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Speaker 1: You know, saying with it's the same with crypto. Think

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that because the volatility has gone down and the performance

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has been so strong. You know, people who said, oh, no,

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it's going to be an investable asset class, I think

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they're just that's just wishful thinking. You know, we've never

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really had a proper test of crypto. Yeah, I know,

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there have been several instances where it's lost seventy eighty

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percent of its value on all his bats back, but

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we've never really been an environment where we've had to test.

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You know, is this thing actually reliable as money?

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Speaker 2: You're listening to Carrie. Let's as financial survival Network where

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you get valuable information. You just can't find anywhere else

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Survival Network now more than ever. Go to Financial Survivalnetwork

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dot com and get your free newsletter and gift. Financial

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Survival Network now more than ever.

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Speaker 3: And welcome you are listening to and watching the Financial

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Survival Network.

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Speaker 1: I'm your host, Carrie Lutz. Well.

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Speaker 3: Investing getting more and more difficult as debt escalates, as

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volatility goes up, and so many challenges to keeping your

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wealth intact. Somebody who's been able to do it through

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the last global financial crisis. Stephen Diggle is with us

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now and Steven you closed your fund number of years

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ago after having weathered and prospered in the last financial crisis.

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Now you're opening it up again.

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Speaker 1: What led you to that? Well, thanks, Kerry, great to

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meet you. So yeah, we at at Aartritis ran a

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a very focused fund between two thousand and two and

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twenty and ten. It was always long volatility, did a

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number of arbitrage activities, but it's principal characteristics it was

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always brought credit in the war, was always long volatility,

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and during that period between you know, late two thousand

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and seven and especially two two thousand and eight, it

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was a very successful fund. We made our investors over

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three billion dollars in that period when pretty much doubled

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our NAV and our AUM, which made us by some margin,

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the most successful edge fund in Asia, which was where

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we were operating out of in Singapore at the time.

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But you know, with the bailouts that came and and

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the enormous amount of money printing that the the financial

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the central banks felt obliged to do, you know, volatility

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went down a surprisedly started going up, and by twenty ten,

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you know, we come to the conclusion that they weren't

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going to stop, and that the more liquidity there was

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in the system, the lower the volatility would be, because

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you know, essentially they're they're two sides of the same

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Cointility only really spikes when liquidity is drained out the

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system for a variety of reasons, usually a panic withdrawal

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of you know, or margin equidation or whatever it is.

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So with super abundant liquidity, we decided that this is

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the style that this fund just wasn't going to work,

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and so we made a decision to shut it down

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and return investors the Romainian money, which was still over

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three billion dollars. There's not many people voluntarily have closed

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a multi billion dollar hedge fund down, but we just did.

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We felt it was the best way of preserving our

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track record, and we didn't think it was going to

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be a successful strategy for our investors or for us,

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And indeed that that's been the case. So, you know,

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with the exception of maybe a few brief periods, especially

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around COVID, volatility has remained pretty low in financial markets

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for a long time. And the SMP in particular, and

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US markets especially has had you know, spectacular run over

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the last ten years, attracted an increasing amount of global

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cap from all sorts of places, including Asia. We see

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you know, an enormous amount of speculative money from Asia

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at play in the US, especially in the tech space

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and the crypto space, and really you know, a complete

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lack of interest in speculating or playing in their own markets.

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You know, there's some of these some of these stock

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markets that used to be very hot we are back

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in the Asian tiger days are now stone cold. You know,

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the returns on some of these markets has been very poor,

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and the level of liquidity is very poor because an

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awful lot of that Asian saving base is now at

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play and sometimes very leathered in the US. So we've

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seen a gradual change in the market dynamics, and we

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just feel now, given a confluence of characteristics in the market,

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that the risk reward between the you know, the option

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seller or the volatility seller the volatility buyer has moved

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significantly in favor of the of the volatility buyer or

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the auction buyer, and that right now that's not being

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reflected in prices so after fourteen years of doing other things,

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largely private equity, we've reopened these long volatility funds to investors.

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And you know, we think that there are significant risks

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in the marketplace right now that aren't being reflected in

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risk prices, and that there are now fault lines in

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the market that should give any thoughtful investor pause.

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Speaker 3: Okay, so what do you think the cause of these

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challenges that you see coming?

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Speaker 1: What are the oka? In some ways, the market's done

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really well. I mean, here we are on you know,

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the US economy has never a bit bigger, We're still growing.

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We haven't had a recession since briefly during COVID. Unemployment

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at four point one four point two percent is pretty

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low ish. You know, we've rained back inflation from that,

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you know, horrific nine point two percent print in the

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summer of twenty twenty two, you know, two point six

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two point seventy two point eight. You know, maybe not

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the official FED target of two of two, but it

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doesn't feel like they're really wedded to that two target anymore.

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So you know, maybe inflational level you can live with ain, know,

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and then and then there's the market having had this

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heart attack in the first three days of April after

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the tariffs, you know, back at an all time high.

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You know, vole price is pretty low, so you go, well,

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this is a pretty benign environment, isn't it. But behind

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that there are things that should make us know concerned.

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One is the US. The returns on the sm P

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of the last ten years are about you know, two

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hundred and sixty percent, incredibly imbversive, but you know, you know,

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profits are only up one to eighty percent, so the

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multiples expanded, you know, twenty five times. The S and

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P is definitely not cheap. And in a four four

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four and a quarter percent interest radi environment, it really

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leaves the equity risk premium back at pretty much zero.

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And there's only one time in my career that it

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was back at zero, and that was ninety nine two

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thousand and after that the S and P halved, So

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you know, there's a warning sign right there, you know.

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And behind it, all you know is this ticking time bomb,

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which is what it is of the US deficit. Now

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a lot of people talk about it. It doesn't feel

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like a problem because so far the US has managed

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to increase that deficit very steadily and very and always,

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you know, pretty much well, with a very brief exception

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during the Clinton years, it's always been one direction. And

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we're up to one hundred and twenty five percent of

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GDP now at a time of peace and prosperity, literally

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higher than it was in nineteen forty five, and pretty

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much with no inten shouldn't by either party of bringing

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that number down at some point that's gonna matter to

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the bond market. Not yet, but you know, you just

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can't be the reserve currency of the world and to

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have your bond market being you know, sort of the

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subsupposedly safe even asset of the world and continue to

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you know, print money and extend your deficits without expecting

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at some point there's going to be some consequences. And

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what those consequences are going to be is difficult to predict.

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But the US is already spending about a trillion dollars

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a year service in that debt. Any sort of revolt

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in the bond market is going to rapidly blow out

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the budget and blow out that that that trillion dollar

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number into any you know, anever bigger number. So that's

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the kind of the background that is just ticking away

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there and at some point it's go it will. I

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think it will unleash some very significant unexpected consequences on markets.

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They're unlikely to be good. And you can see that

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in the dollar. You know this year that it does

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as it's been widely observed that the dollars have this

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worst start to a year since nineteen seventy three, at

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stand ten eleven percent against most currencies. Hard to fathom

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why given the things that look look they're going pretty

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pretty well. It's that US stock market and all time high.

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I think it's concerns about a this deficit which keeps

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on going up. And secondly, there is definitely some concern

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about the way in which the US A, as the

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global Hegemen, is conducting itself on the global stage. You know,

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the administration, this new administration has come in with an

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explicit agenda that's going to shake up the world order,

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and I think we should do it. Believe them. I

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think I should believe them.

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Speaker 2: Now.

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Speaker 1: I don't want to get I'm not political. I'm a

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I'm a market's guide. I don't have an ax to grind.

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I'm either a Democrat nor a Republican. But you know,

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I see an administration that's got a great deal of power,

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not a lot of checks going on right now upon

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what Trump wants to do, and with an explicit intention

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of changing, you know, shacking things up. And as we

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saw in three days, you know, in April, when the

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market fell nineteen percent and the bond market started to

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go in a little dou lally, and then you know,

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the dollar wasn't behaving well. The capacity of this administration

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to surprise people, not always in a positive way, I think,

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is there. And you know, there's this idea now that

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you know, coined by by one of these journalists, the

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taco trade as Trump always tied chickens out, and so

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no matter what he says, you just have to ignore

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it and just carry on buying. I think that's a

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really dangerous assumption. These are you know, these are these

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are people who are quite determined to get what they

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see as a necessary a deal for America. And I

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can't blame them for that, but I think anyone who's

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playing in this marketplace, particularly in a releveraged position, who

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thinks that it's safe to play out there, you know,

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is being reckless. Because this administration is going to be

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a catalyst for volatility. If you're a strong believer in

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what they're doing, you may believe that eventually, you know,

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that's going to be a very positive outcome for the US.

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Maybe not for everyone else, but in the short term

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we should expect the unexpected, and market prices are not

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doing that right. Credit defaultse WAPs are very benign, you know,

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very low prices, you know, to bet against credit and volatility.

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Germany is very cheap. So got some inquiry question.

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Speaker 3: Yeah, uh, what you're feeling is about cryptocurrency, bitcoin in particular.

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Speaker 1: A all right, you know, it's we were the first,

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we were the first fund manager in single poor to

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have a crypto fund, you know, as a as A

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as A as A, as a guy who's always loved arbitrage,

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I loved the fact that you had all this differential

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price in out there. So we ran a moderately successful,

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very unambitious crypto fund in Singapore during you know, the

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a while ago. Now we did all right, you know,

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because there was these very wild arbor charge opportunities, but

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I got increasingly uncomfortable about settlement risk that we were

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taking because you know, people talk about these places as exchanges,

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but it was quite clear that they certainly worked. They

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were more like they were more like those those curb

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brokers in the nineteen twenties, I mean a lot of

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them well, and then FTX obviously proved it a lot.

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Even some of the bigger ones were very unsafe places.

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So you know, ah, money is whatever people think it is, right.

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Money's been weird things in history, right for several hundred years,

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you know, comp shells were considered a safe form of money,

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and in life arge parts of you know, Africa. You know,

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gold has no value, yet it's been accepted as money

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for four thousand years. Money is whatever people want it

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to be, and as long as people believe it's money,

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then yeah. But when people tell me they're investing in crypto,

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you know, I get a little pedantic, and I'm like, no,

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you're not. You may have, you may have bought crypto,

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you may be speculating it or playing it, but you're

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not investing in it because it has no yield, it

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has no fundamental value and it has no residual value.

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Now you may make money, and of course anyone's bought

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it has made money, so they're smart. I'm done. But

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you know, all money, all money is a Ponzi ski right.

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I mean, ultimately, you know that that thing in your

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back pocket that says it's worth a dollar isn't worth

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a dollar. It's just a piece of linen. You know,

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that shiny that shiny piece of metal you have in

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your pocket is not worth three thousand, two hundred dollars.

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It's just a shiny piece of bec And it's only

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worth three thousand hundred dollars because someone's going to give

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you that for it, you know, saying with It's the

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same with crypto. I think that because the volatility has

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gone down or the performance has been so strong. You know,

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people who said, oh no, it's going to be an

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investable asset class, I think they're just that's just wishful thinking.

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You know, we've never really had a proper test of crypto. Yeah,

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I know, there have been several instances where it's lost

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seventy eighty percent of its value and all his bats back,

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But we've never really been an environment where we've had

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to test you know, is this thing actually reliable as money?

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You know, argue it needs quite a bit of technology

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to make it run. You know, if someone said I'd

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like to buy your house and I'll give you crypto

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for it, I'd say I'd rather have dollars.

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Speaker 3: So here's a question for you, though, institutional adoption ETFs. Yeah, basically,

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the number of coins out there, only seven percent of

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the total number of coins that have ever been produced

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actually trade and and more. It's getting gobbled up by

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by entities.

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Speaker 1: That aren't going to sell it unless oh and and

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so and so in the short Yeah, in the short term.

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You know, that makes a great dynamic for a bit

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of a squeeze. But scarcity alone carry doesn't guarantee value. Right,

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My toenails are pretty scarce. I've only got ten of them,

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but you know what, they're not worth much. And you

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know what, I'm ony chain. You might have something there.

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You know that they're they're very limited in supply. There

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ain't gonna be made any more of them, and they

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grow pretty slowly. But you know, scarcity alone doesn't guarantee value.

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You need a bunch of other things. And look, I've

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always been fascinated by the blockchain, but you know, I

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think it's as a solution to things like real estate,

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for example, or or fractional ownership of of hard to

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verify assets like like fine art or or fine, why

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I think the blockchain could have immense value and impact.

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I think has money. You know, I don't have any

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problems moving money around the world, whether it's in yen

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or dollars or or pounds. You know, it settles pretty easily. Yes,

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it's Could it be more efficient, for sure it could.

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Does the bank take more than it should? Yeah, for sure?

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But you know it works okay, So so what you know,

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I don't see. I'm not against crypto in any way,

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but I'm not a believer because I don't see the

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problem that it's solved. Now. I understand a great you know,

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a great number of people have made a great deal

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of money out of it, and you know, well done then,

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But you know, I don't see. I don't have a

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use for it, as in, you know, in the business

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we run. You know, I can't really use it when

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we when we traded it, we only traded it in

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an arbitrageable way. In other words, you know, if someone

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was prepared to painting it, you know, at the time

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like eight thousand, you know, one hundred bucks for a

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coin in Korea, and I can sell it for you know,

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eighty two hundred bucks simultaneously in the US. I like that.

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I didn't like the settlement risk I was taken, but

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I love the arbitrage. But you know, is you know,

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is it an important or a significant part of my

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asset base? No? Not because I you know, I'm against it,

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or I think it's worthless or I'm not. You know,

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I believe it's a it's a scheme, but it doesn't

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really solve any of the problems that I that I'm

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looking to that I'm looking to, you know, solve. And

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you know, do I see it as a potential cause

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of volatility? Oh? Boy? Do I? I mean, what's what's

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the value of it now? Is like thirteen fourteen trillion

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dollars out there in terms of all cryptos. I mean,

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it's a huge amount of value. Right, that's that's appeared,

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you know, just like a mushroom. Right. And you know,

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if people are really thinking, I've got, you know, I've got,

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if they've really counted that as part of their permanent

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asset base, I don't know what happens if there was

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to be a severe challenge to it. The other thing is,

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you know, at some point, and I'm surprised it hasn't

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happened in more places than China. You know, given its

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it's potential threat to the monopoly of money that central

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banks have, that it hasn't experienced more legal challenges, and

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I think, you know that's that's something that could at

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some point come back to buy it. But you know, say,

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I haven't really been involved for a long time. We

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watch it, I think as a potential source of volatility,

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both upside and downside, because as you point out, given

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the size of the asset, of the of the asset

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class now and the amount of liquidity in it, its

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potential to move a lot is huge. Uh, the actual

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experience volatility has been pretty low, but its potential volatility

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is enormous. So you know, as a catalyst for volatility,

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say both on the up and downside, I'd be very much.

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I'd always want to be long the wings of a

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bitcoin out there, and that there's a pretty decent option

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market out there for it. But are we using it?

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You know, no, we're not evangelists for it. We say

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we've had a we did have a fun. We closed

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it for various reasons, personnel being one of them. They

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want to go off and do other things. I'm sure

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they've done really well if they they stayed long. We

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don't run crypto anymore. And you know, Singapore's Singapore where

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we were running it. They've become a little more, a

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little less welcoming about it. There's been a few scandals

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there as ever to be there. We're being a new

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asset class. And yeah, so you know, I see it

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as an area where people have been very richly rewarded

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for having faith, as an area where there's an awful

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lot of speculation, and I see it as a catalyst

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for volatility. But we don't use it. But I say

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it's not because we're against it. We just don't really

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have a use for it.

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Speaker 3: Okay, all right, I'll buy that. So you're bullish on

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gold and silver there.

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Speaker 1: I'd certainly bullish on the volatility in gold and silver,

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you know. I mean it's you know, it's fascinating to

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me at a time when Nasdaq's at an all time high,

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the SMPS of an all time high, the gold is up,

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you know what, twenty five twenty seven percent this year.

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I got a very strong suspicion that people chasing this

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rally in the S and P and NASDAK are not

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the same people chasing this rally in gold. I mean

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maybe some of the algos, because you know, they're just

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bet non momentum, but I think they're fundamentally the people

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who feel that they need more gold are probably not

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the people who think that nasdak's a bargain that you

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know year up here, I think you so maybe maybe

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indicative of a big bifurcation in in investor sentiment, and

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this leads to a potentially very interesting trade. It's a

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little nerdy, but you know, as an auction's nerd. Indulged

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me for a second, which is that the correlation between

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gold and the US stock market is very very low. Indeed,

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in fact, Kate's chaotic. Sometimes it's correlated, sometimes it's negatively correlated,

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very often has no correlation. Both the S and P

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and gold are showing relatively low option pricing relative to

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historic volatility, so particularly the US up depending on the

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period you measure, because if as long as you include

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the April period, you know, volatility is very cheap relative

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to historic. So if you put those two together, if

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you're long, let's say you're long out of the money,

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put some calls on the S and P and out

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of the money puts some calls on gold, you get

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a very interesting payoff because you've bought things that are

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pretty close to the historic volatility, and anything could could

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happen that could dislocate those And in a sense, you've

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got four ways to win and only one way to lose,

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which is that everything kind of stucks around where it is.

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So between the two of them, they represent a very

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interesting way to be exposed to current markets shocks on

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both sides. So you know, when the dollars we gold

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is strong, okay, So that explains part of the part

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of the problem. And just as you refer to the

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very limited amount of liquidity in in cryptocurrencies relative to

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the outstanding numbers, so it is with gold, right a

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tiny amount of gold trades, tiny amount of gold trades

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relative to the outstanding amount. So it's ability to move,

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you know, very rapidly with relatively small changes and appetite,

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you know, leads it to be a place that just

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being long volatility alone is a great is a very

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interesting trade, but the fact that from time to time

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it has a big impact because other things are going

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on geopolitically, also makes it a great place to play. However,

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one thing to always remember about gold is that, like

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everything else, you need a marginal buyer. And you know,

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let's not forget that in two thousand and eight, when

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everything was for their part, even gold went down. Now

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it baounts back, but you know, gold is the ultimate

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hedge against the market. Dislocation doesn't always work. It didn't

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work in two thousand and eight, and if liquidity were

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00:23:14,480 --> 00:23:17,480
to dry up for any reason again, it might not

402
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work again. It works really well as a store of value,

403
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It's worked really well as an inflation edge. It's had

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four thousand years of being accepted as money. I'm not

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you know, I'm not a gold bug, people, and no

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gold bug says it's a gold bug. But you know,

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if I had to believe in one thing that was

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going to hold its value through a dislocation, I'd rather

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have this, this, this permanent, shiny yellow metal with four

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thousand years of belief than this new fangled electronically dependent

411
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one that's had, you know, fifteen years of belief. All right, Hey,

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00:23:55,480 --> 00:23:58,440
so it's been good talking with you, Steve. Where do

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we find you?

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Speaker 3: How do we connect with you on the web?

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Speaker 1: Yeah, So we we're called Volpez Investment Management, we have

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a website and you know we're very engaged with investors.

417
00:24:08,960 --> 00:24:13,119
We're a regulated investment manager in by the most Authority

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00:24:13,119 --> 00:24:15,480
of Singapore or in Singapore, and that's probably the best

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00:24:15,480 --> 00:24:16,319
place to find us.

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Speaker 3: Excellent and the links in the show notes to this

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00:24:18,839 --> 00:24:23,039
interview on Financial Survival Network dot com just ask when

422
00:24:23,079 --> 00:24:25,359
you go there, please sign up for your free newsletter.

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Speaker 1: Steve.

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00:24:26,079 --> 00:24:29,359
Speaker 3: It's been very enlightening speaking with you. Good hey, Kara

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00:24:29,680 --> 00:24:32,640
on the new venture, the new old venture, and we

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will definitely talk to you again soon.

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Speaker 1: Okay, KERRII thanks you very much, have a good day.

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Speaker 2: Thanks for listening to Carrie Letz's Financial Survival Network. Your

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00:24:41,079 --> 00:24:44,920
solution to today's trying times. For the latest, go to

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00:24:45,079 --> 00:24:49,519
Financial Survivalnetwork dot com. Financial Survival Network

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00:24:49,799 --> 00:24:51,359
Speaker 1: Now more than ever,