Forward Guidance: Think Like Everyone Else, Lose Like Everyone Else | Brent Donnelly

Sourced by podcast-ingest on 2026-07-14. Auto-transcribed via AssemblyAI (universal-2, en). Speakers identified by AssemblyAI Speaker Identification using the per-podcast host/regulars hints; the resulting label→name mapping is in the frontmatter. Duration: 46m. Episode page: (not provided). Audio: https://traffic.megaphone.fm/BWG1416151143.mp3.

Show notes (from RSS)

Markets reward independent thinking, but only if you can avoid the traps that come with it.

This week, Brent Donnelly, President of Spectra Markets and author of Trade Outside the Box, joins us to discuss how psychology, risk management, and market narratives shape successful trading.

We explore poker's lessons for traders, AI's role in markets, Kevin Warsh's Fed, the dollar and yen, and why predicting people may matter more than predicting macro. Enjoy!

TIMESTAMPS:

00:00 Intro

02:00 Trading Outside The Box

06:38 Trading Psychology And Risk

12:46 AI As A Trading Tool

19:33 How LLMs Shape Markets

25:19 Kevin Warsh And The New Fed

33:37 The Yen Intervention Playbook

41:40 Is Government Debt Sustainable?

43:00 Has Bitcoin Lost Its Narrative?

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DISCLAIMER

Nothing said on Forward Guidance is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only. Any views expressed are opinions, not financial advice. Hosts and guests may hold positions in the companies, funds, or projects discussed.

Transcript

Brent Donnelly: If you think like everyone else, you'll perform like everyone else. You need to have some kind of divergent or independent thinking to have an edge and to make money. I'm so much less trying to predict, like, what the central bank's going to do or what the data is going to do. And I'm more trying to predict, like, what are the humans going to do? As a new Fed chair, you have to be hawkish. You have to say, we're committed to the inflation target. Like, that's just what you do. In terms of fx, it's still the same thing. Like, rate differentials will be the main driver. The only idiosyncratic story is Japan, where

Jack Farley: nothing said on for guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. All right, what's going on, everybody? Welcome back to another episode of Forward Guidance. And joining me today, super excited to have Brent Donnelly, president at Spectra Markets and a fellow Canadian who showed up today on the show with a Brazil jersey. So I had to go run out and get my Canada jersey because we can't have two Canadians on one show without at least one jersey on. So, Brent, what do you got going on? What. What's with the. What's with the Brazil jersey?

Brent Donnelly: I will say I like the. The black jerseys yesterday that Canada was wearing. So I'm a. I'm a Bandwagon soccer fan. So I will definitely be a Canada fan all days, except for when days that Brazil is playing. I got my Brazil jersey. We have. Probably most of my favorite clients are in Brazil, so I got to represent at least on their behalf.

Jack Farley: Nice. Fair enough. Yeah, I mean, we're not used to even having Canada in the World cup, so, like, I've always been an England supporter because we didn't even have a Canada team to support until, like, a few years ago.

Brent Donnelly: Yeah, it's great. I mean, imagine being a kid playing soccer right now in Canada. It's so inspirational.

Jack Farley: Oh, it's so cool. I love it. All right, Brent wanted to get you on because you have a new book and your previous book, Alpha Trader, I gotta say, I put out a tweet when I finished reading it, and it kind of went not fully viral. But people got really excited about it because it was seriously like one of the best trading books I've ever read. Really phenomenal stuff. And you have a new one out, so would love to start off there. Talk to us about this new book and what led to you to writing it.

Brent Donnelly: Sure. So, first of all, I appreciate it. Thanks. I mean, I don't do much marketing, so it's all word of mouth. So, like, you and some crypto people and stuff like that have been instrumental in getting the book out there. So thank you. So the new book, the Alpha Trader, as you know, but if people haven't read it, is kind of my attempt to bring together the main disciplines of trading because I feel like a lot of books focus on either. A lot of books focus on psychology or trade selection. And to me, there's just so much more to it, obviously, especially risk management, which I think is very underrepresented in books. So trying to bring all the. So if you create a box of like, fundamentals, technicals, behavioral and quantitative, that's kind of like the box of most trading books fall within that. And Alpha Trader was trying to kind of bring those four together and then just kind of do some case studies and examples of my own experience. And so my new book is called Trade Outside the Box. So you could imagine that I'm trying to go beyond those four walls and talk about things from outside of trading. A lot of them. A lot of the inputs that I use are from my experience with different things. Like poker would be one main thing, and clinical psychology, like addiction, gambling disorder, all that kind of stuff really, really come into trading a lot. So my time spent with, you know, with performance coaches and. And like psychologists kind of stuff in terms of trading has had a big influence on me. And then the other thing is, like, the tagline for the book is, if you think like everyone else, you'll perform like everyone else. And the point being, like, that's a pejorative statement because most people underperform the index and most traders lose money. So you need to have some kind of divergent or independent thinking to have an edge and to make money. And a lot of that for me comes from outside domains and applying the concepts to trading. So that's what I want to do. So, like, there's a whole chapter in there on how I use poker to hopefully become a better trader. Like, you get a lot more reps in poker than you do in trading. But many of the sort of core philosophies of poker, like, tight, aggressive, for people that don't play poker. That concept essentially says you fold your hands a lot and you fold all the bad hands. But when you have a good hand, you have to be courageous and aggressive. So it's kind of like the combination of extreme patience but also extreme aggression, which is, you know, most individuals tend to have a personality that's one or the other. So finding that way to. So for me, like, I have a lot of risk appetite, always either enough or too much. And so playing a lot of poker has kind of taught me to be able to, to just drop bad hands, which is something that I wasn't able to do in the past. And then so same thing with trading, right? If you see something and you're like, I don't know, but you're kind of bored, but it seems like maybe an okay idea, you know, that's like Jack six offsuit or whatever, you're tempted to play it because you're bored, but you shouldn't be playing it. And so I go through a lot of examples of things and then, you know, one person who I respect, who's who read the book in advance, said something which others have said about Alpha Trader, which is there is some like, application to real life as well, not just trading in terms of, you know, looking at the games that we play and the metagame of the games that we play specifically and things like that and, you know, prioritizing certain things over other things in life. So I also go into a few of those things about, you know, prioritizing, you know, family over trading, which is something that I made the wrong move many, many times. You know, skipping my grandmother's funeral because I didn't want to miss the market stuff when I was in my 20s is a horrible example. So things, you know, some lessons like that as well that I've learned.

Jack Farley: That's awesome. Obviously we won't give away too much of the book. People go out and order it to check it out. But I am curious about one big topic and I know you always bring a pretty analytically rigorous process to a lot of the claims you make and you always test these things out. And I am curious about this idea of metagames and meta narratives. We're both pretty active on X and you already mentioned this idea of trading because you're bored. And I feel like this idea of being hyperactive on X and seeing everybody Talking about the 5 Minute Candlestick charts goes hand in glove with this idea of overtrading. And I'm curious, like, what were some of the lessons you learned as you started to do some work for this book around that idea.

Brent Donnelly: So I think for me there's a book called Addiction by Design which is an. It's an amazing book if you're interested in addiction and things like that. But it's talks about the interface of slot machines and machine gamblers. So like people who are addicted to slot machines and how the machine and the human being combine. So a slot machine on its own isn't necessarily addictive and a human being isn't necessarily born addicted to slot machines, but the feedback mechanism that, that a slot machine provides to the right person will then draw them in and make them addicted as it kind of pulls them into this dark zone of. So books like Mark Douglas is trading in the Zone would talk about the Zone as a positive thing. Right. Normally that's what people view the zone as. But there's also, which I kind of learned from this book, but I experienced many times, but the book clarified it for me is that there's also this dark zone where you're kind of your monkey mind is in control and your every first thought that comes into your mind, you're reacting to it as opposed to that system two kind of doing the checks and balances and slowing you down. So a lot of things from that kind of. And then if you look at the DSM 5, which is like the bible of, of psych psychiatric medicine, they kind of go through like all this different symptoms of gambling disorder. And again, you know, I can see myself in there when, when I'm not trading well, you know, doing, chasing, chasing losses and, and doing things that you don't want to do and like, you know, you shouldn't do it, but you do it anyways. So kind of going a little bit deeper into that topic and then you know, looking at myself, hopefully I've improved over the years. Well, I definitely have, but I still do fall into that trap of I'm bored so I'm going to trade or like for me, I don't chase losses as much as I tend to over trade when I'm over earning. So if I'm doing really, really well, I'll tend to take more risk when really I should be reducing risk because you know, especially if you know the volatility of the products you trade. At some point, you know, they're 10, they're going to, if you're trading intraday or whatever, there's going to be some more likely point where it's more likely that the thing's going to mean revert than it's going to continue. But your instinct when you're up a whole bunch of money is to double down and like, and keep pyramiding when you should be reducing. So like a simple thing like putting condition conditional formatting in my P and L spreadsheet so that when I'm over earning, I'm reducing the number of line items and reducing my risk at the exact moment that my instincts are all like, let's double down and, and you know, crack to brand new crazy highs in the P and L. That's the exact moment when you should be reducing. Similar to like when you're screenshotting and you want to send it to your wife or put it on Twitter or whatever. It's a similar concept of that, like, euphoria that comes when you're at a casino and you have 19 black chips in your pocket and you're like, okay, whatever happens, it doesn't really matter because I'm up so much. And then all of a sudden, you know, you got two green chips in your pocket because you got overconfident. So those are some of the concepts. And then there's a bunch of other stuff, like just things that I kind of knew about. I think a lot of this stuff you kind of know, but then you don't really approach it in a rigorous way. Things like ergodicity and things like that, where you kind of understand risk of ruin. But then when you actually get deeper into it and you look at the math of, of pyramiding and things like that. And also I think one of the funniest things about my journey is that the, the main things that really attracted me to trading in terms of like the pop culture or whatever was like Liars Poker, Reminiscence of a Stock Operator and Wall street the movie were probably like the three things that got me most jazzed about trading when I was a kid, when I was like 25. And all three of those are cautionary tales, right? Like, Reminiscences of a Stock Operator reads like an awesome, like, how to trade manual. But, you know, he went bankrupt three times and committed suicide. So it's not like a good model for how to trade, but it's generally perceived as like this. He was the God of trading, which, he was an unbelievable trader, but also had one fatal flaw, which was he didn't manage his risk and faced ergoticity problems, which is, no matter how good of a trader you are, if you step close enough to the abyss enough times, you're going to slip in a couple times and so that's what happened. And then when you kind of take a step back and look at your own trading and you look at like hedge funds blowing up and some of the amazing traders that like Niederhofer that's blown up so many times and it's not to shit on those people, it's more like there's a lot of lessons in there because those are incredibly gifted traders who just are prone to blow up every five to six years. Because that's the nature of ergodicity. If you're trading a strategy that's extremely convex in the wrong direction, at some point you're going to blow up. And so really internalizing that and just never having strategies that are that way is another thing that I talk about in the book.

Jack Farley: Awesome. One other thing I wanted to ask you about there is you write about the usage of LLM tools or AI and it's interesting. So in your last book you had this checklist where you can kind of self reflect on your strengths and weaknesses as a trader. And it was a very illuminating process for me to go through and it kind of made me realize some things I already kind of knew about myself. But to see it on paper, like one is that I'm very prone to analysis paralysis and just like overthinking and it leads to like, I'll have this very strong thesis and then five days later, for like no real good reason, I'll kind of just like be like, oh, maybe it's this completely other thing and then go down that rabbit hole and then suddenly you give myself this like double edged sword of AI where I can just like double down on these rabbit holes of just like going deep on research and overthinking everything. I don't know, it feels really exciting but also kind of dangerous to myself because I know I'm prone to that. I'm curious, like, yeah. What did you see in that world of usage of LLM in terms of trading? Because it seems like that's the next hot thing to think about.

Brent Donnelly: Yeah. So I was nervous to write about it because it's like writing a computer programing textbook right now. Like obviously it's going to be obsolete in two years. However, I think just like speaking to what you're saying specifically, there's definitely the issue in trading, especially in 2026, of having too much information. So like all the research basically shows that after a certain point, which is way closer than you would think, incremental information makes you more confident and less accurate. And so I talk a Bit about that in the book as well. That's like an empirical observation in all research. And so it's like how much information do I need before it becomes too much? For LLMs, what I found, there's a couple of specific uses, but I find them much better for quick and dirty, like either brains like sounding board kind of thing, or like a biotech, you know, headline comes out and I know nothing about biotechs, so you know, four years ago I'd see a biotech headline, I just ignore it. But now I'll punch it into a couple LLMs and see what it says and then look at the price action so far and maybe there's a disconnect because a lot of times the alos and the, yeah know, AI driven and like mostly in terms of the market, I would say LLMs aren't that dramatically a new thing. Like there was machine learning based algorithms, you know, since 2010, and they trade headlines and all that kind of stuff. So in terms of that, I don't think it changes things that much. But in terms of getting a quick and dirty on, on, you know, that Triller thing the other day with SpaceX or whatever, you just punch that in and you go, okay, well the, so there's two things. So the, the Keens. I'll just explain this. I know you know this, Felix, but in case anybody doesn't know, the Keen's beauty contest idea applies a lot to me. So it's the idea that Keane said was in markets you're essentially judging a beauty contest, but you're not trying to pick the winner of or you're not trying to pick who you think is the most beautiful, you're trying to pick who everyone else will think is most beautiful. And what I think LLMs are really good for now, like if you use like Gemini Deep Research or whatever is for producing the most vanilla generic, you know, view on a stock or on a, on macro or whatever. So like that's just by, it's not a criticism of those things, it's just by definition how they work, right? They take all the information that's out there and they aggregate it. And so you're going to get something to me that's very similar to if you have an analyst class and this is a real thing that I observed many times, an analyst class of 30 people and you tell them, okay, you got to present a trade idea to the managing directors. They're going to present very vanilla, you know, consensus type of things. And I think that's what an LLM is good for is like seeing, okay, what are the, what's the consensus? So if you put like duolingo, you know, you're a Wall street analyst, tell me whether to buy or sell duolingo, not only will it give you like sort of a consensus view, but also it'll show you like, okay, these are the metrics that the consensus analyst is looking at because all it's doing is taking basically what all the analysts wrote and telling you what that was. So I use it more not necessarily as a contrarian indicator but as like a framing of the consensus. So I know, okay, this is what the consensus is. And sometimes though that can be useful because like I said with the biotech example, if it says I usually use three LLMs just all at once to make sure one of them's not on mushrooms or whatever. And when you do that then you see like, okay, CRPT announcement about some drug or whatever and they all kind of say like, well that's probably a 50% hit to the stock because the FDA is not even going to look at it for another two years or whatever and the stock's trading down 9%, you know, I'll sell the stock and you know, with a stop wherever the news came out and looking for it to be down 30%. And that's worked a whole bunch of times because I think you, you know, if the stock's not matching, not yet matching because it's only been three minutes since the headline came out. Not yet matching. What like the consensus is, you know, then there's a divergence and you can trade it. But in terms of like I've put in, like, you know, you're the best macro analyst in the world. Look at all factors in the, in, in the world and tell me what the best currency trade would be right now. And it's like, it's exactly like a 22 year old analyst doing, you know, their best work when they don't know that much about markets. So I don't know if that covered it. The one thing that I think I've found is really cool is you take a time series and put it into cloud. I usually use cloud for time series and then say find any interesting patterns in this that might be tradable. And so I think most people would that know systematic trading or quantitative finance would say, you know, that's like the worst kind of snooping and data mining, which it is. However sometimes then you can see those and you go, you see 10 if you know the product, like if it's A currency or whatever. I know. Then I can look at them and go okay, stupid, stupid, that's dumb, that's dumb. But then you'll sometimes see a thing and you're like oh yeah, I never thought of that. You know what? Actually from the pattern of flows I've seen, that actually kind of makes sense that like whatever dollar yen would rally at the end of April or something like that. And then it can give you ideas that you can then dig deeper into as opposed to saying okay, I'm going to create a systematic strategy that trades us, which is, would never work out of sample. So I feel like it's good for idea generation like that as well.

Jack Farley: Yeah, no, that's a super interesting answer. And it, it actually leads me into something that I've been thinking a lot lately. Not sure if you looked into this, but just around the, the like meta reflexivity of LLM usage on markets in terms of like, okay, one angle is like look, this, this is just like a consensus machine and it'll just spit out whatever's consensus. But then the, the second order impact is like okay, well look, if more and more people are going to like say something hot happens in a random sector, like you know, the memory sector right now for AI, it's just like everybody goes to their LLM and they're like what's the top, you know, dram place? And it's like if everybody's doing that then actually like maybe the, the right curve move is to actually go long those ones because you know, everybody's doing that and it's not, it's like sort of, I guess it's more so being like leaning into the momentum as opposed to saying this is consensus and fade it. But I'm curious if you, if you've have any thoughts on that.

Brent Donnelly: No, I agree with that because I think that fits my biotech example which is yeah, you know, you're detecting a consensus that hasn't yet been represented in the price. So you know, and I mean really that's like what narrative analysis is all about, right? Is finding a narrative that is relevant but not fully priced in. I mean that's essentially what we're trying to do half the time. So I do think it's useful for that. I think it's similar to going to like swaggy stocks.com or whatever and seeing what are the. I like, I love that website. Seeing what are the most active stocks on Wall street bets in the, in the dialogue on Wall street bets. And you know, you don't go in there and fade every single one. And you don't go in there and buy every single one. What you have is a more nuanced view of, okay, this thing just appeared in that list for the first time, you know, like Wendy's say a couple days ago. You know, you're not going to fade that. You might say, oh, this is a brand new thing and Wall street bets isn't going to get bored after one day. So I want to buy that thing. On the other hand, like GLD went to the top of the rankings of Wall street bets and sat there for three weeks and you know, GLD options, the chart of GLD options went like this. And you put those two things together and you say, okay, well maybe now the consensus is, is in the price. So I, I think it's useful in that exact, exact example that you said. Say you think of like so in, in memory. Obviously it wouldn't be useful because that's already fully in the zeitgeist. And maybe it continues or maybe it doesn't. But if you're talking about something less, you know, huge right now, say like, I don't know, Humanoid Robotics, maybe, I don't know if that's mainstream yet, but say that's on the cusp of being mainstream then looking at an LLM and tell me the best three humanoid robotics stocks, probably those are the ones you want to buy because that's what everyone else is going to buy. And it's like the Jim. I was trying to remember who Jim Grant says the key to making money in markets is thinking what everyone else thinks, but just a bit before them. I didn't get the quote right, but essentially you're trying. And I think that's like one of the real things that I've come to realize in my trading, especially because I'm more short term is I'm so much less trying to predict like what the central bank's going to do or what the data is going to do. And I'm more trying to predict like what are the humans going to do? What's. So that would be your example, would be a good example of that, of like, okay, I think people are going to get hot on this theme and you know, what stocks are they going to buy? Well, I don't have to go digging into 10Ks to find that I can look at LLMs. That's going to be the consensus and I would buy those stocks. So again, I think like most of the time now, you know, in contrast to 15 years ago, I feel like My edge is much more in predicting where the humans are going to go in the next week or two and not like, is the ECB going to hike or sound hawkish or whatever. I mean, I still try to predict those things, but I think humans are easier to predict than, than macroeconomic policy or, or data.

Jack Farley: Do you think that's why value investing has kind of died? Because everything is so like meta narrative these days and it's like, okay, well, look like inherently a lot of these value stocks are oftentimes just end up as value traps and they're cheap for a reason or like it's, it takes a lot for that narrative to shift. Like, do you see any sort of correlation there between this, this death of value investing over the last decade or so?

Brent Donnelly: I don't know. I, I, this is a bit outside my wheelhouse, but the one thing I will say is like, just if you look at what companies have made a lot of money, you know, it hasn't been value stocks. And even if you look at Buffett, you know, a lot of his wins were like Apple and Geico and not value stocks. So I, but honestly, like, I don't really have a strong view on why, you know, the big argument for a long time was QE just flattened everything, but, you know, there's no QE now. So, yeah, I don't, I guess my view, if I had to guess, is that, you know, things are driven by earnings and those things don't have earnings growth the way that, you know, the hyperscalers have.

Jack Farley: Yeah, fair enough. All right, let's shift gears and talk a little bit about what's going on in markets today. Want to talk and start with Kevin Warsh and the new Fed and what's been going on there. So just to set the stage a little bit, obviously he had his first meeting recently and going into that, we went from having a few cuts priced into the curve to suddenly having a couple hikes by the end of this year on the back of the Iran war, which does seem, at least if you look at oil markets, it's saying it's wrap. We're sub 70. Yeah. Curious to see how you think about that meeting that just happened, what the curves are pricing in, in terms of rate hikes and where does that all net out for you?

Brent Donnelly: So my view isn't as strong as it was last week. I think coming out of it, I thought this is kind of performative. Like as a new Fed chair, you have to be hawkish. You have to say, we're committed to the inflation target, like that's just what you do. Every single Fed chair, when they start, tends to be more hawkish. And obviously they're not going to sit there and say, well, 3% is the new 2%. We've missed the target for 62 months and we're happy to miss for another 20 months. That's just not what they do. So I think my main view or my primary view, but I got to be open to the other one, which I'll explain. But my, my view is that he'll end up being a lot more dovish over time. I mean, even recently he was talking about trimming inflation and things that were, that were sounding dovish. And I think this is more like establishing the inflation credentials. And like you said, with oil coming down, inflation expectations coming down, you'll probably get okay data and then they can talk about, okay, that we're on the trajectory, we're on the path, and then just go back to the normal bullshit of like core PCE will be at 2% in two years, which is like the perma forecast from the Fed. But I want to leave open the possibility that I think this would only happen if non farm payrolls is strong, that there's some philosophy within the committee, because the committee seems pretty hawkish and, and then, so if you believe worse, which I kind of don't, but if you do, then there is some strategic reason to just hike in July if payrolls is strong this month. Because there's definitely a cohort of people that believe, I mean, a lot of people believe. I think it makes sense that if you hike now, you can probably hike less and maybe even cut later. Whereas if the longer you wait, if there are inflationary impulses, then you got to hike more and it just causes a lot more problems and you look like an idiot. So if payrolls is really strong, I would be a little bit nervous about the July meeting. And so I feel like ultimately, you know, the combination of payrolls, but specifically the reaction to whatever payrolls is the July fomc, I think will really set the tone. So for now I don't believe him. I think he's just coming in and saying that, because that's what you say. But you know, if, if there's a strong payrolls, I'm going to be really nervous that they then, I don't know if they actually would hike, but they tee up a September hike and then people have to kind of take them seriously. Whereas if you get payrolls 28K and 4.4%, they're going to say, you know, oil appears to be cooling expectations and yeah, we got some other things on the services side but you know, second round effects from oil no longer a concern and you know, we're good and then they'll just slow play it and keep kicking the can and then you'll be, you know, sitting there in December with Fed funds unchanged. That's definitely my, still my core view. But also I just, I want to keep an open mind because as a brand new Fed chair who was super hawkish in the, in the, throughout the like through the financial crisis, right. So he was like the main hawk in those days. So he's definitely capable of it. But in the end I just don't believe him. I think he's just saying what he needs to say.

Jack Farley: Fair enough. Curious. As somebody who's predominantly an affects trader, when you there's a shift happening now of going from this era of forward guidance around rate expectations to kind of this, like this, this present day expectations and just the death of for guidance in many capacities. I'm curious, like how does that change your process as a trader in terms of how you look at the US dollar and rates? Like how are you, are you shifting how you look at the dollar based on that change or how do you think about it?

Brent Donnelly: I mean the one sort of microstructure thing is that I think data will probably be more important because you're not going to get like the smoothing of all the guiding and coaxing of expectations in between meetings. But then again, I mean we've had a lot of Fed speakers since war spoke, so I'm not sure. I feel like a lot of times they just say stuff like, honestly, so I'm not that convinced. Like you know, he wants to have a super, you know, streamlined Fed, but then they're adding five new task forces to analyze, which is like the most bureaucratic thing you could do. So like I feel like it's a bit all over the place. A couple of months ago he's talking about trimmed mean, which would be a very dovish point of view. And then he comes out raging hawkish. So I think in terms of fx, it's still the same thing. Like rate differentials will be the main driver barring, you know, there's weird idiosyncratic regimes where that doesn't happen. But overall, you know, if you're right on rate differentials, you're usually right on fx. I think that'll still be the case. And so where are you going to get your, your guidance on Rate differentials, maybe a little bit more from the data than you used to, but generally I don't think it really changes that much. You know, a shorter statement or whatever. It doesn't. I mean people are saying like it's a new regime, he's going back to Greenspan style. It just doesn't. I don't think that's true.

Jack Farley: Is that just looking at right now the, the DXY US dollar rallying and breaking out here, do you think that's mostly just that reflection of rate differentials or is it something more idiosyncratic? How, how do you think about that right now?

Brent Donnelly: Yeah, there's actually not that much going on that's idiosyncratic. Like if you look at dollar Korea, which would like generally be quite idiosyncratic and you overlay it with Euro dollar it's kind of looks the same but well inverted. So right now it's more of this broad dollar trade with the only idiosyncratic story is Japan where essentially dollar yen's pegged right now because no one wants to buy it above 162 because of intervention risk, but there's not enough sellers. So it's just basically sitting here. It's kind of turned into this strange thing where it's like pegged currency with a ton of jump risk because either they're not going to MOF's not going to be there and it's just going to explode or they will be there and then it's down 4%. So that's a weird thing in dollar yen, but I would say across the board even EM, which was idiosyncratic for a year or so up until recently has joined the sort of monolithic dollar blob. So like even things like dollar Brazil have been rallying. And yeah, I think it's mostly just, I mean we had a couple, like you said, couple cuts priced in. Now we got a couple hikes priced in. And so you know, it makes it more, that much more attractive. And there's a lot of models and CTAs that, that just follow carry and momentum are the two strategies. So you know, it creates the yield differential, creates not only a lot of flows from that, from those guys, but also from like RV Bond guys who are like okay, well it's just better to sit in the US because you're the carries a lot better. And then obviously that's had a big impact on gold. So it's all kind of gone to the sort of more traditional FX regime where dollar up, gold down, following rate Differentials. If you overlay like Germany USA versus Euro dollar, the fit's been really good lately. And then if you overlay like $, Swiss and gold because Swiss is the most gold like of the currencies again like the fit has been really good. So essentially what it is is like the debasement trade which was hot, you know, got over subscribed and now I feel like the pendulum's gone a little bit too far because my view on war is that he won't deliver on the most hawkish expectations. And you know, looking at positioning on our, on our metrics and then looking at like gold sku, like SKU and gold options, there's a whole bunch of things you could look at swaggy stocks G. Nobody's trading GLD anymore on, on Wall street bets. There's a lot of more sentiment kind of things that all point to like the revulsion of the debasement trade or like the, the capitulation on the debasement trade I think is pretty much over

Jack Farley: maybe with the exception and the basement trade they're calling it now.

Brent Donnelly: Yes, debasement trade is in debasement at the moment 100%.

Jack Farley: I'd love if we could just double click a bit more on what's going on with the yen and your framework for how you think about that there because there's a lot of different levers to think about. So obviously we are at the same level back in 2024 where they, they really significantly intervened which is causing a lot of people not to want to get excited here. And it's that, that jump risk you're talking about. But I'm curious like yeah, what are those consistent? What's your overall framework for it? Like, is it about do you need to have best and play ball on the other side to ensure that something actual happens? Is it just about like how sustainable the Ministry of Finance can do these interventions? Like do you think they're even going to intervene this time or. Yeah, how do you think about all these levers?

Brent Donnelly: So the, the G7 communique or the G7 statement on FX always says that we will generally let the market set currencies according to fundamentals. And so when US yields are going up and the Fed's hawkish and US exceptionalism is back and you know, NASDAQ's up 600 points every day, it's very hard for the MOF to justify intervention. So they will probably wait till there's a good moment like a week non farm payrolls on a holiday would be A good strategic move, for example. So it's really tricky for them to intervene when all the fundamentals are pushing the other way. Because the other thing too is they're never trying to reverse Dalian and make it go back to 130 from where it is now from 162. All they're trying to do is, you know, remove the right tail, which is like explosive, out of control $yen rally. That means like massive yen depreciation and, and a lot of inflation in Japan. They're just trying to cut off that tail. And so what they do is basically buy time and hope that the macro turns. So right now still politically, a weaker yen is not good for Japan. I mean there's two different types of interventions. So the MOF can go alone, which they've done many, many times. And like you said, they did it 24, they did it more recently. It doesn't really work in the long run because you don't have enough policy variables lined up. Like the BOJ isn't really hiking aggressively. The Fed, you know, it doesn't, it isn't cutting obviously and Japan's running very loose fiscal so you don't really have anything lined up. So usually the, the interventions that have worked historically. So this reminds me more of like 20030405 it was the other way they were buying $yen but like they stopped it from going down for a really long time but it just never went up like so volatility just collapses and they're on the bid if it's selling off. But it never goes up because there's just the natural price of it is lower. So they're intervening at non clearing levels. And so it just stayed. yen stayed heavy the whole time. And this is the opposite. It's like a beach ball underwater. You can keep pushing it but it just keeps on bouncing back. Now on the other side, if in like historically coordinated intervention has worked almost every time, not perfectly on day one or whatever, but it has worked, most coordinated interventions have worked. So like you said, if best were to agree and they actually intervene and the Fed participates and then they announce, you know, we've done coordinated invention intervention at Japan's request, we agree that the yen is undervalued or whatever, I think then you have a much more durable top and otherwise it just, they keep smashing it and everyone wants to buy it when they smash it because it's not sustainable and the BOJ is never going to hike enough to matter for dollar yen. Like it's just in my opinion, it's too political, they're too slow moving and bureaucratic and they're too scared of blowing up the JGB market. Even though ironically actually hiking could be good for JGBs. You would never know that till after the fact. So it's a risky gambit to say we're going to hike because we want lower yields in the back end. So the, the coordinated intervention would definitely be meaningful, but I don't think that's going to happen. I think what we're going to do is keep playing this cat and mouse game where there's some good trades to be short del into the interventions but you got to be quick and get back out because the thing ultimately that will make dollar and go back down for real would be like US recession, lower two year yields in the US and you know, or coordinated intervention. And none of those things are, you know, on happening in 2026. I don't think.

Jack Farley: Yeah. How relevant are long end JGB yields to this framing? Is it like obviously the context there is yes, they've been surging, but is it just normalization coming out of this like post yield curve control era or is there something more there? And like is there certain levels where you, you start to get concerned?

Brent Donnelly: Yeah, it's, it's sort of like a velocity thing, not a levels thing. So we've had a bunch of scares. Same with the UK where people are like, oh this is it, the bond vigilantes are here. The scary, it's too scary. And that is that then you get the feedback loop where the higher yields actually lead to a weaker currency which is like the emerging markets set up where you're losing fiscal credibility. So people sell the currency and the bonds at the same time, which is like the nightmare for policymakers. And we saw it, I think we've seen it three times now in Japan. But the thing is they just have so many tools to, to kind of slow things down and intervene. And then the ultimate thing, which I'm surprised they haven't done yet, but the GPIF and campo, which are like the two huge pension funds in Japan and the number of like the amount of assets that they hold is a number that's so big that you can't even understand it. Like it's bigger than, than any other global holder of anything, basically like in the trillions. And they can they increase their foreign allocation as part of Abenomics in order to sell the yen, like in order to make the yen weake. And so ultimately they could then reverse that and say okay, we're repatriating some of our money. We're going to take money out of US bonds and buy JGBs. And that's like the, that would be like the holy grail for, for creating stability. And since you get stability in JGBs and in Yen, but it's like a trick you can only do once. So it's like they're saving it for the, for I guess for an emergency. And we've never really been in like an emergency. There was one time in 2022 where it kind of felt like, you know, people were getting a bit hysterical about dollar yen going to 200 and stuff like that. But overall it's funny because like they've moved massively but it's been somewhat orderly most of the time. So it's a thing, I mean it's the same thing kind of with US Yields is that it's a velocity story a lot or volatility story a lot time, a lot of times more than a level story. So like equities don't really care if yields go up from 2% to 4% if it happens over, you know, 19 months or whatever. But if yields are, you know, and so you look at the volatility of bonds, if, if yields are moving 40 basis points in, in a week, then stocks start to get scared and start to sell off like in 2022. So I think it's more important to watch the velocity of it than, than the actual levels because like you said, ultimately all this stuff that's going on in all these bond markets is like healing. It's a return to normal capitalism and bond markets that you would have seen before 2008. A sort of healthy economy with 4% yields in the US is probably a lot better than an economy with 0% yields anywhere. So it is sort of like in the super big picture. It's kind of healthy, but it's obviously scary to watch it unfold on a day to day basis.

Jack Farley: Yeah, it's healthy, but I feel like a lot of people thought that this wouldn't be possible with the amount of debt we have in the world now. That was, it felt like that was the view. It's just like we can't do this because there's just too much debt and it would just blow deficits and interest expense. But I don't know. I mean it seems like it's worked so far.

Brent Donnelly: Yeah, I guess the missing link was consumer and private debt are scary and need to be paid back and government debt doesn't. So you Know, it's just such a different thing. Like it kind of doesn't pass the sniff test that you can just keep borrowing and spending forever. But I guess obviously you can do it for a very, very long time, longer than people can. Can question the, the logic of it. I mean, I remember in, whenever in the, I guess it would have been like the late 80s, early 90s when the debt clock went up in Times Square and people were like, this is unsustainable. You know, you can find stories from 1985 about U.S. debt and how it's unsustainable. So it, I'm not going to sit here and say like it's sustainable forever, but yeah, it's, it is weirdly sustainable for much longer than. And I guess maybe the, the release valve is inflation. Right. It's just, it's harder for them to contain inflation when deficits are this big or the release valves S and P 500 higher.

Jack Farley: It's, it's so interesting that you mentioned those two, but not like gold or bitcoin, because those have historically been the asset classes that people thought, okay, you know, got to hold those because of fiscal recklessness. But I mean, they're kind of. I don't. You can make the argument the gold run over the last year was just like a Chinese bank thing. And then if you isolate that out, like, obviously bitcoin's just been down in the dumps, but equities are all time highs all the time, and people would prefer to own a productive asset that's giving off like nominal earnings in a world where everything's going higher nominally because we're in higher inflation. It's just interesting that those asset classes that were supposed to be designed for this moment aren't really doing that well.

Brent Donnelly: Yeah, I mean, if you look at like, I think people are over, like overweight the 1980s for gold. So like, obviously it was a great inflation hedge at that time. And if you look like empirically it's, it's really hard to find whether it is or not. Like, sometimes it is, sometimes it isn't. And then, yeah, with bitcoin, it's interesting because it was kind of this chameleon that kept changing narratives over and over. And it was, you know, it was a store value, it was a, a person to person com, like cash replacement. It was digital gold. It was a risky asset for a long time. And unfortunately none of those things have exactly panned out. And now we're kind of left in a situation where if you're buying bitcoin, what are you actually cheering for? Like, what are you hedging? What outcome are you looking for that takes Bitcoin to 150,000? And to me, whether, you know, I'm sure many people still have an outcome in their head, but I would say, like, the majority of people have kind of moved on and said, okay, well, it's not a risky asset. It's not a hedge. It's not an inflation hedge. It's not a monetary policy hedge. It's just like a weird, idiosyncratic thing that people trade and that Michael Saylor buys and then Michael Saylor sells or whatever. So it'll be interesting to see if it can find a new narrative somehow, because, I mean, man, it's tr. I think one of the crazy and amazing bullish things about bitcoin for so long was how it would just keep slapping on new narratives, and each narrative was like a new reason for it to make all time highs. But now it's like, okay, well, you used up all the cool narratives. What's next? What's the next thing that you're going to say that, you know, that's going to convince people that bitcoin is going to go higher and maybe there will be a thing. But I don't know. I'm a little. I'm wondering if maybe there won't be like that next bull run for a really long time because people have seen it enough, and it's like, fool me three or four times and shame on me kind of thing.

Jack Farley: Yeah. Yeah, that makes sense to me. All right, Brent, always great to have you on for guidance. Congrats again on the new book. Can't wait to finish reading that. Yeah, we'll put a link to it in the show notes. And yeah, appreciate you coming on here, Brent.

Brent Donnelly: All right. Go Brazil. Go Canada.

Jack Farley: There we go. Thanks again.

Brent Donnelly: All right, thanks. See you.