Managing risk right well that was a tool developed to manage risk but when that didnt work all the time 100 percent of the time bankers got their friends like jay powell lets look at this tweet from you are you ready for monday jay powell goes but. I get my spanish comes in handy there to know how to roll those are yes but once theyre Risk Management tools starting in 1987 when the portfolio insurance crash the markets the fed came into the rescue and as the fed puts well then weve seen since that any time that the bankers and all their huge amounts of derivatives whenever theres a problem there the fed comes to the rescue i. E. Theres a problem with distribution of risk in the supply chain of risk doesnt go away the risk is still there but it just keeps on getting deferred either into the future or to some group of suckers like you know Pension Funds risk cannot be created or destroyed its persistent within the markets and options and derivatives allow you to separate risk from reward and to trade it separately thats what the options volatility formula which was a nobel way. Prize winning formula is all about to split almost like youre putting energy for matter youre splitting risk from reward and so what bankers on wall street have been really good at doing is making sure that they dont have any risk and that that risk somehow always manages to end up in pension accounts or in the labor markets where labor never seems to make decent wages and they get the reward. And thats how you have this wealth and income gap develop over 30 or 40 years because its the ability to make rewards with 0 risk has become very efficient for those in the banking business friends of wall street exciter a so this Current Crisis the copen 1000. 00 crash we had this enormous draw down trillions of trillions of dollars of market value evaporated on one day the question was can the vat and Central Banks do another risk trick to make sure that theyre protected friends do not have to take any losses and so they increase that derivative pile to an extraordinary levels thats where you see the evidence of this risk trickery is in the way to rivet of market and you can quantify that and get an understanding of exactly how big this market is and at the moment it looks like they are being successful in making sure that the wall street folks will not be bearing in any of the negative consequences of this cove in 1000. 00 crisis you could always tell when a con is happening when its theres a lot of complexity and theres so much complexity about even this latest stimulus package which looks like its a benevolent gift to the people but in fact theres trillions more in exotic instruments of stimulus package that reflects the exotic instruments of debt packages that are being bailed out so youll never be able to understand that but in terms of simple numbers where you can find the fraud where you can see the con happening is in certain numbers and then terms of risk being to furred lets look at what happened in the meat space and this is a remarkable chart from new york city this is a chart of new york city and the cases per 1100000 people so showing you how dangerous certain areas of of new york are. If you see it the darker it is that its poor air is the bronx queens this is a elmhurst area which is in the news around the world with the worst hospitals there overrun Rikers Island brooklyn around j. F. K. And Staten Island these are where all the working class lives those people having to work those people who are essential to the economy have been deemed essential the Food Delivery Services supermarket Workers Pharmacy workers all the sort of people theyre getting infected while the banking class right there in manhattan where you dont see any of very low level of cases relative to the rest politically speaking the term is gerrymandering so gerrymandering is when you have political subdivisions created within a state or a region to allow for political manipulation and for the interests of the moneyed class to be protected and the interests of the poor to be continuously exploited thats gerrymandering so in Financial Markets financial gerrymandering is this risk trickery that im speaking about and so like a pension fund is in the poor neighborhood because it has no way to protect itself from derivative risk reassignment into their pension accounts and that and that reward is kept by the hedge funds and its dumped into Pension FundsPension Funds or toxic waste dump of risk this year financial jerram enduring means that the returns are always going to be horrible and so you have politically you see that happening quite starkly by that map youre showing you see the regions cut up and thats because of political jerram and bring in an attempt to exploit the Political Division thing to sustain the status quo well exactly at that map what its saying and in the meat space is reflected in our financial space and in particular the monetary an Economic Risks that are being offloaded on. To the ordinary person since 2000 but especially 2008 and then now this crash what weve seen is the interventions from the fed have taken any of the like little risk that the bankers are taking themselves for their bonuses and their Profit Margins and like j. P. Morgan stressing out over whether or not to pay a dividend and can they stop paying their dividend they dont want to risk that so they take that through inflation through the quantitative easing through narrow through all these policies of taking their packages of risk all their derivative packages off the Balance Sheet of the banks and now hedge funds and private equity and now they also my the fed might be starting to buy. Muni bonds and so theyre taking the risk of all the power fall onto the Balance Sheet and that balance she is your Balance Sheet thats the ordinary americans Balance Sheet the 335000000. 00 who arent the elite they are the ones that are risking not only their currency and possibly a hyperinflation and the future and thats a political event when people lose faith in the actual currency so youre seeing that offloading of risk to the opposite of you know that map shows exactly the people taking risk in the economy and in the Monetary System the leader in all this would be japan right they took their debt to g. D. P. Passed 100 percent of g. D. P. Past 200 percent there i think thats 300 percent and so im ericas going to be at 100 percent very soon so to get to 300 percent thats another 405060 trillion in debt which i fully expect to do look the premarket capitalism has its roots in the work of out of smith and the enlightenment and this and whats also brought us in that age darwin in the his work and terms of evolution. And Natural Selection and this was echoed by schumpeter i believe with his idea of Creative Destruction that there is a churn in nature and in economics where its all is hughes toward perfection and excellence that survival and that is when you snap that connection and by rewarding the freaks and rewarding the colonial masters america now has become the colonial empire of hedge funds that have colonized america and this goes completely against anything anyone could interpret from the constitution and they they derive their power from the Federal Reserve bank which is the successor to the bank of england and the bank of england the card of ben franklin was the number one reason america staged the American Revolution to get away from the bank of england because that was the sponsor of colonialism now we have the fed which is the sponsor of the new american colony alyssum of hedge funds the citadel one of the biggest had funds they then theyre not embarrassed by hiring ben bernanke you former fed chairman to come over there and during this ballot process bernanke he is a direct colonial connection to a monopolist oligarch the whole hedge fund to the Federal Reserve and theyre negotiating and theyre front running and theyre High Frequency trading and theyre trading derivatives and they are interfering like a jerram mannering ghetto blaster booster political hack to undermine our lives standing in a so we have this and merging under class of People Living out there and zombie land and the next step will be to vilify them and to scapegoat them and to say that theyre less than human and then we know where that goes lets continue on this theme of the supply chain of risk because theres always risk. In the world in nature the antelope bounce in your cross the field has to get to you know her family or friends over there but the risk is Alliance Going to right thats the risk and thats why they develop thats why they can run so fast and jump thats like their Evolutionary Defense against a lion attacking them and ripping them to pieces but here we have a system which is so stale now because there is no risk for it the lion has a risk because well the lion has the risk of possibly starving to death because the antelope is way too fast for and it cant catch the ancyl oh so you know there is there supposed to be a distribution of risk and each member develops a defense mechanism they have deferred all the risk that they should have been taking and because they were handsomely rewarded for taking risk on your behalf so lets look at what the cost is going to be of the so far 6. 00 trillion there is now a face for they can add more chileans to future liabilities and here is what moodys is saying moodys says expects u. S. Federal debt to rise to around 93 percent of g. D. P. In 202079 percent last year and 2019 and continue its upward path to about 120 percent by 2030 by 2030 there aint going to be any boomers in the economy having to work and subsidizes thats going to be on generations e especially theyre going to be emerging into this graduating from university into that economy laden with this debt to pay off all that risk taken by the likes of Jamie Dimon Lloyd blankfein every single hedge fund now and and private equity guy on wall street yes it will be a permanent weight on the economy for. The subsequent generations who will have to live under the enormous cloud of having debt 2 to 300 percent of g. D. P. Making it virtually impossible to compete we can only marginally survive as you said risk doesnt disappear. Its just been rolled over into the future you cannot create or destroy risk you can only move it around and if you can move it around successfully you become a billionaire i am going to take a break when i come back much more coming your way. City on. How. When you know they need this is a no fly zone considering they dont know it but i mean does. Love the. Missing mom of the sweet gone to me im a Strong Enough sharing dont you think some emotions are. Very uncertain. Business is hard. And the baby had a fever of 380. 30 were hoping thats. Ok. With the coronavirus now officially declared a pen demick the world faces the additional burden of an Oil Market Collapse this comes at a time when demand for crude was already low some her calling this the ultimate perfect storm how this whole him. Against. Welcome back to the kaiser report imax keyser time now to go to chicago and talk with jon najarian old friend the happy that im on the show today hes also the cofounder of market rebels and of course he is the star of c. And b. C its half time report john welcome max great to be back with you feels like much more than a month since you and stacey and i were tone vais conference out in vegas that was a good time but it just preceded all of the bad times that were in right now i feel that we were just ahead of the way as it as it was crashing everywhere across the country and we got out of town you know begun obviously is pretty hard hit by all this and you know i wanted to have you explain a little bit to folks you know we talk about trading a lot we talk about big coin to talk about stocks and bonds and macro and i want to talk a little bit about the regional difference between new york and chicago because its a very important to Financial Centers in america and they feed off each other sometimes sometimes they are competing with each other but how do you see that relationship chicago versus new york john in all deference to the friends of mine on the New York Stock Exchange they dont have traders on the floor for the most part those folks are very good at what they do but they are brokers not traders on the new york floor and of course theyre gone just as the chicago traders are gone because they couldnt figure out a safe way to keep several 100 people on the floor of either the chicago board of Options Exchange or the merc slash board of trade so they basically shuttered the floors and everything went to either global banks in the case of the commodities exchanges or. On any of the myriad of electronic exchanges for the cboe and the rest of the derivatives exchanges so the big difference i think max is there used to be about lets say give or take 250 people left on the floor of the c b o e now they call it see both Global Markets but they were in the fix s. And p. 500. 00 and the triple a q now theyre gone theyre all up stairs and theyre having a really hard time treating from up stairs as most of us did max when i migrated upstairs 2004 so you know its been 16 years that ive been up stairs all those traders that are used to still being on the floor. They are trying to survive in a brave new world and having a very hard time doing it and because of that theres more volatility even more than there would have been otherwise during this drop so youre saying that the key role of Market Making on the floor by traders with their ear to the market who are looking at actual trades as they take place in the absence of that with the migration of more trading up stairs as you call it and more reliance maybe eye Computer Trading the volatility is increasing so you you are positing there that there is a vital role for humans to play in these markets and maybe a migration to purely electronic markets we lose something is that correct. That is what im seeing exactly max instead of having hundreds of treaters in a period where they all hear the same information that the exact same 2nd now theyre all up stairs responding to whatever theyre looking at some of them are watching bloomberg or c n. B. C. Or fox news some of them are just on squat boxes you know who hollers we used to call max where people are just giving them color if you will for orders youre not seeing every order and since youre not seeing everywhere or youre backing off your bids and offers are much wider and i posited back then before it happened that this would increase volatility in and of itself and certainly it has since the i think it was 17 tr so of march in the Derivatives Market and in the Options Market it was the beginning of a momentous occasion in the whole history of securities in that the options volatility formula from the late seventys early eightys you had the ability to separate risk from reward and separate risk as an as an entirely separate asset class and this is what people dont understand these days lets talk about the wealth and income gap a lot of it has to do with the fact that the top 110th of one percent knows how to trade peer risk to hedge themselves and to profit from volatility whereas the vast majority of people are it tends to be where their risk ends up going classic toxic risk dump being a pension fund thats passively managed and just ends up accumulating a lot of risk that comes from the sharpies and the pros who know how to trade risk is that what you think about that statement i think its exactly accurate i think that. Its true that a minority of people under. Stand about volatility and about Derivatives Trading max youre of course right about that i think its out of the 120000000. 00 securities accounts in the u. S. Only about 6 or 8000000. 00 of them even are paper and up meaning that theyve signed off on derivative agreements whether its futures or options and youre right options and futures are Risk Transfer vehicles so if somebody wants to basically bet on corn having a banner year this year because demand is up more supply is down those 2 usually work in concert to push prices up or down when we got that youre transferring the risk of that farmer in this case of corn over to a speculator or over to a big producer of the end product like kelloggs or General Mills or whatever and the same sort of thing who works in stocks there are some folks who are not comfortable with the sort of ups and downs that we see in the stock market and so they try to set a floor by owning some of that protection if you will some of that volatility so that they dont suffer when we have these big draw downs which we know virtually every year were going to see at least a 10 percent drawdown at some point even if its very sharp and quick and v. Shaped and every once in a while we get one like weve got right now max which we dont know how long this goes on but we know the volatilities up and the people that didnt have protection just to your point exactly are the ones left holding the bag in American Finance there is that myth of the lone trader that guy who sticks to is model or has nerves of steel and becomes quite wealthy theres a whole many industry around this the books. That go by the name of trading wizards and others and it all goes back to Jesse Livermore and confessions of a stock operator is probably the 1st book really outlining how to be a professional trader as you say theres a difference between a traitor and an end bester my question is here we are in 2020 the volatility is intense markets seem to be disconnected in many ways as youve just described that trading signals and market signals seem to be throwing off a lot of noise versus signal but the question is do the laws and rules that jesse live or laid out the twentys and early thirtys do they still apply can you still do we still have room in america for the i think the phrase in chicago is all you need to be rich is a pencil and a pad of paper you know indicating all you need it is to get down there on the floor of the exchange and you have you have nerves of steel you can you can be quite quite wealthy is that still working is a still alive the time frame has changed a used to be max when because i know you started off and that you were a driven have trader is well when we were down on the floor you know that we were as immediate as it got because there was no direct interaction into the pit back then the best you could do is hand signal something into a pit and people would react to it that was immediate as it became and even that was no guaranteed fill now if you point and click on a price you can have that purchase the problem is that there are a lot of computers that are making those prices and taking those prices and they do both of those at light speed literally as close to the speed of light as the internet or as a direct connection to a data center start market you know whether its malala in new jersey or carteret new. Jersey or wherever the c. M. E. Has their data center all of that is happening literally just this far from the speed of light so if youre trying to point and click and take that market or make a market for one of those you loose because they are trading and making moves in thousandths of a 2nd much faster than a human being can so my timeframe and virtually every trader i know max has had to move out their time frame to be maybe 10 seconds 30 seconds you know somewhere much longer into the future which means of course that against those machines youre taking much more risk so the machines became the Market Makers and we tried to be the market takers and then we have to wait just like you said with paper ive got to sit here and you know sort of figure out the levels i want to buy and sell at and then if we get there try to execute as that level knowing that i cant depend on the market on the screen i have to have my own levels that im entering because what i see on the screen is already gone well my understanding is that Goldman Sachs is actually working on a way to trade faster than the speed of light so that they could go backwards in time and still many times clients in the past. Well if anybody could do it goldman could right now lets talk in you know mentioned about the proximity of technology to the prices and the way heard about this during a lot of talk when High Frequency trading was in the news and High Frequency trading relies on proximity of servers to these exchanges they actually park a computer server next to the exchange to get a fraction of a millisecond advantage i could stand that these guys are siphoning capital out of the markets like somebody with siphon gas out of a neighbors car and that theyre destructive low. Blankfein argued with charlie rose once that theyre not theyre adding liquidity and theyre there for key to the function of the market how do you say that theyre both right but. When blankfein says what theyre doing is adding liquidity those h f ts High Frequency traders the algorithms and so forth theyre adding liquidity in microseconds again liquidity that you and i cant access max because literally by the time you would see it by the time your eyes sees it its already at a different price like i say theyre adding liquidity but at this only at the same speed of the people that are responding to it and you and i cant respond to 1000th of a 2nd so when finds right theyre adding liquidity but its also right that whoever is doing this has siphoned off billions of dollars every single week this is the problem that that is i think your analogy is spot on that its just like somebody stuffs a hose into your car and is just steal one off say you know some small percent hopefully not the whole tank but theyre stealing gas every single minute of every single day john i got to cut it off there fascinating thanks so much for coming on the show thank you max love you the love it is mitchell buddy all right well thats going to do it for this edition of the kaiser report with me max kaiser and Stacey Everett want to thank our guest john that gerry and out there in chicago he say about the sand base Halftime Report all the time when theyre up and running well or on twitter if youre trying to catch us the kaiser report next time by oh. I would say we could have prevented this pandemic we werent ready for a number of reasons because you know the problem is. The companies that are making vaccines and theyre as they want to make a profit so they dont make them if there is no virus to make them again so after sars one of these secured very quickly there is no incentive. This is a story of women women with troubled histories and complex cold cruisers you know some of us did leave leave who lives out there. Who were not. The person that theyre accusing this of the considered the most dangerous of criminals shes in a civil. All the last 23 hours of the day tell me that its not enough to listen to the. World of women on death row. And. I dont trust medical authority at all ever and the reason for that is i had this horrible autoimmune disorder growing up and it turns out it was completely alleviated with very drastic dietary measures and i went to a number of doctors to discuss what happened to me and i was basically laughed at like diet has nothing to do with our meanness orders so my suggestion to people who have Health Issues they cant figure out if theyre going to see a medical professional and theyve been going for 10 years and theyre still in the same place they should probably take it upon themselves to Start Testing things out testing out diet testing out exercise and try and figure out things on their own. This is a ridiculous situation right the whole worlds gone crazy thats what it seems like and i was supposed to be at work right now that was actually looking forward to traveling the world again making films because ive been stuck on Maternity Leave for the past so 8 or 9 months now and i was looking forward to that i have been so cook and clean all day long i got my mother in law to