Andreas Steno Larsen (3:49)

Richard, one potential issue. Our hosting fees could become a challenge as we scale.

Andreas Steno Larsen (3:54)

Right?

Silicon Valley Character (3:55)

But we can offset a lot of that once we get a few customers and start a subscription revenue model.

Andreas Steno Larsen (3:59)

What? Revenue?

Andreas Steno Larsen (4:00)

No, no, no, no, no, no. No revenue.

Andreas Steno Larsen (4:02)

I'll call you back.

Andreas Steno Larsen (4:03)

What? Why would you go after revenue?

Miguel Ozenval (4:06)

Because.

Silicon Valley Character (4:07)

To make money.

Andreas Steno Larsen (4:09)

No, if you show revenue, people will ask how much? And it will never be enough. The company that was the 100x or the thousand xer becomes the 2x dog. But if you have no revenue, you can say you're pre revenue. You're a potential pure play. It's not about how much you earn.

Andreas Steno Larsen (4:25)

It'S about what you're worth.

Andreas Steno Larsen (4:27)

And who's worth the most? Companies that lose money. Pinterest, Snapchat. No revenue. Amazon has lost money every fucking quarter for the last 20 fucking years. And that Bezos is the king.

Andreas Steno Larsen (4:36)

The king.

Andreas Steno Larsen (4:37)

There's no revenue. No one wants to see revenue go, oh, I just.

Silicon Valley Character (4:42)

I just thought that mainly the goal of companies is to make money.

Andreas Steno Larsen (4:46)

Yeah, no, no, no. That's not how it works. I don't want to make a little bit of money every day. I want to make a fuck ton of money all at once. Roi. Roi. You know what that stands for?

Miguel Ozenval (4:58)

Return on investment.

Andreas Steno Larsen (4:59)

Return on investment.

Andreas Steno Larsen (5:00)

Nope. Radio on Internet.

Miguel Ozenval (5:07)

Is the point of business to make money? That's a big question to ask here. But does some of this logic apply to where we are in this AI cycle, do you think?

Andreas Steno Larsen (5:17)

Well, it certainly does if you look at returns on profitable tech stocks versus profitable tech stocks. To take that example, we've had a very solid cycle, say over the past three or four months in unprofitable tech stocks, maybe even since. Maybe. And it's typically something we see when the monetary policy is eased into a cyclical upswing. Think year 2000, maybe 1999. Rather think year 2020, when we got a very easy monetary policy on the back of the pandemic while the economy was actually recovering during the reopening phase. We had very, very strong returns in, in non profitable tech during those time periods and better returns than in the Max 7, for example. That especially applies for the 2020 scenario. So I think it's fair to assume that we're in such an environment right now. We've obviously had some brief volatility around that narrative for the past seven, 10 days. But we're also clearly on a path towards easier monetary policy. We got the news last week that we're close to an end to the quantitative tightening. And even if this is not a straightforward signal that we'll get quantitative easing next, let me just stress that it's not, it's still one step in that direction. We're talking about narrow dollar liquidity that is sufficiently tight for the Federal Reserve to do something about it. And all of this happens amidst what appears to be a cyclical acceleration of the economy. And I still think that remains the case. If you look at everything from trade data globally to forward looking indicators based on the dollar and interest rates and energy costs and stuff like that, it still looks like we're two or three months away from what appears to be a cyclical uptick and we get easing into that. So in this kind of environment you can actually make money trading stuff that doesn't make money, if you know what I mean. And that is the interesting schism. I think the best example for this year is the whole quantum space. They're probably 10, 15 years away from making money, if they're going to make money at all. We don't know at this stage. We've obviously had some interesting remarks relative to this quantum trend, for example by Jensen, the Nvidia CEO, and he's pivoting a little bit towards actually supporting the quantum space, both rhetorically and with money now. But these companies trade at $20 billion valuations, even if their CEOs go on air every week stating tone down the expectations, we're 10 years away from a breakthrough, so on and so forth. So yes, it does really apply to this cycle, but I don't think it's the end of the cycle. I still think there's more left in this non profitable tech cycle. Especially if I'm right on the monetary easing.

Miguel Ozenval (8:30)

Well, that's encouraging. Andreas, let's just try and understand this past fortnight or past ten days. If we zoom back to last Friday, as usual, things happen whenever we are home from office, European time, European evenings, especially on Fridays. Initially it seemed to me that this sell off this market panic was driven by renewed fears over the US China trade war. Trump obviously tweeted, et cetera. Was that a little bit naive? Can it be isolated as an effect of that? Or what do you think happened last Friday?

Andreas Steno Larsen (9:06)

Well, I guess the conditions were there for a value at risk shock realized volatility has been incredibly compressed six months running and you have such a compressed volatility picture. You don't need a lot to shake up things. And that was basically what happened. The positivity was basically back already on Monday. And I've stressed this before, I think it's an issue for the whole notion that it's a good idea to have 247 markets, that you do not allow a politician like Donald Trump a window of opportunity where markets are not open. Because essentially what happened that weekend was obviously it was kind of a trial balloon that tweet on a Friday threatening China with tariffs again. And then already on Sunday we got that half pivot on the first message and now we've basically received mainly encouraging news from the negotiations between the US And China on this topic for a week running. Probably also the reason why the market has recovered as well as it has. So, sure, it was a volatility shock driven by this tweet from Trump. And I can only stress this, that I don't think it's a good idea to have 247 markets as long as you have geopolitics as important as they are right now. Because when will you actually communicate something to the market without shaking things up, which is something you need to do every now and then, especially when you communicate and negotiate out in the open, as they do here.

Miguel Ozenval (10:44)

Interesting. We've mostly recovered in many areas. Not quite in crypto, though. I'm very, very deep in crypto myself. You know that Andreas and I was clinging. We can bring up these. This is the hot take of the week. These rumors that appeared yesterday of Trump declaring a 0% capital gains tax on all crypto and Xi Jinping legalizing and buying a huge reserve of. Usually when it's all capitals, it's bullshit. Not necessarily when I know he's big into that. But still, I was grasping after straws like this, Andreas, to see. But does this tell you anything more fundamental about Bitcoin and how that's trading at the moment?

Andreas Steno Larsen (11:30)

So now let me just stress that these are completely unsubstantiated rumors by now. So it seems like there is some sort of social media campaign going on. And, you know, as far as I can judge from the Reddit sentiment trackers and the Twitter sentiment trackers that we've set up. Nickel seems like it is something that's been growing since late Friday through Saturday, Sunday this week, weekend. I, I, you know, I typically, you know, I'm a cynical guy by the end of the day and I, I, I think there is something going on. When you see such a SOMI campaign, it could either be, you know, a large fund interested in getting some traction on something. We've by the way, seen the exact opposite pattern around the Quantum stocks. We've seen a very, very clear negative so ME campaign against those. So something is certainly going on in relation to the retail SOMI sentiment around crypto versus some of these meme stocks. And you know, it's very, very important to track stuff like this when you trade markets with a lot of retail players involved. I'd like to show some data from bank of America last week on this exact topic because when you look at the equity space, and maybe in particular the technology equity space, we've seen hedge funds selling and institutional selling for most of the year, especially since Liberation Day, we've seen some buying from those players over the course of September and October, but not really in size compared to what we've been used to. But so called private clients, so high net worth individuals, maybe smaller family offices and retail clients, they've been buying the dip every time they've had the chance since March and April this year, which is very, very interesting. Right. We're talking about one of the craziest recoveries in modern history of, of U.S. assets. And essentially the retail crowd has been on top of that while the institutions haven't.

Miguel Ozenval (13:39)

That's it.

Andreas Steno Larsen (13:40)

Yeah. This is something that we've seen before. I think 2020 was a good example of this as well. So once again, a lot of this reminds me of this very easy monetary policy setup that we had in 2020 while the economy was actually recovering. And then ultimately we, we got the institutions on board relatively late in that cycle and then you started seeing the outflows from, from the retail crowd into 2022. Right. So you know, history doesn't necessarily repeat itself, but it rhymes that good old Mark Twain quote and I think it, it rhymes a lot here. Again, I've, I've said through most of this year that it reminds me a lot about what happened in 2020, 2021, and I think we, you can continue to get evidence of that through this year as well.

Miguel Ozenval (14:32)

Interesting. So let's just zoom into the tariff issue. We don't know exactly what's Going on between Trump and China, we are getting some signals that they are going to find some kind of deal. I don't know if we should hinge too much on this November 1st deadline, but how big of an issue is this still? Because it seems like there's a lot of, perhaps especially as you demonstrated here with institutional investors, still nervousness around the impact of the economy. You posted this chart of the overall effect of the tariff revenue. So how worried should you be about this going into Q4? As an investor.

Andreas Steno Larsen (15:12)

This chart is calculated on the back of the actual tariffs intake. Basically, I look at the tariffs revenue and then compared to the size of the economy and, you know, we're talking about a shock effect of between 0.3 and 0.4% of GDP, which is, you know, in the broader context, pretty much nothing. Burger, you've been a bureaucrat yourself, maybe being involved in budget negotiations in the Danish Ministry of Finance, and, you know, 0.3% of the gross domestic product, that's something you can, you know, easily bring up for a discussion during the annual budgeting process. So it's, it's not like it's, it's, it's the biggie that it felt like six months ago. Of course, this could still grow in size. We could also get to maybe 0.5, 0.6, when, you know, part of the front running of the whole inventory cycle before the tariffs is over. That's likely. But at the same time, we actually see on a trend basis, a dial back on tariffs from the administration on a lot of specific areas. We've seen a U turn, which is not something that they've highlighted in any way rhetorically because that would obviously be almost a defeat in a rhetorical sense. So they're dialing back on some of the very specific sectorial tariffs beneath the hood. So I actually don't expect this GDP shock to be much larger than what we see already. And if the overall effect is, say, 0.3, 0.4% of the economy, it is a nothing, burger. And at least it doesn't warrant the amount of attention that it's been given since April. It's completely blown out of proportion.

Miguel Ozenval (17:08)

No, it's a cheap price for the political effects that Trump wants out of this. So I think that's absolutely an acceptable price from a political perspective. Everything else set aside. So just to sum up, after these crazy weeks here, you're still quite bullish on the overall outlook going into Q4. Does that include crypto as well?

Andreas Steno Larsen (17:34)

Yeah, I mean, looking at positioning right, we've obviously seen a washout in the leverage positioning in the crypto space that is typically a decent time to buy. The sentiment is incredibly bad as far as I can judge. And you know, we've, I think some, some guy, you know, replied to one of my tweets saying, okay, there is actually an old season ongoing. It's just a Robin Hood and it's in equities base. And I, I used to think that was quite telling because that's interesting. We've seen a lot of these speculators if activity moving from some of the old coins into unprofitable tech, drone technology. Some of the themes that we were very early on this year, that's obviously been a tailwind for us, especially for me. I'm typically more active in equities than in crypto also, if you look at my portfolio privately and you don't get a new cycle without new characteristics and that's been one of the characteristics of this cycle. So yes, my, both my gut feeling and my quantitative data would suggest that the positioning is much lighter in crypto now compared to equities versus what happened two months ago where it was the other way around. So from a positioning perspective, it backs up the possibility of a pretty decent rebound into year end here and I still consider that pretty likely.

Miguel Ozenval (19:05)

So very, very interesting on this positioning also, since a lot of it is retail driven, that it might be some different psychological features in play here about what level of risk, what level of returns are you looking for. You might remember that tweet. It keeps popping up in my head. We had it on the show, I think two or three weeks ago. Well, this guy tweeted, okay, so If I put $1,000 into Bitcoin, the absolute best case is that I get $1,400 in half year's time. That's not making me rich. And that logic, it stuck with me because obviously it's absurd, but it stuck with me because many retail investors are chasing the dream essentially and perhaps that dream isn't really realistic in bitcoin right now, at least not to an extent where it justifies these drawdowns in the minds of many of these retail investors. It's an interesting characteristic to follow. Andres. I just wanted to highlight a little bit more and obviously you can go with a pro tier subscription and go check out your macro portfolio and rest still doing great even despite these sell offs these past weeks. Are you in any way worried about, we talked about it a little bit in the beginning that we might see some correction in AI space or how far that might go?

Andreas Steno Larsen (20:28)

Well, it kind of depends on what you mean with AI here. If you look at the semiconductor space, we'll have a load of earnings reports coming up over the next three or four weeks, obviously concluding with Nvidia mid November. But we've seen very compelling data from Asia on exports. And for those of you who don't track these week to week changes or month to month changes in exports from Asia to the US we're talking about very, very tech heavy export numbers. Maybe you could bring the South Korean numbers on the screen here because, you know, it's, it's, it's, it's one of the signs that I've been, you know, looking for in, in order to turn up beat on the overall global business cycle because it's so important for the business cycle where the trade flows and it certainly does. Now these numbers from South Korea, they're based on the trade report that was released early October. We get some preliminary data this week for the month of October and obviously there is a risk that we see hiccups again now that the US and China are back at the negotiations table. But the point here is that we do actually see export acceleration from Asia, which is typically the first sign of a trade pickup globally, especially Korea, Since I think 80 or 90% of the Korean economy is based on trade. So, you know, it's, it's the economy to, to look at. If you want to get early clues on, on whether global trade is accelerating or not. And as you can see, we're accelerating, but we're far from the, you know, typical year over year peaks, which would be, you know, 20 plus percentage points higher than now. So to me, this is first of all a positive for the upcoming earnings season, especially in tech. It's also positive for the global momentum and something that you could certainly use as a bellwether for the broader return profile. I tend to think that it's pretty simple. Unless this trade statistic has peaked, the global economy has not peaked yet. This is a very timely indicator since it's released just after the month end. It's, it's a lead on the global cycle. So basically this will tell you where the ISM is in two or three months and so on and so forth. So I'm still, you know, I have a very comfortable outlook and I have a high conviction that this is not the peak. And you know, the sheer amount of pessimism seen last week, you know, it even went viral whether we could get a Black Monday last Monday and you know, those of you who don't recall it, I, I wasn't even born. I think it was a drawdown of 23% in the main index in the U.S. 22 point something. And I think we had a drawdown of plus minus 3% when it was worse last week. So it's, it's, it's by a factor of 10 wrong to call it a Black Monday. It felt like a Black Friday in parts of the crypto space. You know, you can have a look at our discussions on the real mission platform for the deep dive into why the liquidity dried up and so on and so forth. But the bounce back that we've seen is, to me, a compelling signal that, you know, we haven't peaked yet. We may even have the maniac phase ahead of us where everyone starts chasing this story because it's not a consensus story that the economy is accelerating. You know, everyone's got the opposite view, first of all, due to the labor market data that we've seen over the past couple of months. Secondly, you know, there's still this, I hate using that term, the Trump derangement syndrome, but there's still this notion that, okay, everything that he's doing towards his trade counterparts, everything that he's saying in public, it's got to be a sentiment shocker. It's got to be bad for the economy, and it's just not really showing up right. I even saw the Economist almost excusing to their audience for their lack of accuracy this year in projections for the US Economy. And then they gave the work to their economic editor, their chief economist, and then he said, but now is the time. Now it's coming. They just keep moving the goalpost on this drawdown due to Trump. It was a big sentiment shock, but by the end of the day, as I showed you, it's an 0.3, 0.4% shock to the economy, which is when you're growing three, three and a half, not really worthwhile all of the time that we've spent on it. So why don't we just close down this discussion as well, Michael, on tariffs? Because I think we spent too much time on it, to be honest.

Miguel Ozenval (25:20)

I agree completely. But, you know, when you get those shocks that seem to be initiated by it, it's, it's hard not to. So that also closes the talk, I suppose, address. I know your answer to this, but also closes the, the feverish talks of a, of an emergency cut going into this, because it's, that's not going to happen. But we're only about a week away from the rate discussion, am I right? Yeah, yes. Does this, this volatility market, does this cement the rate cut that we're expecting or doesn't it change anything?

Andreas Steno Larsen (25:55)

I mean, they'll cut rates this month, no doubt. The, the big question now is whether they'll do something on the balance sheet already this month. And my take is essentially yes. You know, I still don't think that we've had a consensus formed on this topic on the balance sheet for this month. But if you look at the data from last week, we're typically seeing spikes in the SOFA rate versus Fed funds when we're below paying thresholds for the narrow dollar liquidity. So basically the dollar liquidity that is available for the commercial banking system and funds, etc. So we're now below 5.9 trillion in dollars, which is on my data, basically the pain threshold. And we're not getting back up since we've seen Scott Bessant and his team rebuilding the treasury general account at a time where there was no excess buffer left in the overnight reverse repo, which has been the case for the past two or three years. Every time they build up the tga, you could just counter that with the overnight reverse repo. And that's not the case anymore because you don't have any money left in that facility. Meaning that we do now see a sufficiently tight liquidity picture for the Fed to do something about it. And this doesn't mean bonanza qe. It means that they'll probably find some, you know, sort of technical solution to this adding liquidity via a, you know, a new program or whatever. And I think it's very likely that we'll see it already this month because, you know, all regional banks, private funds, et cetera, will tell them to do so.

Miguel Ozenval (27:41)

Okay, just, let's just grab one or two list of questions here before we round off. We have one from Alex Jensen asking us, with the liquidations crash we saw last Friday, could the opposite happen like a wild Spike up in Q4?

Andreas Steno Larsen (27:56)

Yes, and I sincerely mean it. If you look at the data on when do we see volatility at current levels while equities remain, we're probably closing in on all time highs. And NASDAQ while we're speaking basically looks very solid on my screens here. So when do we have Vix, for example, at 2528 with equities basically at all time high. We did see that in 1999. We did see that in 2020. While, while we had Some, you know, very choppy but, but incredibly bullish trading towards new all time highs. And you know, we don't, we don't have those observations outside of the, of the actual melt up phase very close to the peak. So when I say very close to the peak, I consider it very likely now that we see these observations that we're within six, nine months, peaking in this cycle, maybe six to 12 months. But it's incredibly rare. And let me stress that it's incredibly rare that we peak during the first couple of observations with high volatility and equities at all time highs. We typically get say 60, 90, 120 observations daily of such markets before we see the actual peak. And I think this is, you know, this is a very transparent view of mine. I think it's, it's, it's very classic towards the end of a cycle that you're, you want to participate, you don't want to miss out on what could potentially be a very strong rally, but you're also very scared every week. Is this it? Is this it? Is this it? And you'll get that discussion on an ongoing basis for the next six to nine months. Meaning that it will be a very maniac market where it's so over, we're so back will be very, you know, a very frequent discussion and we'll try to do our best to guide you through that. I'm personally fully invested still and I think it's been a good idea to pour oil on troubled waters for the past seven days, especially outside of crypto, but also in the crypto space. And I think it remains the case we have the best ahead of us. But you just need to grow accustomed to a lot more volume and you need to grow accustomed to a lot of discussions on whether this was it.

Miguel Ozenval (30:10)

Great stuff, Andreas. I think that was a great roundup as usual. You can read all Andreas thoughts on the markets with Real Vision Pro. You get a lot more in there, including our macro portfolio which has been doing great this year. That's all we had for you this week. Quite an eventful past few weeks. We'll have much more to talk about next week. I'm sure. We didn't even have time to touch on some of the geopolitical issues. I'm sure we'll get to them next week if we get progress in the peace talks with Putin. We'll see about that. Anyway, Andreas, thanks a lot for joining this week. Thanks to everyone for watching.

Andreas Steno Larsen (30:45)

We'll be back.