Terminal Phase Whipsaw - July 31, 2025 David: Good afternoon. This is David McAlvany. Thank you for participating in our second quarter 2025 recap conference call titled "Terminal Phase Whipsaw." As always, thank you to our valued account holders. We so greatly value our client relationships. Today, we will review performance. Doug will go through market commentary. We'll end with Q&A. And most of the questions have been submitted ahead of time. If there's something that you would like for us to comment on, you can certainly send a further question to [email protected]. It's [email protected], or you can schedule a call with myself or Doug and we’d be happy to visit with you offline. With first time listeners on today's call, we'll begin with some general information for those unfamiliar with Tactical Short. And more detailed information is available at mwealthm.com/TacticalShort. The objective of Tactical Short is to provide a professionally managed product that reduces overall risk in a client's total investment portfolio, while also providing downside protection in a global market backdrop with extraordinary uncertainty and extreme risk. The strategy is designed for separately managed accounts. It is investor friendly with full transparency, flexibility, reasonable fees, and no lockups. Shorting entails a unique set of risks. We're set apart by our analytical framework and our uncompromising focus on identifying and managing risk. Our Tactical Short strategy began and ended the quarter with short exposure targeted at 82%, focused on the challenging backdrop for managing short exposure. A short in the S&P 500 ETF, the SPY, remains the default position for high-risk environments. Here's the update on performance. Tactical Short accounts after fees returned a negative 8.56% during Q2. The S&P 500 returned a positive 10.94%. So for the quarter, Tactical Short accounts lost 78% versus the 82% target at 78% of the inverse of the S&P 500's positive return. As for one year performance, Tactical Short after fees returned a negative 10.52% versus the 15.14% return for the S&P-500, the Tactical Short losing 69.5% of the S&P-500's positive return. We regularly track Tactical Short performance versus three actively managed short fund competitors. First, the Grizzly Short Fund, which returned negative 7.12% during Q2. Over the last year, Grizzly returned a negative 9.19%. Ranger Equity Bear Fund returned a negative 5.05% for the quarter with a negative 11.41% as a one -year return. And Federated Prudent Bear Fund returned a negative 10.25% during Q2 and negative 9.21% for one year. Tactical Short underperformed the actively managed bear funds for the quarter on average by 109 basis points. Tactical Short underperformed over the past year by an average of 58 basis points. Tactical Short has significantly outperformed each of the bear funds since inception from April 7th, 2017, its inception, through the end of June. Tactical Short outperformed each of the three competitors by an average of 1,733 basis points or 17.33 percentage points. There are also the passive short index products, the ProShares S&P 500 ETF, which returned a -10.03% for the quarter and a negative 8.88% over the past year. The Rydex Inverse S&P 500 Fund returned a negative 10.13% during Q2 and negative 8.78% for one year. And then there's also the PIMCO StocksPLUS Short Fund with a second quarter return of negative 10.29% and a one-year return of negative 6.97%. Doug, over to you. Doug: Thanks David. Good afternoon. Thank you for being with us today. Before diving into this wacky environment, let's start with performance. It was one of those extremely challenging quarters. Early April market instability appeared serious. The period began with acute market weakness following April 2nd Liberation Day tariff pronouncements. The S&P 500 suffered a two-session 10.5% plunge, the worst sell-off since March 2020. The banks sank 15.8% and the broker dealers lost 13.3% in two days. It was virtual credit market panic. Indicative of a major tightening of conditions, risk premiums spiked. High yield spreads to Treasuries widened the most since March 2020, with high yield CDS prices spiking the most since June 2020. The junk bond market seized up as Bloomberg referred to "One of the darkest weeks for US leveraged loans this decade." At the time I thought it likely that the bubble had been pierced. That an aggressive tariff regime, prospects for destabilizing trade wars, along with other administration policies, were likely a catalyst to end a protracted period of terminal phase excess. For a few tumultuous days, markets feared faith in the Trump put had been misplaced. Responding to intensifying market instability, the President announced a 90-day tariff pause. The S&P 500 posted a stunning 9.5% one-day advance, while the semiconductors spiked 18.7% and the broker dealers jumped 10.3%. The Goldman Sachs Short Index surged 12.5% that day. Fear abruptly returned to greed. The Trump put was real and could be counted on as a predictable complement to the Fed put. TACO—Trump always chickens out—took markets by storm. Bloomberg ran the headline, "Retail Investors Who've Only Known Bull Markets are Buying the Dip." Reporting on the retail dip buying phenomenon, the Financial Times quoted a trading firm executive, "Plops and drops will occur, but the dip buying belief has become a new religion." The past few months have been telling. In the throes of terminal phase excess, it's a thin line between bubble deflation and invigorated bubble inflation. In managing Tactical Short's exposure, I have prioritized beta management in the avoidance of negative surprises. We have neither shorted individual company stocks nor purchased put options. I have anticipated wild volatility and quite challenging quarters. What I clearly did not expect was that this environment and such excess would persist year after year. Q2 performance was disappointing, though it could have been worse. The Goldman Sachs Most Short Index surged 23.3% during the quarter. The semiconductors were up 30%. Indicative of wild speculative excess, the ARK Innovation ETF returned 48%. We out-performed the Prudent Bear Fund by 169 basis points during the quarter. This was despite Tactical Short's disadvantage of not receiving a cash return on proceeds from short sales as the funds do. We outperformed all the passive bear ETF products. Our underperformance during the quarter versus our three closest competitors was essentially the approximate 100 basis points quarterly return they received on their short sale proceeds. As for one-year returns, Tactical Short underperformed by 58 basis points as our competitors benefited from an approximate 400 basis point annual return on short proceeds. In a sign of the times, a search for short-only hedge fund performance came up empty. The strategy had vanished from industry performance tabulations. Here's a data point underscoring the recent challenge on the short side. From the April 9th intraday low to last Thursday's intraday high, the Goldman Sachs Short Index rallied 71%. That which does not destroy a bubble only makes it stronger. Yet another brutal short squeeze. Another example of why we have avoided shorting individual company stocks. Last week, the meme stock phenomenon returned with a vengeance. Krispy Kreme, Opendoor, GoPro, Rocket Mortgage, Kohl's, and a bunch of other stocks with suspect fundamentals enjoyed ridiculous gains. And there's nothing like a big short squeeze to feed speculative impulse, with the major indices running to all-time highs. Renewed meme stock attention elicited interesting analysis. Professor Peter Atwater, who studies retail investors, made an interesting point. He said, "We've normalized memeing. There's a [gap in audio]. The most aggressive traders have already moved on to riskier frontiers, digital tokens, leveraged ETFs, and prediction markets." Additionally, Bloomberg, "Customary warnings about speculative excess fell on deaf ears. What once felt seismic now feels like a normal part of daily trading. Another episode in a US financial system where bursts of retail speculation are routine, expected, and largely unremarkable." We are witnessing important late cycle dynamics. Bubble terminal phase excess is characterized by a wholesale disregard for risk. After all, over a long cycle, it is the aggressive risk-takers in the markets, throughout finance, within corporate America, and all about the economy that have the most to show for their efforts. They have come to confidently dominate positions of power and influence. If you're not a risk-taker, you're a loser. These days, risk aversion has been virtually eradicated. I have delved into this analysis in previous calls. There is nothing comparable to today's terminal phase excess other than the late-1920s bubble blowoff. And it seems rather obvious, at least to me, that today's excess may greatly exceed anything from the fateful Roaring Twenties culmination. When analyzing bubbles, there's always underlying sources of credit fuel to identify. Today, key sources of exorbitant credit expansion are readily apparent. In a defining feature of the current global government finance bubble cycle, US system credit growth is dominated by an ongoing historic expansion of federal debt, perceived money-like credit instruments that essentially enjoy insatiable demand. The federal deficit is expected to again approach 2 trillion this year, or 6.5% of GDP. Importantly, ongoing massive deficit spending supports system incomes, business earnings, asset prices, and economic activity generally. It's also worth noting that state and local bond issuance is on pace to surpass last year's record 500 billion. Corporate debt issuance is on near record pace, with forecasts of 1.4 trillion of investment grade bond sales,