Real Vision Interview with Jem Carson

Introduction

• Host: Ash Bennington
• Guest: Jem Carson, Founder of Kai Volatility
• Focus: Current market conditions post-election and implications for volatility and structural flows

Post-Election Market Overview

• Equity markets show significant growth post-election.
• Historical examples: Market rallies after both Trump (2016) and Biden elections.
• Narratives vs. structural flows in market.

Key Market Concepts

• Event Volatility: Occurs post-election due to removal of uncertainty.
• Structural Flows: Positive market flows due to the unwinding of downside protection and re-leveraging.
• Supply and Demand: Market dynamics driven by structural, not individual, flows.

Volatility and Market Structure

• Benjamin Graham: Market as a short-term voting machine, long-term weighing machine.
• Hedging and Insurance: Market inherently long, requiring downside protection.
• Implied Volatility: Decline leads to positive market flows; crucial for understanding market positioning.
• VANA and CHARM: Delta effects of volatility and time.
• Gamma: Market movement dynamic.

Dynamics of Market Positioning

• Majority market positions are not simply long or short; much more nuanced.
• Involves options, derivatives, and swaps.
• Dimensional movement: Time and volatility play critical roles.

Hedging and Insurance Dynamics

• Short Positioning: Street is short downside insurance, long upside.
• Decay of Insurance: Continuous buying of protection as time passes.
• Carry Trade: Highly profitable trade involving selling puts and buying calls.

Broader Market Implications

• Insurance Analogy: Markets as global insurance providers.
• Carry Trade Risks: Similar to yen dollar trades but more extensive.
• Predictive Flows: Structural flows more predictable than other market movements.

Practical Market Implications

• Volatility and Rally Dynamics: Rising vol into a rally signals potential reversals.
• Dealer Positioning: Long volatility; hedging compresses realized volatility.
• Market Correlations: Historical low correlations during periods of heavy vol selling.

Market Predictions

• Possible January peak in markets.
• Historical patterns suggest election years show positive market returns.

Structural and Political Influences

• Populism and Inflation: Structural inflationary period due to populist policies.
• Historical Comparisons: Similarities with the 1968-1982 period.
• Monetary Policy: Long-term effects of inequality and monetary strategy.

Societal and Historical Context

• Crisis and Market Cycles: Crises needed for restructuring and long-term prosperity.
• Entropy in Systems: Difficulty in maintaining stability over time.

Concluding Thoughts

• Long-term Market Outlook: Potential for crises and restructuring.
• Market Preparation: Importance of non-correlated investments.

Additional Resources

• Jem Carson suggests that understanding history is crucial to understanding market dynamics.
• Potential future projects to further elucidate these concepts.