Comments
Transcript
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CDThis was the worst recommendation ever and cost me a lot of money...I feel like I should always just do exactly the opposite as any financial media says.
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JDTHIS IS EXACTLY HOW TO DO THE TRADE: You want to buy CALLs on /GEZ19 Safe trade: Strike price 98.5 with around 400 days till expiration (costs about $500 per contract) Risk-on trade: Strike price 98.75 with around 320 days till expiration (costs around $350 per contract) You could buy less time, if you know how to trade in and out on the way up...extra risky, but more profitable. Get in ASAP, and close the trade when the FED funds rate = 0 These option prices move fast, and you want a good entry point. Today is a good day to get in. Remember these options cut-both-ways. Big gains on up days. Savage losses on down days. Don't freak out, and don't get greedy. This is a great trade. I expect to make 10X this year. I recommend Tastyworks for trading options, they make it super easy, but any brokerage can do this trade. (Maybe not Robinhood) You need futures trading permission to do this trade. It is separate from margin and options trading permission. You can't even buy CALLs on futures without getting permission. Call your broker and they will help you find the online "enable futures" button / process. Go to younghustler.com for more information on how options work, and videos on how to set up an account with Tastyworks. Godspeed.
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gbI don't believe this trade is on the table any longer
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PCFor retail investors, how about just buying calls on ETFs like TLT (long maturity Treasuries) or XLU / VNQ (Utilities/REITS as yield surrogates? and yes just an excellent interview that I have listen to 4 times & realized I haven't even scratch the surface of effectively trading options in the complex ED markets lol
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eaAn amazing interview, very compelling and convincing. But, I think Real Vision needs a how-to. Similar to what others are saying: how does one trade an asset that I had not even heard about one month ago effectively and carefully, with leverage? In this video Burbank himself says that he wishes he was trained in this, and he's been working to learn it for the last 9 months. If we, as viewers, take nine months to get up to speed, the Fed rate cuts will likely be done by then!
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JGWhy on earth with the population growth rate going down considerably that we would have the same growth rate as the business as usual years?
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RNHi All, I wanted to ride this bet as well, but as a new entrant to this entire world, would anyone be able to explain the steps needed to understand the mechanics of HOW to take on this trade? Examples, is the specific trade to “buy call options” on GE1! where I can follow its progress on trading view? GE1! = Eurodollar futures? , currently at 97.985 The bet would be hoping that this tanks by 100 to 200 basis points, meaning down to 96.986? I understand that the above could be completely wrong and that betting not the FED cutting interest rates is followed by a completely different mechanism. Unfortunately, for me to take this bet, I’m going to have to learn how to buy call options, what ticker to buy, at what entry and exit price, what to monitor on a daily or weekly basis, and even the platform to do it... ie. Would Robinhood App suffice? How about leverage? Thank you kindly! Sorry for the ignorance as I’m new and learning hear. If anyone has any questions on crypto, bitcoin tech and leverage I am more than happy to pay it forward there :) Best!
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PDGo to for quick education on Eurodollars https://www.cmegroup.com/education/courses/introduction-to-eurodollars/the-importance-of-basis-point-value.html
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NvBurbank's view is 100% consensus in US technology - See BAML FLow Show and Global Fund Manager Survey. Long Dollar, long US equities. Your Twitter stream may sound different but the DOLLARS are invested in his view
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AJIt is a great expression of an aggressive Fed thesis but you need to hedge your delta with equivalent OIS/Libor basis. The last time the Fed cut like that the basis move eliminated much or most of the upside,
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MKFantastic convo...did we determine which dates/strikes he was targeting?
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RL"Price is just a bouncing of liquidity."
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CHgreat video. Did some research into this trade. Can anyone recommend a web link for a novice to learn step by step how to put a trade like this on?
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mhDates, strikes?
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MSOn question. My perception is that the ED trade will be far larger than 10x. Do you Raoul agree? If Vega explodes which I think is what you are looking for I'm thinking closer to 75-200x.
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JSExcellent interview as always RV! I use LCG to trade futures, but they don’t have the Eurodollars market. Can anyone advise either an alternative on LCG i can trade or a good alternative broker, as there are so many to choose from?
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RMSo many nuggets of wisdom here. I liked it when Alex said people have a hard time trading a pattern that's not happening right now.
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DDIf this works out, surely it will go down as the greatest RV video of all time. Being presented a 10x trade on a silver platter. My God is this subscription ever paying off. <3
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BBAbsolutely terrific content. Don't mind the awkwardness, this is gold dust. Bring them on again pls RV!
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RPDear RV, make a video or Trade Idea on how to put this trade on lol!
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PDEDZ20
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TSI agree with everything said, what exactly is this "trade" buy eurodollar fed futures?
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JSAm I correct in saying that buying long calls on eurodollar futures is betting the US dollar will rise, when interest rates head to zero?
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asMy lagging interest in RV has been revived
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YBI'm a complete newcomer to futures, but I don't see a favorable risk/reward when I do the math: Current Fed Funds Rate = 2.41% Current implied Fed Funds Rate for Sept 2019 based on Eurodollar Futures = 2.105% So here's how the math plays out assuming you buy a single Sept 2019 futures contract (~$300-$350, after fees): - Realistic worst case scenario: Sept 2019 Fed Funds rate = 2.5% ---> net loss of ~$1,000 / contract - Base case: Sept 2019 Fed Funds rate = 2.25% ---> net loss of ~$360 / contract - Best case scenario: Sept 2019 Fed Funds rate = 2.0% -> net gain ~$250 / contract I use the numbers above for Fed Funds futures (2.0 vs 2.25 vs 2.50%) because even when the Fed "cuts rates", the "effective Fed Funds rate" tends to stay on the high side of their 25 basis point range (see Luke Gromen's recent work on this new phenomenon: i.e., Fed Funds rate > IOER as of 3/2019; https://youtu.be/li0mKKwD2MU). Bottom line: the risk-reward of the Burbank trade seems unfavorable right now. I'll stick with Treasuries across the curve to make a similar bet. With Treasuries, at least I don't have to worry about timing the purchase nearly as much. My upside may be limited, but so is my downside. Call me old-fashioned, but I gotta stick with Warren Buffet's two rules of investing!
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VHCan someone explained what exactly is the bet John Burbank talked about? I watched the whole video twice and still very confused. Thanks TONS!!!!
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TBTerrific. Really enjoyed this commentary.
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RPEDV and TLT
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MLi'm not sure where Burbank got this thing where everyone's betting on rate hikes. All i've heard all year in the news (and i'm talking about mainstream stuff like WSJ, CNBC) is market pricing rate cuts. with ED futures you also have to worry about timing and pace of rate cuts
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FWSo the dollar is the key to everything and we are not going to discuss the dollar
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SAFor me this was one of the more underwhelming interviews on Real Vision. I think both speakers were very articulate and explained their concepts well, it is just that the concepts are rather mainstream. Betting on "A" companies is pretty mainstream, may be not in the Real Vision crowd but certainly among the CNBC and Fox Business crowd. Betting on the FED cutting rates to zero in the event of a recession is also a pretty mainstream call. What is not mainstream is the FED being forced to raise rates because of inflation during a recession like Paul Volcker did. Also I need to mention that Gurevich's theory that tech stocks may not correct even if we have a recession because of crowding was disproved only 6 months ago when we had a near -20% correction in SPX while most other indexes went beyond -20% including tech stocks (XLK) which corrected -24%. Crowded trades always correct if for no other reason than institutional portfolio managers incur tax liability when their inventory rises significantly (unlike individual investors) and they have to sell some their inventory to pay taxes. Funny thing is we had a -20% tech stock correction WITHOUT a recession. While I understand the argument that stratospheric multiples can get even more stratospheric because of crowding, this is not a process that can continue without significant corrections. Essentially, Gurevich/Burbank say that tech stocks will become like bitcoin - completely disconnected from fundamental valuations. While that is true, what is also true that as there is no basis for valuation the swings in prices become entirely momentum/sentiment driven and sentiment happens to be a very fickle beast (as we observe in bitcoin). -80% corrections in bitcoin happen every 2-3 years happen like clockwork. Same thing will happen to tech stocks if valuations become too disconnected from reality.
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JSGood interview....couple questions 1) wasn’t this same secular tech argument made in 1999? Yes, I get that he’s saying it’s more software driven today, but multiples matter. 2) if the majority of the voting population is B or worse students, I’d think the A students and their tech companies are at risk - aka antitrust and more taxation. We are already hearing politicians teeing those up. Big picture, yes technology is taking a bigger slice of the consumption pie but people are also able to borrow and spend for discretionary and nondiscretionary items today. Recession will bite everyone. Beware of political backlash on tech. Up and to the right for tech only works if the world population feels flush. Trumps election is evidence of discontent and he’s only made the disparity worse.
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VSAbsolutely loved Burbank's candidness and humility. Fantastic to see!
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ahthis was awesome! burbs.. the legend - conducted by alex.. brilliant
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FBA bit disjointed but good information. Given the emphasis on the issue by RealVision ,periodic updates on this topic would be appreciated.
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MGExtremely interesting video, thank you RV. Question for John / other viewers who are familiar with ED futures. I noticed the TED spread has blown out during most recessions (spread between 3 mo Treasury Bill and 3 mo LIBOR): https://fred.stlouisfed.org/series/TEDRATE Does this present a risk for owning ED futures vs. a treasury-linked instrument? I wonder if you might end up in a situation where you "win" on anticipating fed cuts but lose on the spread widening? (disclaimer: I have no familiarity with rates trading)
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JCHad to watch this again it was so good! Long innovation and illiquidity premium and short leveraged rates might be "the next perfect trade". Risk parity on steroids...move over Spoo's and Two's. The mark to market arbitrage might be equally brilliant.
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WKKudos to Alex, John,and Real Vision for this interview. We may look back in 5 years and see today's growing education, knowledge and understanding of the Eurodollar system by individual investors as a milestone along the ancient storyline of investing. I know w/ certainty most Fed staffers and FOMC voters do not understand how the Eurodollar market works or mitigates monetary policy. Liquidity risks > fundamental risks and liquidity risks are a function of Eurodollar capital flows. Individual investors with limited experience, beware of this trade...there are plenty of other ways to potentially lose your capital. If interested to learn more I encourage you to read https://www.alhambrapartners.com/tag/eurodollar-system/. Jeff Snider (w/ Michael Green) would be a great long-form interview.
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MTone of the very best vids I've seen on RV since this platform started. I do however have one thought. At 40mins 40secs JB said " it took me a while to work how to structure the trade through buying calls' . I agree with the directional bias of Long Eurodollars, but not by simply buying just calls. I would be most interested to learn if Mr Burbank might see merit in structuring things differently. If you simply buy OTM calls only then by definition such a position/s has negative Theta trade ie time decay will work against you. I believe a modified approach - requires more capital - is mathmatically better. As /GE has low IV Rank at 10.1 then to be directionally long sell a long call debit spread structured as follows sell ITM Call and buy an OTM call. One needs to 'play about' with the strikes to end up with the long option having greater instrinsic value than the debit paid for the spread. This ensures positive time decay and a breakeven below the current stock (futures) price. Whilst I'm a keen advocate of when ever possible if there are liquid option then using options is the way to go, but in the case of Eurodollar futures as they have very small margin requirements, the simpliest method for those that want to 'put a first time foot in the water' with Eurodollars, buy/sell GE futures direct. at the risk of receiving an accusation of being in-precise to make serious money with Eurodollars it will be necessary to have many multiple contracts as Trading eurodollars is the 180 opposite of trading something like Beyond Meat stock.
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PCJohn's view is that the Fed Funds rate is going to zero similar to David Rosenberg,... I have the same view & as a retail investor, express this by: - long IVOL - Nancy Davis' actively managed ETF that through the OTC market is long optionality on a steeping of the yield curve (eg short end rates dropping), long vega, & long inflation protected treasuries - long TLT - long yield based equities like utilities, REITS, US Pref shares...
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DSRVTV Team - Although Japan is a different society, I would like to see an interview comparing Japan’s deep dive into low interest rates and monetizing their debt. Mr. Koo has a great understanding of the balance sheet recession, low interest rates, monetized debt and the Japanese and American cultures. He worked in the Fed and with the BOJ. I hope that you will extend an invitation for him to return to RVTV and help us on these topics. DLS
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NRI'dd like to see more of John Burbank, lot's of nuggets here. Having said that, high probability this interview marks the Top in the ED trade for the rest of the year.
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KAWhat a great interview. This week has been excellent. I'd love to see a private equity executive interviewed on the recession topic. Leveraged companies are going to get smoked if we go into recession. I'd also love to see a long-only, large high-yield investor interviewed (since they are the ones financing these companies with no covenants). Finally, as an individual investor (ex-sellside credit trader for 22 years), I get very nervous dabbling in futures and options. I've been buying 3/4/5-year certificates of deposits from internet banks to try to lock in yield. I won't make money on mark-to-market but I need the carry. I love his idea of making multiples of capital from the idea, but I am not sure of a clean way to do it either on my own or with a manager.
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DRVery good. Also, thank you very much for the transcript to read.
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CTGreat video, hats off!
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TMLocalization will not be inefficient. New technology will be utilized more.
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MGGreat video thoroughly enjoyed it. With that being said there isn’t a phrase I hate more than don’t fight the fed. These fed officials aren’t God like and I’m a firm believer in booms and busts and the business cycle still being relevant. I for one think if the fed was ever vulnerable to losing control it may be here and now. The argument that negative rates in the US could push equities higher as people chase higher yield I totally disagree with. If that was a legitimate argument then why haven’t we seen that in Europe, or Japan for that matter. The time will come and I think it’s soon that valuations will matter again imho. Why can’t negative rates in the US also mean hoarding US dollars instead of chasing risky assets at these high valuations. IMHO I say now is the time to fight the fed while everyone continues to buy in to this fallacy that the fed has their back. I believe assuming the fed will navigate this in to calm waters is being naive to history and I personally believe it won’t be different this time. The business cycle lives and will always live under capitalism law.
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NSAmazing video. Any other equivalent ways to bet on the trace to zero which are more approachable for the individual investor. ? Treasury ETFs,? leveraged treasury etfs, short Libor etn ? Or should one scramble to learn how to by calls on the Eurodollar rate directly?
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JVRates and FX is where the investment banks make billions in trading year after year. Part of it is client driven but much of it is pure trading/speculation like the subject of this interview. Most people think that trading profits mostly come from equities, but that’s not the case. It’s just the market that most people know about and are active in.
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TAi loved this, thank you RV and guests.... i think they are looking at Dec 2020 eurodollar call options, strike 98.625 costs 0.24, roughly 5x return if rates go to 0-0.25 by then
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bsWhat are the actual contracts that John likes to buy?? Was it EDZ0???
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TJLoved it! I feel privileged to be able to eavesdrop on this discussion. When Raoul explained at outset about why he loves Real Vision so much, it reminded me of why I decided to join Grant and Raoul's revolution in financial information, namely to be able to listen to successful market participants give me their views and insights (and not soundbites) of markets and the macro picture, and what trades they are currently making. I still have to pinch myself that I have been able to access this daily for so many years so cheaply. Thank you Alex and John for an absorbing seventy minutes of your valuable time, and thank you Real Vision. Please keep bowling me over, and making me a better informed and, hopefully, a better investor.
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FCGreat interview. How about now John interviewing Alex?
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DSMr. Burbank and Mr. Gurevich - Great interview. In the short term I am betting on US bond rates dropping. It will take time for any MMT, infrastructure, etc. to be enacted. If they are, I will find a bolt hole quickly. DLS
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GFIncredible video. Just a thought - without using futures, what's the best way to trade on this thesis?
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GRNice of Alex to let John talk.
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PBThanks a lot for the fantastic conversation!
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DSExcellent! Any thoughts from the RV viewing financial industry pros on replicating the suggested trade by going long a retail product ULBR?
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JHThanks, guys - I am not exaggerating when I say that this may be the best RV interview so far this year, at least in my opinion. Fantastic quality in terms of content and clarity of the discussion. And, as Raoul said, two of the smartest investors one can find. Brilliant stuff - I might just have to watch this a second time.
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JBJames Goldsmith 1994 Charlie Rose interview: https://www.youtube.com/watch?v=4PQrz8F0dBI
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RRThank you for getting these two together. Great to be able to see two of the best go through their thought process, and be so humble about their success, and put emphasis on their continued efforts to evolve and grow their skill set.
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CHTop Blokes. Really interesting. Thanks.
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BAJohn Burbank sounds like the kind of guy who isn't first on to the scene of any particular market move, but he's the guy who understands when it is a really important move.
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LKGreat job RV for putting this together!
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SAIs a transcript going to be available as usual? Thank you
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APJohn openly displaying beginner's mindset on how he learned about ED was incredible to see. Cherry on the cake of this week. And thanks Alex for the great questions. But mostly thank you RV for this Recession Watch week and all the insights. Finally, I see an interesting pattern developing: after Bitcoin breaking higher on Crypto Week, Gold/Silver breaking higher on Recession Week = RV as the coincident indicator (even leading in the case of rare earths)? Cheers guys.
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PCEDZ9 25d calls trade at 2x IVB v 25d put tho?
JOHN BURBANK: Price is really just the balancing of liquidity. It is not the proper discounting of the future. If globalization was good for growth, the fracturing of globalization, the limiting of globalization has to be bad for growth, right? It has to be. Now you have to change and bet against the Fed to win.
RAOUL PAL: One of the reasons I personally love Real Vision is the circle of people that I can call upon is truly amazing. And this piece is literally two of the smartest people I've ever met. And two of the nicest people I've ever met. Is John Burbank and Alex Gurevich. John and Alex are really interesting for this conversation because they are both deeply involved in fixed income. There is a particular trade that John has put on very, very successfully that Alex is involved in and has a deep understanding of that I'd like John to explain to you. This is John's idea of how to trade the cycle and particularly the rate cycle. I've been talking about over this week that rates may go to zero and how we can make an extraordinary amount of money out of it. So I'll leave you to really enjoy the conversation of John Burbank and Alex Gourevitch.
ALEX GUREVICH: I'm Alex Gurevich, the founder and CIO of Quantum Investments, and I am delighted to have as our guest today, John Burbank, the founder of Passport Capital. He founded the Passport Capital I believe, in the year 2000. And it's been very successful and very well-known in the '00s during the times leading up to the financial crisis. Very successful fund.
But I'm particularly excited to have John here, because not only are we in a closed space in this building, but also in a close intellectual space, I believe. We occupy similar intellectual space, though we trade different products. For me, it is important that like myself, he is engaged in a long horizon thinking and trying to understand what things really are, and seeing forest behind the trees, and trying to understand that regardless of current market noise, the current perception, where certain price or asset is likely to be two years from now, not by this afternoon at the close.
And that's why I think we can speak the same language, even when we talk about different products. When you end up being a contrarian, you're against 90% of the market, And yet you sit there 95% sure that you're right while 90% of smart people are wrong. In 2004, I said, one should buy every deferred [? variable ?] contract of any maturity if it trades below 100. So basically in 2004, I made a statement that European interest rates will be zero or negative in perpetuity, which was probably 10 years before its time.
I don't think that was as much a brilliant-- it was some kind of mixture of a brilliant insight and some luck. I was just frustrated with the efficiency of European Union. That's really what I was speaking in. I didn't have that strong perception how Europe will really play out. But I said it and it carried some weight back then.
Now what I would like to kind of open up with asking John is what are the instances-- maybe bring up some historical examples from your career when you could really nail it. And how would you attribute some of it to luck and some of to what it is that today allows you to nail it?
JOHN BURBANK: Sure. So probably the best thing to start with is that I started in January '96 at a small hedge fund here in San Francisco doing emerging markets. And emerging markets were a rapidly new asset class. And so there's a lot of excitement about it. But I'm sitting in San Francisco doing emerging markets, and our fund went up every month into from January '96 to October '97. And then EM collapsed, and people did not predict that. And the US kept doing well. It bottomed in '98 about a year later, and then the US went up to a bubble, and nobody pretty knew that.
So I guess early in my