turkish, I did the Turkish lira versus the Euro when Turkish rates were very high. And I went out like three years. And what happens is you can get these futures forward, but effectively Turkish futures out three years in the currency. And you can get some interesting scenarios there where you only lose the things really go haywire. I’m out of the trade. I got out of it. You know, you’re in change ago, which I’m glad about because it turns out things didn’t go haywire. I proposed at the time that Turkey wanted to be, you know, a civilized country that would have a working banking system and would control foreign investment. And therefore they would central bank would be given independence to raise and lower rates to stabilize the currency. So foreign investment would feel safe coming in. They didn’t happen lately. It happened. It happened for a while. But it didn’t happen quickly. I mean, they fired the central bank banker. So there was that. Well, I know you’re very inventive of these things, but I was always thinking, man, there would be someone out there who needs that exchange rate I’ll lock it in in three years from now, because for some reason that that person wants to take the other side of the trade. I know Goldman Sachs is really good at this, actually finding individual private counterparts. And that would give you a very low cost hedge, so to speak. You don’t have to go into a public market. But obviously, then you worry about that counterparty risk for it. Okay. The counterparty risk is, I won’t say irrelevant, but irrelevant. If you’re facing JP Morgan or Goldman Sachs, you’re fine. You got bigger problems than that. What you’re really digging into now and the trades you’ve described are not weird, crazy things. They are liquid, active, on a screen of sorts. But they require ISDA, ISDA. ISDA agreement is a contract between all the various professionals, hedge funds, the investment banks, the pensions, the insurance companies, the corporate borrowers. All these professionals have a unified single contract. There’s a few tweaks, but they do that so everyone transacts in an apples to apples way. So if I buy it from Goldman Sachs, I can sell it to Morgan Stanley and the whole thing goes away. So it’s a unified contract. That contract is only available to professionals or very ultra high net worth people. This is where you get really interesting opportunities where you get really customized trades and you can go out more than six months. You really don’t find options maybe for SPY. You can go out two years. Most of the things, you can’t really go past three to six months. And so the entire reason I joined Simplify was they offered a way to take an ISDA product and I could pierce the ISDA veil and offer an ISDA product to civilians, civilians as nonprofessionals. And our first strategy is exactly that, where we take a seven year option and offer it to people. And it’s a way of getting both convexity and predictability and performance. It’s a simple two asset strategy where you buy half initially $25 of treasuries and $500 of a seven year option on the 20 year interest rate struck at four and a quarter. Remember that four and a quarter? Why got that fund before? That’s where I think the correlation flips. And because it’s a seven year option, it’s extraordinarily stable. The theta is very small and has tremendous convexity. This strategy can go down a little bit. It can go up a lot and it’ll trade on an exchange. So it’s point and click. Like an ETF, right? It’s an ETF that I can actually buy. Yes. Yeah. So what would be the scenario? So if the interest rates really go up to ten percent, which is the scenario, if the Fed gets into trouble, that would be a big pay off thing for that product? Funny you should ask. If you go to page four of my most recent commentary on my website, I have modeled. This is not a promise. It’s a model of how this should look. And it’s kind of easy to do. You could price it on Bloomberg. And all you got to do is basically play with this thing. So right now, if the price was 50 on a model, up through 100 basis points, this thing would go to anywhere between 160 and 185. And maybe higher than that, depending upon volatility. So that’s a pretty fancy move. Yeah. And the comparison is this, by the way, if you took the, let’s just say that you modeled it the way I think and you put in some volatility increase, the price would go up and you waited two years. So it takes years. And the rates go up 300 basis points. So just a 5%. They’re four, two now. You’re talking 10. Forget 10. Let’s go from two to five. Yeah. You’d go from $50 to 186. And if you were short futures, you’d only go to 88. So it’s vastly more powerful than a futures contract. Yeah. If the interest rate stays the same, then you lose all your principal, right? If nothing happens. Well, no, because first off, in this particular structure, initially, if you’ve paid 50, half that money is in a treasury. So the worst case is 25. Let’s talk more realistically. If you bought this thing today, as I’ve modeled it, I promise, as I’ve modeled it, if you buy today at 50, in two years, everything else the same, but the clock has been turned, it’s worth 44. So it goes down by 12%. That’s it. Yeah. Well, I like those options. Yeah. And that’s because it’s a seven year option, which does not decay that quickly. If I was buying a three month option, it’d be all gone. Yeah. That’s more for the gamblers than us. One other thing that we talked about, the mortgage crisis, the way to actually trade this, if you had that conviction that something was going on, only very few experts had that, is to find CDSs. And I remember that from the movie, right? How difficult it was, even for professional investors to get the credit default swaps. Yes. Is there a way, and you imagine, is there a login to get access to the CDSs? And is that something that you might plan to put into another product? Another juicy meatball coming over the plate. Yes, we have this product in registration right now. And it’ll be, roughly, you give us $100, or you buy $100 of the asset. And then maybe 10%, 10 of those dollars would go into CDS options. So actually, not the swaps, but the options on the swap. So you have a lot of convexity and a lot of leverage. It’s basically, it’s like a tail head strategy for credit as opposed to equity. What are the credit default swaps on? What kind of securities are you handling? It would be on the investment grade index. So it’s called the IG, CDS, space IG, space five year. So it’s basically a basket of five year high grades of investment grade credit, so triple being better. There is a CDS index for junk bonds, a high yield index. This is not that. This will be on the IG portfolio. If I were convinced, let’s say Uber will default soon on their bonds, is their product for me to buy right now as a non institutional investor? Well, to default on their bonds, the stock would go to zero. So I mean, right, because the bonds are in front of Uber. So I mean, you just buy puts on the stock. But they only have two, I don’t know, two billion in bonds. And I don’t know, they still have 100 billion in cash lying around from South Bank. And thus, it’s quite unlikely that the bank, I suspect that those bonds would not, they probably trade fairly tight to treasuries, and they’re probably a quality credit. But I don’t know, I’ve looked at Uber bonds. So and it’s possible that they’ve structured them in some way where they’re unsecured with some kind of funny language in the contract. But I doubt that I suspect that it’s legitimate quality investment grade bond. Yeah, well, the credit defaults, they’re such a wonderful instrument if you have a certain conviction, because it’s very cheap, right? So because it’s just as insurance, and if you even have an option on this, you need very little equity and have eventually a huge payoff. It might never happen. But if it happens, it’s like 1000X or 10,000X. I don’t think it’s that big of a multiple. But yeah, it depends how you buy it and how much leverage you put on. I mean, that’s the thing is if you in the strategy I’ve described over here, you’re buying a $50 instrument. Another instrument, $200 is treasury and $20 is option. That $20 option is on kind of a $1,000 bond. So I mean, you think about $25 controls $1,000 of bond. That’s where you get the real leverage from is, are you doing apples to apples? Now, if you then bought, you can say I’m a $1,000 bond, or I’m going to buy $1,000 of options. Well, now you’re talking about options on 40, $40,000, I suppose $1,000, right? 25 times 40. Yeah. So I mean, you’ve got to be careful that you apples to apples things. You can’t compare a dollar investment of option with a dollar investment of the underlying asset because the option controls so much more of it. So that can be a little tricky bond math and people try to do comparisons. Tail hedge funds tend to go and advertise that way. They advertise how much the premium has moved as opposed to how much protection it afforded you for the actual principal investment you had. Yeah. So when you, and you know, we are doing all this math right now with different ways of leverage and how we can get this leverage. Do you think there’s like a structural risk that I’m sorry, do you think there’s a structural risk that we are all looking at these layers and layers of leverage, right? We just went through it. And so do does everyone else because we have all the same problem, right? We want right convexity and we want obviously we want to have some decent return. We are not happy with 0.1%. Is there a risk, a structural risk that once we go into one of these drought on liquidity events like we had last year, that this whole system can come apart and we all go, all assets go to 10% of what they were before. Really quickly, like in the matter of the last crisis show that this was just a week or two and distinct drop like 60%. How big is that risk? The Fed’s not going to let that happen. Okay. I mean, the question really is if the Fed hadn’t stepped in in March, how low would we’ve gone? That’s unclear. I mean, could there be a systemic crisis where you really go down a lot more? Maybe. I mean, what you really had there, what you had in March was not a credit crisis, was not an economic crisis per se, although that certainly did go into a recession. It was a credit crisis. It was a liquidity crisis. You couldn’t borrow money. No one would lend anybody money. And so all of a sudden, if you can’t borrow money, even against high quality assets, you have to sell them. I mean, why would people be selling treasuries in March of last year? That’s kind of crazy. I mean, you know that the government’s still solid. Rates are going to go, are not going to go up a lot. Why are you selling treasuries? You’re selling them because you can’t borrow money from anywhere else and you have to raise money to be in a margin call. And so that was the issue here you had, was it was a global systemic margin call, as opposed to an actual real recession economic problem. Can that happen again? I suppose so, but I imagine the Fed would step in and buy stocks and bonds. They do everything to stop a total meltdown. But the problem is, each time you do that, you just inflate the balloon even more. What you really want to do here, and the Fed had their chance to get out of this mess 2013. And they got a small 100 basis point rise in rates, the taper tantrum, you scared them away. That really is kind of ground zero for this whole mess we’re in right now. We had a chance to get rates up and to get the market stabilized again, where the capital markets could operate without trading wheels. And the Fed screwed that up. And now we got a problem where we kind of can’t live without the drug. I think that the Fed wants higher rates in the back end, not short term rates. I think we’re higher to the back end. I think the Fed wants a deeper yield curve. I think the Fed wants inflation, not inflation, but three, four, they could live with that. They’d say, well, we ran for one, one and a half for five years, so we could run it three or four for a few years because we’re averaging it. So they think they’ve laid the narrative out to tolerate inflation for a while. It’s better than a revolution, right? I feel like when you think about where the federal government is and where the Fed is, they feel like, well, if we don’t inflate out of this, we’re going to have a revolution on our hands, a literal revolution, like an economic revolution. And this is the only way they see what they can do without major pushback from the electorate. I don’t like talking politics because I only get in trouble doing that. But we already had the revolution. The reason why we had the election we did in 2016 is because the Fed tried to create inflation for wages for middle class workers. Remember, when you have, we have too much debt, how do you get out of debt? You default or you inflate and inflation is a slow motion default. So the Fed was going to engineer inflation to reduce the amount of debt we had that had been created from the real financial crisis in 0809 and 10. And that was the plan. The problem you had, though, is that the money did not go to ordinary people who would spend it and then create increased spending and velocity of money, but rather it stayed in the banking system and inflated assets. The notion that the Fed did not create inflation or the government cannot create inflation is bogus. I think it’s almost angering to me. How could you possibly say we have not had inflation, had massive inflation, stocks, bonds, gold, housing, art, jewelry, everything? We have not had inflation, though, in wages. And by not having inflation in wages, but getting it in the asset side, you widened out the wealth gap and thus we have the politics. Is it contributing factor to our politics today? And so once again, I will lay not all, maybe not even most, but a significant amount of blame at the Fed for enhancing the wealth gap, which is a public policy bad. Yeah. No, I think I share your analysis and it’s very crystal clear. What I think happened to and that’s to an extent nobody could foresee this is obviously the rise of China and willingness of China to make things so much cheaper. Consumer products haven’t done up because they are getting cheaper. And we now see it on the Internet, a lot of software, even hardware products, and not just China. This is also part of Silicon Valley. They seem to get cheaper by massive amounts, 50%, 100% every year. So this consumer price index that has that option to be spend on software, Internet, communications, anything that is hardware that comes from China as China influence, this is getting cheaper. It’s such an amazing rate. Nobody can induce inflation. I don’t think you can because there’s so much innovation happening that it’s deflating by my massive amounts, that everything where you don’t have these influences, we see massive inflations, red housing, as you said, and tuition. But if we solve those, if we make this thesis, and nobody knew that 10 years ago, that we have this massive deflationary potential and bring it to the other industry, maybe we solved inflation for now. I mean, look, we certainly imported deflation by moving high cost US labor overseas, which at the macro level is a good thing. I mean, Clinton was right, the first Clinton with NAFTA. I mean, that was a public policy good. As a macro level, the country did better. Problem is, is the people who were displaced were not then retrained to do other jobs. And we’ve had this problem before. I mean, last time I checked, we got rid of the horses and the buggies and started building cars and airplanes. The government seems to have missed the vote here on taking the people who were just placed with people who are making shoes or garments or other low tech items. These people should have been somehow retrained and reallocated to areas where there’s growth and where the compensation is greater. And we didn’t do that. That’s not practical. I don’t think that’s practical. I grew up in Eastern Germany and putting people into places where they should work, it’s never going to work. The capital allocation is crap. It’s always going to lag behind you and a private market. And we have a private market. And to an extent, yes, people had huge trouble finding new jobs that pay equally good. But we cannot shortcut this, right? The market can decide where this individual skill is usable. And maybe this isn’t usable at all anymore, but that happens, right? So the greater good is we let the best possible asset allocation work its way out. And I think it works. I mean, it might take 10 years, right? So if you see the same number of AI that makes decision making so much cheaper, it will put a lot of people out of job for an extended period. But then there is like 10 years later, there is this possibility of basically sitting on your couch and making 10 times as much as you made before. Well, I mean, you know, if you don’t have a job, you’re not going to last 10 years. And I disagree. I think the government doesn’t pick you or move you. The government go and help retrain you. I mean, there are plenty of jobs out there that don’t require a cause degree. I mean, all the electrical, plumbing jobs, welding jobs, those are all paid very well, construction jobs, those are those jobs are often or you could be in technology, you can work a spreadsheet, you can work word, you can work answering these kinds of skills are you can go to YouTube or you can do, I don’t know, a Python or a data data scientist and master’s degree in a year fully online on YouTube for like 100 bucks or 1000 bucks. That is doable. But, you know, clearly, people need help. I mean, the people are watching this video right now probably are well educated people involved in whatever it might be. There are other people who need more assistance. And once again, we’re going to politics here. But nonetheless, I think that, you know, there was clearly there was a transition of labor, you know, over the last 20, 30 years. And the result was not good for certain sets of people at the macro level, the country did better. But the allocation of those assets was not, was, you know, diverse. I agree. I agree. And I mean, there’s no reason we should get startups zero percent interest slots. That’s just that that’s I mean, it’s great. It’s great when you’re the startup industry. And obviously, that’s, but that’s only accessible through a certain size of startups. So most startups, and finally enough, we have a lot of seed funds, we have bubble up this bubbling up of seed funds. So the idea is really just like in 2000, you start something in a year later, it’s big enough to go IPO, everything that doesn’t go into this growth factor into this narrative, you don’t want to be involved in, which is really strange, right? It’s really greedy. It sounds really great to me. It has nothing to do with real innovation. Yeah. Well, we shall see. Hopefully, hopefully we’ll find some way to, you know, revitalize ourselves. I mean, I still believe that the U.S. is going to is going to do well at the end of the day. We do have a core competency in creativity, which is not the case in most of the countries. Yeah. Well, they’re getting there, right? I think they’re all on that way, but they are maybe 20 years behind or 10 years behind, whatever the delta is. But I think everyone is seeing the same pressures, wherever you go in the world, they might be behind and they might not be ready to make the hard decisions, but they definitely have the same pressure because wherever you go, Turkey might be the exception, but most of the places you go that is relatively advanced and industrialized, you see the 0% interest rates, which seems to be a disease that’s spreading, right? For me, it makes no sense that it happens everywhere. And there seems to be something bigger going on. It’s not the fault of the Fed or we can fault the Fed that it’s doing the same what others are doing and should have a better policy. But it seems to be whenever you reached whatever 40,000 GDP or 50,000 GDP, that problem hits you and it might go away in 20 years from now. Well, I mean, you’re kind of backing into, I mean, I’m not a believer that China will overtake the U.S. anytime soon for a number of reasons. One of them, the primary one is the culture of creativity. China is very good at taking our ideas and making them cheaper, but that is not creative. That’s not making new thoughts up. But also, there is a school of thought that says that once you get per capita GDP above 10 to 12,000, you can no longer operate an economy as a top down authoritarian. And you saw this in South Korea, which is basically dictatorship 40 years ago. And once the income got above a certain level, they had to become a democracy to basically push decision making down the chain. You can’t run an economy that large and complicated from the top. China has a GDP of about 9,000 right now. So they have not reached that inflection point. And the question is, is it viable for them to have a GDP of 15,000 or 20,000 per person and be top down, command and control unclear? The evidence is that it hasn’t happened yet, but they can be the first. Yeah, they’ve been the first in a lot of things, right? China shouldn’t have happened from classical economic view. We should have been at least much more democratic by now, but that hasn’t happened yet. But who knows, maybe it happens in 10 years from now. From my point of view, I think this big rollout of technology through areas that we’ve never seen before, like construction is basically not touched by technology, healthcare is basically not touched in real terms. Even cars, a lot of major investments haven’t really been touched by technology. And I always think about this, the socialist utopia is that we suddenly have the ability to do something once, we innovate once, and then we can roll it out infinitely, like we do with software, right? That goes to other industries now. And if you put AI on top of this as a decision making guide, it’s the same thing, you just incorporate it at different kind of algorithm, and then make better, smarter decisions. We’re still humans at the end and can make the final decision, but we have more guidance, we have better core decision making. When I feel how, if this happens the way I envision it, then the industrialized societies with the most data scientists, with the most infrastructure, they will have the biggest growth rates. So we will go from where we are, what we are seeing now, we see the US and Europe with the lowest growth rates, and then we have the catch up countries are much higher growth rates, that will change a lot of view, the US will be at, I don’t know, 9%. And everyone else who’s not at that level yet has much lower growth rates. So it’s a reversal of what we’ve seen in the last 30 years. You’re talking productivity, which has been flat for quite a while, and I hope you’re right. I guess we all do. Well, it would be a possible way out of this crisis, right? So if we increase productivity, and we make our own assets generating much more cash, real cash, not just inflated cash, then that’s another way out of this debt bubble that we’re at. Well, I will circle back that you are correct. There’s actually three ways out of a debt crisis. You can default, you can inflate, or you can grow. The last time we had debt levels like this was right after World War II. And we got out by just massive growth in the 1560s, and that’s how you got out of it. If you think we can grow at 5%, 6% a year, if we’re real, if you think it’s possible, that will resolve our debt prices. I agree. You make that on your website. That’s kind of your core statement. It’s all about character. When we think about this expectations, do you feel we’ve not been daring enough the last 30 years because productivity growth is so much lower? We don’t go to the moon anymore. We don’t go to Mars now. We may go again. But have we not been daring enough? And that’s a problem. We’ve been too conservative with our forward expectations. That’s how you see this horrible growth rates. And if we change that mindset and character, if we behave like we should be, how good investors should behave, and not just do this formal thing, this trend following all the time, and treat it as a casino of Wall Street, if we change this in our minds, do you think we go back to these high growth rates? Does that maybe a bigger impact? That is a political science question, not a financial question. And I have various thoughts on that. And I would say that there’s no right answer. Clearly, we’ve seen a decline in productivity and other various problems. What is the cause of them and how are they fixed is unclear. I tend to think that the internet and social media has probably been where the big turn was. Because a lot of things have to happen. Sausage is made in a dark room because it’s just not good to look at. And politics, the smoke filled room, that was always a bad idea. But if you think about it, do you ever want to seem compromising in public? No, you want to go and beat your chest and say, I want, I got this, I got that. Compromises should happen in small dark places. And when you have the internet and social media, you lose the ability to go and say, fine, I will, I’ll only take half of what I want. So what we see now is I want the whole loaf or I want no loaf. Why can’t there be compromise? And I think it’s because you can’t do this. You can’t negotiate quietly and privately. And people, when you had, you had to go write someone a letter or someone up or see them in the street, you had time to think about things and consider what you were going to say. If you just can go and type it out on a text or a social media tweet. Sometimes, you know, your emotions get ahead of your thoughts. When I write, I tend to prefer communicating with email because it allows me to go and really think about what I want to say. And when I give it to a person, they then read it. And they have to look at it and read it. Most conversations are someone’s talking to me or at me and I’m not listening. I’m thinking about what am I going to say next back to them. And therefore, there’s really no comprehension of the thought. If I go write someone a letter or an email or whatever, they’re not in a hurry to go respond to me. They could think about it. They could consider it. When I write a deep letter to someone, a correspondence, I’ll write it and I’ll put it in the draft and I’ll set it up for a night because nothing else. I mean, there are feelings that have to go out immediately. Most things can wait a day or two. And you want to think about reading it the next day. And is this really what I think, especially if it’s a strong communication? And we’ve lost that, not the ability, but we just don’t do it anymore. Yeah, I feel like this definitely happened. But we also have discovered a lot of inconvenient truths that were basically baked into the cake, baked into how the US was founded, how the world is sitting on this treasure of knowledge. And some is from the Greeks, some is from a Judeo Christian heritage. We have a lot of things that we never really thought about and we kind of acted out our daily life, the daily routine. We didn’t have time to think about it. Now we have more time, right, because we’re more efficient or maybe because we’re out of work, whatever the reason is. But we have time to reconsider actually where do we come from? What do we actually want? And also, I think we need that reorient ourselves A and B, we also need like an enemy, right? We didn’t have a real global enemy for the longest time for like 30 years. So we need an counter example to what we don’t want. We always had come in this Russia, right? We had this for for 80, 90 years almost, and it definitely helped the United States to define itself. And I think this way to weird chaotic debate that we have, and as weird as it is on Twitter, I fully agree with you, and it’s definitely not thought out. It’s a good thing. I feel it’s it’s something that can really start if we want to get to this global productivity rise, it needs to be a reorientation besides just technology, because we have to adopt it. And for the longest time, we had cool technology, but nobody wanted it. Like 2013, 2020, you used to tell someone, oh, I work from home, but people look at you, what? So a lot of things was in the shelves, but it wasn’t being taken out. And I feel this is really happening now. That’s kind of what makes me pretty positive. That is a school of thought. I disagree completely. I think we have less time. This idea we have more time available. That’s false. We have less time available. People are plugged in all the time. Your brain is never turned off. You know, what’s about time the markets would close at, you know, remember three o clock, four o clock in the afternoon, and they were closed man until nine o clock the next day. I mean, I lived through that. And you tend to think about things, the payroll number would come out at a 30, and the markets would not turn on till nine o clock. And we go to the back and we talk about the payroll number. And then we come on at nine o clock screens flashed on. Now you’re trading all the time. People have their iPhones, their computers, or whatever, they’re reading their emails, or work all the time. When I used to go on vacation, and I have a very good vacation website at bassman.net. I would go on vacation, man. I was tuned out, no newspapers, no nothing. And I remember my boss asked me once very early on, like, well, how do we get a hold of you if we need you? And I said, you don’t. I said, I mean, if it’s a small problem, you don’t need me, if it’s a big problem, I can’t fix it. Like, what am I going to do from, you know, from the Caribbean? Nothing. A good manager makes sure that he had the hired people who are competent below him who can give him coverage. When I, when my team, but someone would go on vacation, I would say, you’re on vacation. I don’t want to hear from you. You need time to turn your brain off and reinvigorate yourself and recharge yourself. And I remember one of my guys called me up once, that’s what’s going on. I said, I don’t care, click, I sign up on him. You don’t need to know what the market’s doing. You need, you’re on vacation. And I think we’ve lost that totally where it’s a brave new world where we have input coming at us constantly, and we’re, and our brains are supercharged. So it’s total opposite of what you’ve described here. I think we have less time available to think and consider things. Maybe. Which is dangerous. Yes. Yes. Definitely. I mean, there’s obviously danger to all this, to all of this. I just feel these things are happening with outdoor consent anyways. Like the best thing we can do is be bored by it, which is happening now with social media a little, but people are just over this, this, this empty excitement, kind of like the first couple of times you eat fast food, you really love that taste. And I think it’s cheap. It’s a good deal. And you’re like into it. And then when you remember as a teenager, and then eventually you’re like, whoa, this isn’t for me, right? I think the same is happening to social media. People need that time to go through this experience. And I do have that, that faith in people that they figure out what’s good and that will stay around. You know, Americans are really good at this. We make all the mistakes first, and then we realize what’s good. But I think it’s better than the alternative is just to categorically saying, this is new, that might be dangerous. Let’s not touch it. That’s the European approach to an extent Japanese approach. I don’t want anything to do with this, right? So risk taking is really about about seeing what is the potential benefit. And then obviously, sometimes you pay dearly for it. Hopefully it didn’t happen this time. I think America is coming out of this COVID thing pretty nicely now. It took a long time. It does seem to be that way. Yes. Well, with this positive news, Harley, thank you so much for coming on. Thank you for your insight. Thanks for being on the podcast. It’s been great to be here. Thank you very much. It’s fun to go and chat with the intelligent people with the club ideas. Appreciate that. I’m looking forward to next time. Thank you very much. Harley, take it easy. Bye.