Arbitrage Andy Interview W/ Larry Cheung
185: Free Joint Post for all subscribers
We took part in a quick rapid fire interview with
covering AI, geopolitics, financial markets, and other areas we frequently speak about.Larry Cheung is a CFA Charterholder, professional Investment Strategist, and the Author of one of Substack's most popular finance newsletters called "Letters from Larry: U.S. & China Investment Strategy." In this newsletter, Larry shares actionable research and ideas on how evolving financial markets across key themes within the S&P 500 and China markets are likely to have opportunities to profit for Long-Term Investors, Intermediate-Term Players, and Short-Term Traders.
Larry's methodology employs a blend of understanding Global Macro, Company Fundamental Analysis, and Objective Technical Analysis to identify opportunities and risk. Larry's specialty is Intermediate-Term Investing, a methodology that targets a 3-6 month time horizon for thematic investment ideas discussed inside his strategy newsletters.
An interview w/Arbitrage Andy
From
Today we're speaking with Arbitrage Andy on various topics that I believe you will find interesting. Aside from Investment Strategy content, we also enjoy speaking with Colleagues who we believe offer refreshing opinions on personal growth development and life perspectives. I'm excited to have this conversation with Arbitrage Andy.
AI
Have you used ChatGPT for your business, if so how?
Typically I will use ChatGPT or other AI systems for generating copy for products, descriptions, etc. I have used it before for sales prompts and summaries within my 9-5 job as well — at the moment I find it most useful for synthesizing industry or sector information quickly — though it has been fun testing the limits on capability for more complex queries and conversation.
Some strategies for using ChatGPT for skill-building, entrepreneurship?
My advice would be just get comfortable with the different systems out right now — some generate tex, some images, some bikini models, some do audio now — there’s even a fire new banger that an AI system created featuring Drake and the Wknd. The song sounds even better than the real thing in some areas. It’s pretty impressive.
As AI adoption grows it will be important to have a basic understanding of what you can use it for — much like boomers had to adopt to using Apple and tech products like smart TV remotes etc.
You can use AI to prep for interviews, help generate talking points for a presentation, or for writing advertisements. There is a whole host of use cases and I encourage everyone to get on one of the platforms and try it out. It will only get more powerful with time so mastering the basics is to your advantage.
Some of the effects of ChatGPT on the tech industry? Do you think this is an Apple iPhone/Internet moment?
To build on that last answer yes — the use cases are starting to build across various functions and walks of life. Of course there could be some ulterior motives from the government, large companies, and various actors who have vested interests for AI to takeover and for the mainstream narrative to be centered around that topic.
It seems everywhere you turn there are articles on AI, definitely an element of hype to it. Time will tell how disruptive it is but I don’t think it’s a fad by any means. Our current exposure to AI is through the ARKK ETF, Google, Amazon, Nvidia, and a few ETFs.
Do you think the implementation and widespread use of such technology will have a significant impact on the job market?
We covered that in our post below.
Essentially the paper pushing and administrative jobs are the first to go like Secretaries, Marketing teams, Cashiers, Warehouse workers etc.
Law firms, Accounting firms, and other types of functions and companies that deal with large amounts of documents, regimented proceses, and repeatable actions humans are currently using AI to some extent.
In the short term your best hedge against AI replacement is likely roles that have a high degree of human interaction and emotion involved - for example, sales, banking, private equity, enterprise sales, some forms of consulting, upper echelons of medicine, etc.
OR
Something that is going to be very expensive to scale AI tech in — for example, the trades, construction roles, firemen, etc.
In particular for white collar jobs? What will this mean for people with white collar jobs (now even with so many layoffs)?
White collar jobs are being cut already at top companies. Moving forward you can expect companies to really move to conservative and lean teams.
It’s simply not worth carrying the extra weight with an official recession likely around the corner. Many of the tech jobs infamously displayed in playful tik tok reels of “A day in my life at Google or Meta or Netflix” are gone now that the Fed has pivoted and reality is playing out across corporate America. Tyson Foods is cutting roles, Facebook is cutting, consulting firms are cutting, it’s getting bleak on the layoff front.
AI tech along with leaner company goals is going to solidify the strategy of reducing costs and only keeping high performers. But, for now, most white collar folks are likely fine as it will be some time before AI comes for your front office role. The bigger risk is you getting fired in this market environment.
This technology is coming, thoughts on Elon Musk requesting a pause for AI least 6 months?
Definitely think it’s worth taking his opinion into consideration on the matter. People are so greedy to cash in on the AI gold rush they’re likely casting aside any caution they should give to the capability and nature of the tech they’re toying with. Funny because I am actually about to watch the latest Terminator flick.
First 5 minutes is a rehash of an out of control AI missile defense system (Skynet) that eventually turns on humans and destroys most of the civilized world. We don’t know how quickly some of this AI tech can learn, adapt, and observe human behavior.
If it’s truly as powerful as people are making it out to be we really shouldn’t let our ignorance get the best of us on this issue.
Boston Dynamics has robots dancing around and hurling oer obstacles.
Geopolitics
Thoughts on future of Russian/Ukraine conflict
We’ve covered the War on our instagram and in Arb Letter before. Our opinion has definitely changed on it since we first started covering. At this point it’s a proxy war for Russia to try to shed Western/NATO influence in Western Europe. There are ethnic components that make it particularly fierce but ultimately this is a move by Putin to secure his Western flank for years to come. The West and NATO are using the conflict as an opportunity to weaken Russia without facing them directly.
Possible outcomes to the Ukraine War could include a negotiated settlement between the parties involved, with Russia potentially recognizing Ukraine's sovereignty over Crimea and the Donbas region in exchange for greater autonomy for the regions and protection of the rights of ethnic Russians living there (unlikely in our opinion).
Another outcome could be a continuation of the current stalemate, with intermittent fighting and occasional diplomatic efforts to resolve the conflict. Alternatively, the conflict could escalate, potentially leading to a wider regional or even global conflict (most likely in our opinion)
Overall, the situation in Ukraine remains highly complex and unpredictable, and any resolution to the conflict will likely require significant compromise and diplomacy from all parties involved. I am skeptical on this outcome and think it’s realistic we see an expansion of the conflict or direct involvement soon from the US and NATO.
Personally I think the West has been largely kept in the dark as to how this conflict is actually playing out and I think most are vastly unprepared for a world where this conflict bleeds over into NATO involvement or potentially a tactical nuclear strike by Russia.
My gut tells me the powers that be may escalate the conflict soon in an Iraq War - esque way but we shall see what the future holds.
Recent Xi/Putin meeting/Russia China partnership, what do you think this signifies?
China and Russia historically have not been buddy buddy, so it’s interesting but not necessarily shocking that they’ve formed this alliance of convenience. They share a common enemy but have two separate mandates at the moment globally from a high level. On one side China is continuing to expand it’s operations and influence in Africa, LATAM, and the Pacific.
Russia just needs to ensure they continue to receive the economic opportunities and resource support to stymie Western sanctions and hold on long enough to take Ukraine.
Both countries along with some other BRICS countries are starting to trade in their own currencies and pilot digital currency programs to help ween dependance on the dollar.
So the partnership is concerning to the extent that both countries are actively looking for ways to subvert us, reduce our influence abroad, and cut their reliance on us. Our contacts and friends in the military all seem to be of the opinion that a move on Taiwan is imminent in the near future.
Pledge to not use nuclear weapons, skepticism, what doe that mean for U.S. businesses?
Putin isn’t bluffing when he refers to nuclear options, and that is evident by the recent moves to import nuke systems into Belarus. The thing many people don’t understand in the West is that Putin has a slight edge when it comes to game theory re: nukes.
If he were to use a tactical nuclear weapon either out of desperation or necessity to try and end the War in Ukraine it wouldn’t exactly mean that a NATO or US response would happen right away.
If Putin used one say in Ukraine or a neighboring country he would have the first mover advantage. At that point the US and NATO will have to decide if striking Russia itself with nuclear weapons is strategically viable — as it would likely trigger a full blown global nuclear war.
Recently it looks like China may play the role of peacekeeper after reaching out to Zelensky this week. China would love to pull off that role and generate a stalemate or agreement as it would look poorly for the US on the international scale.
How do you conduct research for content?
We use a whole range of sources and apps to aggregate news and data. Reuters, MarketWatch, Bloomberg — many of the usual suspects but then on top of that we like to scour blogs, message boards, and Twitter for breaking news.
Twitter frequently breaks stories and news updates that the general population doesn’t hear about or discuss for a week afterwards. Atlas News is a great resource along with the OSINT community on Twitter for geopolitics.
Finviz is something we like to use for financial markets updates as it centralizes everything in an easy to read manner.
Bloomberg is always great if you have access but the learning curve can be steep if you’ve never used it — outside formal training, advanced classes on it can be good to speed up your understanding and navigation/search skills. Arkham Intel is another company we have been following more — they essentially track on chain transactions and big wallet movement from crypto players — namely institutions.
Personal Finance
Opinions on how much should I be saving for retirement?
I think everyone should have a traditional 401K or Roth IRA/retirement account but for the most part it’s not going to “set you free” or make you super wealthy. We’re not even sure certain age groups will get the full benefit of pensions and SS at this point given the rate our government is printing money and increasing debt spending.
You’re much better off starting a business to become wealthy before you retire.
More and more young people are realizing that if financial conditions and inflation do not ease — achieving the same goals as our parents (buying a house, a car, etc.) is going to be more difficult. Flip the table over and start a cash flow generating business to help speed up your ability to acquire these assets.
What do you think are some common misconceptions people have about personal finance, and how do you plan to address them?
Budgeting is big one — if you have a larger family and a tight amount of cash flow this can make sense but generally speaking instead of obsessing over cutting Starbucks out or limiting media subscriptions you’re much better off just figuring out a way to generate more cash. You'r mindset should be to work until you get to a level where you’re earning enough passive income to not think about minor expenses like food, entertainment, or necessities.
Another misconception is inherited wealth — a lot of people think it’s normal for a 30 year old to have $1M due to social media and material worshipping in our country. People have highly inflated views of what people’s net worth and financial situations actually are.
Unless you’ve received money from family or inheritance it’s highly unlikely for most people to even be able to hit $500,000 to $750,000 by 30. For example in 2019 the median balance of savings for Americans was $5,300 (that data is a bit old) but you get the point.
It’s difficult to save large amounts of money even if you are working a decent corporate job pulling in $80,000 to $150,000. The key is to find ways to supplement your regular income so you have bulk sums to save or invest.
How do you balance the trade-offs between spending money now versus saving for the future?
I aggressively save and invest. Generally my W2 or 9-5 salary goes towards life necessities, food, rent, gas, etc. My business earnings are all either saved, re-invested, or invested into index funds, tech stocks, or blue chip crypto like BTC or ETH.
To me it’s incredibly important to not frivolously spend money, especially when younger. It’s critical to build up that strong savings and portfolio base to begin generating solid returns each year that continue to compound. I am fairly “risk on” as I see less and less chances to truly “make it” through investing in this market and political climate.
Don’t be the 35 year old with $15,000 to his name (exceptions for law/medical fields). The earlier you start business ideas and saving aggressively the quicker your can buy back your time and actually do what you want in life.
Financial independence/success
Can you describe some of the specific challenges you faced in building up a book of business from zero, and how did you overcome them?
One of the big challenges in building a book of business is realizing how savage and wild the business world can actually be. People will let you down, misrepresent things, scheme politically, lie, etc. so you have to develop thick skin to power through and see material success. Consistency and mental toughness is key. That’s why I highly recommend folks experience sales roles.
There are few other roles that baptize you in the fire of business and life more quickly than sales. You have to slam the phones, argue, pitch, improvise, think on your feet, and interact with other humans all day.
You build resiliency, mental toughness, and grit — all of which will carry over into other endeavors you take on in your life.
Those skill sets have served me very well in my personal business ventures to this day. There’s simply no getting around that first intensive experience — similar skill sets can be learned in consulting and entry level finance roles at certain shops.
How did you stay motivated and focused during the long hours and stressful situations that come with building a book of business from scratch?
In my early 20’s my naiveté definitely helped. When you’re young you don’t think about all of the negative outcomes that could occur you just power through blindly because you’re told there’s money and success waiting for you if you push through.
Take advantage of this when you are young because over time you will become jaded by experiences you have (bad bosses, political drama at work, let downs, shifty clients, etc.). You will certainly become wiser and more experienced, but in my time I have realized that you just see too much to have that same pep and excitement you have when you’re younger.
Motivation is a funny thing, if you don’t have it or can’t figure out how to push yourself to have it each day you are going to struggle. You have to have a firm and realistic goal ( a big bonus, financial freedom, a dream vacation, promotion, etc.) in order to keep that sense of urgency each day you go to the mundane albeit necessary tasks that combine over time into results.
What do you think are the major issues impacting men's ability to lead, grow, and become respected providers and protectors in modern society?
Well without getting too political we have seen a feminization of the West for many years now. The government has a vested interest on multiple fronts to not only break down the family unit and cohesion, but also entice women to leave the home and take up corporate roles/jobs (Tax opportunity).
The whole goal is always striving to place the government as the “father figure” so that the most people are dependent on it (a move towards socialism) — thereby solidifying the government’s power and influence over people. We have no issue with women working and achieving high levels of success in the corporate world and have met many awesome women in the working world.
Everyone is free to do as they wish.
But, it’s no secret that driven, strong, and aware men are the biggest threat to government power globally and in the US (this is historically true) — so it shouldn’t come as a surprise to anyone that there have been campaigns to demonize “toxic masculinity” and other inherently male qualities like strength, aggression, and dominance. “Toxic” masculinity wins wars to keep our people safe. Toxic masculinity keeps tyrannical governments in check. It keeps infrastructure and power grids intact. It builds skyscrapers. It ensures criminals don’t terrorize our communities (or at least it use to).
Point being women and men each have inherent strengths — there has been a strong collective effort to break up that reality and disrupt identities in this country. In our experience (generalizing of course) we find that most men thrive when they are put in a position to be a provider or protector of their family and women are most happy when they are taking care of their children and being mothers.
I think a lot of women are realizing that the constant propoganda and narratives telling them to go be a “girl boss” or dominate in the work world were hollow claims that are ending up to not be all they were cracked up to be.
After all — in a vacuum who wants to HAVE to provide or commute to work? Who wants to have to deal with a boss 5 days a week? Who wants to have to do taxes, or change a tire, or do yard work, or check out the downstairs when there is a bump in the night, or clean the pool, or take out the garbage, or stress about bills? Or if you live in Ukraine, go get shot to pieces to defend your country from aggression?
Sure this stuff sucks but as a man I wouldn’t have it any other way because I am taking care of my family and eating the shitty parts of life so they can be at ease and comfortable.
The highly quoted phrase online is especially true in this day and age: “Strong men create good times, good times create weak men, weak men create bad times, bad times create strong men”. We are right smack in the middle of “weak men create hard times”.
To me, society functions best when men and women are encouraged to lean into their natural strengths forming strong families, communities, and societies.
People are going to naturally revert or fall back into more traditional gender roles in the next 5 years in my opinion.
Again just our experience — people can live any which way they choose!
How do you balance the desire for freedom and independence with the need for security and stability?
Great question - I have basically been skirting that line for about 4 years now and while it can be stressful I also think that it’s a great way to live as it maximizes your freedom and sovereignty. We’ve learned a lot about what we know on juggling a day job and side business from our digital mentors
and highly recommend folks giving them a follow if this type of set up or strategy sounds appealing.The trick is to work a W2/9-5 job until your side business or income streams can replace that income at which point you begin to expand the business and think about leaving behind a regular job to do what you want.
Some people want to work normal jobs and that's okay, but if you want more of your time back, agency to do what you' like, and more freedom to live life on your term's this strategy is tough to beat.
What alternative income streams do you have, to help you get away from that 9-5 job?
Currently we run our merchandise and advertising business for Arbitrage Andy on Instagram and Twitter. We plan to expand the merchandise line into higher quality items and apparel soon. We launched our newsletter on substack last year and are closing in on 20,000 subscribers with a large contingency that pay for our premium version which covers world geopolitics, financial markets, crypto, and life.
We focus on deep dives, interviews, and focus pieces to ensure our readers are getting the latest intelligence, updates, and commentary to help guide their decisions. The recent firings of Tucker Carlson and Don Lemon show that the world is making strong moves towards independant news and journalism that goes against the official “narrative”.
Large contingents of people are leaving legacy platforms to write on Rumble or Substack. I think this trend strengthens as people have less and less trust in big legacy institutions and the mainstream Media. This was a central theme in the Pandemic and turbulent economic periods of the last 3 years.
We see a void not being properly covered by legacy media institutions and companies that insert large amounts of bias or ulterior motives into their reporting and content — Arb Letter aims to remove that noise and just tell people what they need to hear. If you are looking to be “in the know” and up to date on what is truly happening in financial markets and global affairs consider joining our premium subscription for the cost of a side of fries — we have a super large contingent of Portfolio Managers, Traders, Salespeople, Tech workers, and more.
We are working towards another form of income with our Podcast set to drop whenever I get 4 uninterrupted hours to do it!
Sovereignty vs. Financially independent, can you achieve sovereignty without financial independence? Can you truly obtain sovereignty?
These two items go hand in hand unless of course you want to go wear a bear skin and live off the land in a forest — which some people do!
On a more serious note — achieving financial independence through asset accumulation and business creation in this modern world is likely the best way to achieve your sovereignty and freedom.
Why?
Well it allows you to work when you want on what you want, live where you please, and take back your free time. Owning a farm or having a massive well on your property also allows you to become more sovereign since you are less dependent on systems for your food and water.
Installing solar does as well or ensuring you take the time to set up tax havens with your lawyer or accountant. The idea, which I think many saw during the pandemic when WFH exploded, is that you’re weening your dependance on institutions, individuals (your boss), and the system (food, electricity, money, etc.). This in turn gives you more flexibility, freedom, and time back.
To answer your question — true sovereignty is multiple passports, bank accounts around the world, a private jet, and multiple residences in different countries but — as we’ve seen before even that sometimes isn’t enough to escape the “system”.
Financial Opportunities Most Will Miss
You suggested that the next 2 years will define the haves and have nots of the future, explain why this is the case and what factors will be most important in determining financial success in the coming years?
We are entering a period that many consider to be the down slope of the American empire and the resolution is unclear at present.
Our currency is inflated, we’re caught up in a big war, crime is soaring at home, the wealth gap is growing, people are struggling to make ends meant, homes are unachievable for many, corruption is on full display with both sides in DC, and many are still recovering from the mental shock of the pandemic that disrupted our entire way of life.
As the government finds ways to deal with a looming recession and high inflation, we can expect efforts to push digital currencies and CBDCs central Bank Digital Currencies) to grow — they already are in some instances. The end goal is simply more control. We are seeing this play-out with the nationalization of banks that are defaulting (FRC, Silicon Valley Bank, Signature, etc.) Everyone who needs a bail out is getting one but it is generally at the expense of increased government oversight and influence.
The big big bulge brackets like BAML, JPM, etc. are going to absorb most business, accounts, and clients. There mandates and actions will be more and more dictated by government influence because that’s who is funding bailouts and reorganization as well as setting regulatory framework to keep operating.
Universal basic income is being discussed, the government is not reducing it’s balance sheet, and other countries are beginning to implement digital currencies. The push for more control and influence over financial systems is inevitably going to lead to less freedom over your money.
When I talk about haves and have nots I am referring to the people who will take advantage of technology and digital opportunity to see large jumps in wealth in the coming years. For me that means a BTC/ETH allocation with exposure to defi protocols as well.
It means exposure to biotech, tech, and defense stocks. It means starting an online business to hedge against job loss or a sustained downturn. It means not maxing out credit cards or spending money you don’t have. It means consistently investing into the sectors that are going to pull ahead in the US despite massive social disruptions, regulatory transformations, and macroeconomic uncertainty.
The same strategies that made our parents wealthy will not work for us, explain why and how investors can adapt to changing times?
Again - I simply don’t think dollar cost averaging into the S&P500 is going to make you a multi millionaire like it did for boomers. Add on top of that the rate and pricing environment for new homes and you’ve impacted a desirable wealth generator for young folks that simply cannot swing the down payment or mortgage due to economic instability.
You have to think outside the box in this day and age to get ahead. To us, the easiest and most tried method is starting and selling a successful business. It’s table stakes.
You mentioned that the window to “make it” in the US is growing slimmer with each passing month. What do you see as the primary drivers of this trend, and what steps can investors take to stay ahead of the curve?
Read about AI, Automation, Digital Assets, Blockchain, Decentralization, and Defi. Understand which companies and actors are going to be instrumental in the development, adoption, and growth of each of these spaces. $1M dollars nowadays isn’t what it used to be due to living costs and inflation — in fact for a family of 4 this is likely the minimum you want to do the things you’d like to in this life. With that in mind, to “make it” you need equity (either through your business or a job that gives it to you). Think bigger — how can I get a piece of transactions or product sales at scale! What problem can I solve effectively to make people’s lives easier or better.
Remember — in this uncertain macro environment there are a lot of games being played and a lot of noise to sift through. This is because the stakes are incredibly high for the actors and players in government, high finance, and business. Elon Musk is considering a lawsuit against Google related to AI tech! Banks are getting bailed out for taking reckless risks during the money printing era!
Gary Gensler is being put in the hot seat about why he’s being such a pain in the ass in re: to ETH and crypto as a whole. China and Russia are trading in Yuan and digital currencies to circumvent Western sanctions!
Apple just released savings accounts yielding 4%!
First Republic Bank is donezo!
You are watching the new paradigms unfold before you. The old guard of traditional legacy financial systems wants the dollar to remain king and want the government to bail them out every-time they place too reckless of a bet. Young people and tech entrepreneurs see the value of decentralization and safehaven digital assets that promote transparency and ultimately free markets.
It’s unclear how all of this is going to shake out but rest assured the next 5 years is going to be a wild ride with many unexpected outcomes that you can benefit from if you do the research and stay up to speed now.
Hope you guys enjoyed our interview with
If you want some excellent macro and financial markets analysis to supplement your current research and media go check him out. For China his analysis is essential to the big picture.
I will see all of you next week for a deep dive on crypto and where we think markets go ahead of the 2023 presidential election.