Cem Karsan stops by The Business Brew to discuss the lens he views markets through.  Cem's viewpoint is unique compared to many guests on this program because he looks at how options dealers are positioned and considers what flows may result from that positioning.  Many guests on this show view equity valuation as the present value of the discounted cash flows available to equity.  While Cem would likely agree with that, he argues in this episode that an equity's valuation is really an output derived from the options market (which expresses probabilistic views of discounted cash flows).   We hope this episode gives you something to think about!

Cem is the Founder and Senior Managing Partner of KAI Volatility Advisors. He is responsible for firm-wide management, as well as its Head of Research and Risk Management. Cem triple majored in Economics, Policy Studies and English at Rice University and holds an MBA from Northwestern University’s Kellogg School of Management.

Follow Cem on Twitter:   / jam_croissant  

Learn more about Kai Volatility Advisors: https://www.kaivolatility.com/

This episode is brought to you by Bastiat Partners, a boutique investment banking firm.  See https://bastiatpartners.com/.  Detailed show notes below.

Album art photo taken by Mike Ando. Please see www.mikeando.com.

Thank you to @mathewpassy (on Twitter) for the show production.

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Detailed Show Notes:

Open – Cem’s background

7:25 – How Cem thinks about what matters to capital markets

13:10 – Valuations have no predictive value, short term

14:10 – What happened in 2017 and why did the market seem to go up every day?

21:40 – The counterintuitive conclusion of buying and selling volatility

23:10 – Why equities are derivatives of “derivatives”

27:10 – Why options are potentially better instruments for expressing a view

32:45 – Gamma squeezes explained

38:25 – Cem’s thoughts on where we are from a macro perspective

46:10 – The wealth gap and why

49:40 – Why we may be in a fundamentally inflationary environment

54:50 – The impacts of monetary policy and which generations have been hurt and helped by policy

1:00:40 – Why some medicine today may end up better in the long run

1:02:10 – The tension between utopia and the current (efficient) system

1:06:40 – Evolution and iteration will hopefully lead to better incomes

1:10:55 – The coming risks may come from exported inflation to emerging markets

1:13:10 – The winners of tomorrow used easy money to plant seeds over the past years

1:15:10 – More background on Cem